Revamped Charity Navigator scoring will push for more transparency

Charity Navigator, the largest independent charity evaluator in the United States, will next month unveil a revamp of its rating systems as part of a long-standing effort to push more potential donors to give to nonprofits. 

Starting in November, it will merge the star rating system that it launched in 2001 with its newer and more detailed system called Encompass. The star system gives nonprofits a 0-4 rating based on their finances and governance practices. The Encompass system provides an assessment of public charities based on four criteria which it calls beacons: impact and results, finance and accountability, leadership and adaptability, and culture and community.

Charity Navigator rates nearly 200,000 U.S.-based nonprofits, including large public foundations such as the Clinton Foundation and the Parkinson’s Foundation, among others.

“Reporting to us is like a health metric,” Charity Navigator President and CEO Michael Thatcher told Devex in an interview. “Giving information to your doctor will help you actually take care of yourself and do more of what you want to be doing.”

Currently, about 9,000 charities are star-rated and 181,000 are Encompass-rated, he said. All of the organizations assessed are classified as 501(c)(3), a designation for public, tax-exempt charities under U.S. law.

Charity Navigator said it began developing the Encompass system in 2020 to give ratings to nonprofits that did not meet the star system criteria. As a result, more than 150,000 nonprofits received their first-ever Charity Navigator ratings in July 2020.

Merging the rating systems will make it easier for donors to find, compare, and decide which nonprofits they would like to support, the organization has said. It has been a two-year project. The goal is to provide potential funders a deeper understanding of organizations to which they might make donations, Thatcher told Devex. Under the unified system, every organization will receive a star score and be assessed using the Encompass criteria “to the extent that we have data,” he said.

If an organization hasn’t provided Charity Navigator with leadership and adaptability data, for example, it won’t lose any star points. But the goal is to push nonprofits to be more forthcoming and transparent about that information by showing them how much other organizations are willing to share with the public, Thatcher said. It makes organizations look better to funders if they are sharing the same information as their peers, according to Thatcher.

“It’s peer pressure,” he said.

Additional changes to Charity Navigator’s rating system are expected next year to provide funders “the most trusted and comprehensive rating system available,” the organization said in a statement in May, when it first announced the merger of its systems. The idea is to help people find “effective interventions” that will allow their dollars to have the most impact, Thatcher said.

It is part of Charity Navigator’s ongoing effort to shift toward providing more than just an assessment of organizations’ financial health and accountability, he said. Charity Navigator began including evaluations of nonprofits’ impact on beneficiaries in its ratings in 2020 after acquiring ImpactMatters, which rated nonprofits based on how they measurably affected target areas and communities.

“A lot of what we’re trying to do is remove the, what I would call the false excuse to say ‘I’m not going to give because they’re not going to spend my money well,’” Thatcher said, noting the widespread perceptions of the nonprofit sector as being “inefficient,” or “just out to take your money.” Recent data has shown public trust in nonprofits is declining in the U.S.

However, while Charity Navigator wants to provide a great depth of information about organizations’ impact, among other areas, it distinguishes itself from the effective altruism movement and its focus on ensuring that donation dollars can be stretched as far as possible, Thatcher noted.

Charity Navigator is not trying to provide the same level of data as GiveWell, a charity rater that is popular with effective altruists, he said. GiveWell ranks nonprofits in accordance with how their spending compares to giving cash directly.

Charity Navigator recommends many of the same organizations but is not doing the same level of “due diligence” as GiveWell, which is known for its highly complicated evidence-based approach to rating nonprofits, Thatcher said.

In the end, the goal is to help nonprofits catch the attention and gain the trust of donors by providing more information and removing question marks they might have about an organization’s operations and impact, he said.