Charities That Deserve Your Dollars

For your money to make a difference, you need to do your homework.

When Andrew Medvedev makes a donation, he wants to know exactly how much environmental good his dollar will deliver. Medvedev, a 29-year-old investment banker, looks at an organization's goals and finances to figure out which of the more than 450 green charities in the U.S. are worthy of his bucks. "If we don't have the planet, everything else is irrelevant," says the Hoboken, N.J., man, who gives 2% of his annual income to the Animal Welfare Institute, the Conservation Fund and the World Wildlife Foundation.

Although it may seem hard-hearted to turn a gimlet eye on charity work, that's what savvy donors do. Just look at Warren Buffett. He pledged $31 billion in stock to the Bill & Melinda Gates Foundation last year. He picked the foundation because it "can do a better job of dispersing wealth" than he could, even as one of the world's great investors.

Maybe you should follow the Sage of Omaha's example, especially if you want to give to green charities -- defined as groups that work to preserve the environment through advocacy, conservation and research. The number of such charities has swelled as climate change emerges as a hot political issue. "Three years ago, we didn't see any charities with a dedicated mission to ease global warming," says Trent Stamp, president of Charity Navigator, which rates nonprofit groups. "Now there are more than 30."

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Show me the results. That's what Medvedev tells a green charity to separate the good ones from the bad. The largest green organizations should have such information at their fingertips. Smaller groups may not be as polished, but well-run organizations should at least give you some concrete examples of how they make a difference.

Positive results can be tough to pin down. "With environmental charities, outcomes are hard to quantify," says Stamp. Look for organizations that clearly outline their objectives. If you give to a charity dedicated to cleaning up a creek near you, ask how it measures success.

For example, the group Oceana aims to protect the world's oceans from pollution and overfishing. When it launches a project, it sets a specific goal that it thinks can be accomplished in five years or less.

Forget about groups that focus on raising awareness. Instead, look for "charities that are actually doing something, as opposed to telling people the problem exists," says Stamp.

Efficiency matters. Although green charities would like you to focus on their good works, you should mind the dollars and cents. Medvedev looks at how well an organization uses its gifts to tell him whether it's lean and scrappy or bloated and bureaucratic.

Much of what you need to gauge a charity's effectiveness is yours for the asking. Most charities detail their finances with the Internal Revenue Service on a Form 990 and will provide the form or an annual report to prospective donors as well.

Benchmark a charity's finances against those of similar organizations. That's the most helpful measure because such a comparison accounts for a charity's size and mission. Note that local charities may have more overhead costs than do national organizations. "The Sierra Club is going to find ways to be much more efficient than the group in your small town because of the economies of scale," says Stamp.

Look for financial weaknesses. Overhead costs are a great place to start. Regardless of the charity, a group should not spend more than 25% of its budget on administrative or fund-raising expenses. The Conservation Fund spends 4% of its money on overhead. That figure is the lowest among national groups that aim to conserve land and waterways. The Environmental and Energy Study Institute, which educates policymakers about renewable energy, uses 20% of its budget to cover administrative and fund-raising costs. That figure seems high, but the group has lower overhead costs than other think tanks dedicated to energy policy.

Factor in executive compensation when you vet a charity -- especially a green charity. The average chief executive of a large charity earns $145,270, according to Charity Navigator's 2007 compensation survey. The average CEO salary for an environmental nonprofit is $106,720 because those groups tend to have smaller budgets than the average charity.

Learn whether an organization increases the amount it raises and spends on programs each year. "If a charity has good programs, it should be expanding them from year to year, not just socking money in the bank," says Stamp. The Union of Concerned Scientists is a good example of what to look for in a charity's finances. The group, which promotes scientific solutions to environmental problems, boosted revenues by 13% last year and increased money spent on programs by 14%.

Web effect. The Web gives donors an edge. You don't have to be an investment banker like Medvedev to find an environmental charity that will use your money wisely. Charity Navigator (opens in new tab) rates more than 5,300 nonprofits on financial efficiency. Its four-star ratings system is clear, and the reports are free. The Conservation Fund, the Environmental and Energy Study Institute, Oceana and the Union of Concerned Scientists all earned four-star ratings for financial efficiency, Charity Navigator's top grade.

Contributing Editor, Kiplinger's Personal Finance