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Published by: Wealth-X
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The New Rules of Due Diligence in Donor Prospect Research

Published by: Wealth-X
Published on:
Economic, societal, and global changes have created more potential risk for these institutions when accepting a large donation or a major gift.

Due diligence in prospect research and fundraising is evolving among nonprofits and institutions of higher learning. Economic, societal, and global changes have created more potential risk for these institutions when accepting a large donation or a major gift. Growing demands for awareness around environmental, social, & governance (ESG) risks and corporate social responsibility (CSR) initiatives have made their donor screening requirements a more rigorous process.

Now, researchers at these institutions are reinvesting their efforts in due diligence. But they also are aiming for greater efficiency in their research and discovery processes—especially in the early stages of their evaluations, or when looking back at existing relationships

In this article, we identify new best practices for due diligence among donor prospect researchers. We define successful due diligence in the context of modern disruptions, risks, and expectations as well.

Insights in this article are based on a recent discussion between Tom Hill, Head of Enhanced Due Diligence at Wealth-X, and David Garcia, Director of Business Development at Altrata. You can access Wealth-X’s Best Practices Guide for due diligence and risk mitigation in donor prospect research for additional insights.

What does successful due diligence mean today?

Any institution that accepts large donations or major gifts must modernize and streamline due diligence. They now must capture critical insights that are often overlooked or traditionally out of scope. That means “taking an ongoing look at new prospects,” says Garcia; “but also, everyone with whom they already have a strong relationship.”

Researchers may commission an external due diligence partner to help deliver on these new requirements. But aligning new partnerships with internal and emerging criteria requires a personalized approach.

“Having a dedicated client success representative helps with this process,” says Hill. “The rep can advise and recommend reports based on specific scenarios.” More in-depth analysis is critical as drivers like COVID-19, the war in Ukraine, and widening the scope of more traditional due diligence research to cover both ESG risks and CSR initiatives continue.

Considering the impact of COVID-19

At first, diligence requests subsided as institutions that accept large donations and major gifts navigated the uncertainty of the COVID-19 pandemic. Now, during recovery, institutions are focusing on both reviving major giving campaigns and improving processes. Wealth-X has witnessed this shift in an increase in diligence requests among clients.

“We saw a rise in requests related to COVID-19 relief efforts, particularly among nonprofits,” says Hill. “Nonprofits operating in this space wanted to be sure that they were conducting their donor diligence before accepting major gifts,” despite the urgency of donations during recovery.

Additionally, “COVID-19 moved the needle to more sophistication, especially in the early stages of the process,” says Garcia. Fortunately, efficiency and sophistication needn’t be mutually exclusive with the right resources.

Russian sanctions and the war in Ukraine

Following Russia’s invasion of Ukraine, many institutions that accept large donations and major gifts have heightened concerns about corruption, questionable relationships, ties to the Kremlin, and known supporters of the war.

“Individuals who were not on sanctions lists when nonprofits first did their due diligence might be on sanctions lists today. Researchers are keen to understand how that might have changed so they can take steps to remediate quickly.”

Tom Hill, Altrata

The war in Ukraine has had a more direct effect on some of these efforts. “The Russia-Ukraine crisis affects nonprofits who are already helping Ukrainians and who lack the time for more rigorous due diligence,” says Garcia. “They’re very concerned about someone slipping through.”

How do ESG and Corporate Social Responsibility Findings Impact Diligence Research

Risk profiles traditionally focus on relevant significant litigation, adverse media, and questionable relationships among prospects. Now, ESG and CSR concerns are increasingly a part of that mix. For example, Wealth-X clients have prioritized ESG risks alongside traditional financial crime elements, such as money laundering.

“We’ve seen some nonprofits with very specific and clear concerns about ESG risks,” says Hill. “We’re now seeing ESG issues sit alongside more traditional regulatory risk factors.” Indeed, ESG risks have become an integral part of Wealth-X’s own Corporate Due Diligence (CDD) reports. “We classify direct involvement in any of these as red flags.”

This focus also puts those who are proactive about responsibility into a stronger, more positive light. “We’re trying to identify positive corporate social responsibility (CSR) initiatives with which subject entities are involved as well,” says Hill. “We’re reporting on the positive work that goes on alongside any risks, providing a balanced view for our clients.”

Contentious or “taboo” industries 

“‘Taboo industries’ is an informal term a lot of our clients use these days,” says Hill. “In our CDD reports, we refer to them as ‘contentious industries.’”

Contentious industries include firearms, tobacco, and alcohol manufacturers, companies operating in the extraction industry, as well as gambling and adult media organizations. A growing focus on responsibility warrants a closer focus on potential risks in these industries—especially around social impact and human exploitation.

But legitimate organizations in these industries are only at issue if they conflict with the missions of a recipient institution. More often, institutions simply wish to supplement their own processes “when something is a mystery or there are indicators there could be a red flag,” says Garcia. “Often they just want to take a deeper dive, so they have the information they need to make an informed decision.”

Due Diligence with Wealth-X

Wealth-X’s global research team helps institutions that accept large donations and major gifts close gaps in their due diligence efforts. Our comprehensive analyses empower these institutions to make accurate, reliable decisions amidst these emerging risks.

“They rely on us to help safeguard their reputations,” says Hill. “They use us as a trusted advisor to report on a variety of issues, allowing them to make better-informed decisions about their relationships.”

But our clients’ autonomy to make their own decisions remains critical. “One of the great things we provide is a supplement to their own process,” says Garcia. “Our team turns over every rock and customizes reports to align with those processes directly.”

Wealth-X’s new ‘Quick Check’ capability

The team at Wealth-X continues to add to its diligence offerings as institutions’ needs evolve. For example, Wealth-X’s new Diligence Check enables them to take a “first pass” at data before requesting full Enhanced Due Diligence reports.

Diligence Checks focus on direct risk in relation to PEP, sanctions, and adverse media. “Bypassing the Google search and getting that quick turnaround provides real peace of mind,” says Garcia.

Meeting all of today’s due diligence needs

Successful modern due diligence means more than a standard dossier request. Researchers at these institutions need deeper evaluations, visibility into data sources, and the ability to surface the otherwise unseen. They need a secure portal through which they can access that information, no matter how they choose to connect.

“Researchers need to feel comfortable passing results on to their leadership without having to make a lot of adjustments,” says Garcia. Trusted advisors are essential to realizing these results. “That quality and assuredness is only possible with real partnerships.”

Learn more about Wealth-X Diligence

Wealth-X Diligence is our due diligence solution for nonprofit, higher-education, and other institutional donor prospect researchers. Institutions use our deep intelligence to supplement their internal efforts.

In addition to our flagship Enhanced Due Diligence (EDD) reports, clients enjoy direct and indirect risk assessments based on both the subject individual and the subject’s wider network of associated entities, associates, and immediate family members Clients can access net-worth valuation models, source-of-wealth data, and Corporate Due Diligence (CDD) reports featuring ESG and CSR data as well.

Before you begin, access Wealth-X’s Best Practices Guide for clear steps as to how you can improve your own due diligence process. Then, contact us directly or visit Wealth-X Diligence online to connect with your own dedicated success representative.