Charities must do more to prepare for a no-deal Brexit and £1.3bn of donations could be at risk from fluctuations in the value of the pound, according to the finance firm Western Union.
Western Union told Third Sector that, although some charities were "hedging" to manage their currency risks in the face of a possible no-deal Brexit, many charities were not doing so.
Volatility in the pound has increased recently, in particular with the next Prime Minister likely to be more receptive to a no-deal Brexit. Western Union estimates that £1 in every £8 donated in the UK could be affected because it is spent on projects and programmes abroad.
A crash in the value of the pound could mean that it becomes significantly more expensive to buy goods and services in foreign countries.
Alex Lawson, head of hedging at Western Union, said that many charities had not woken up to the potential impact of a no-deal Brexit, and were instead holding off from action until they knew what was happening.
"The idea of hedging is that we don’t know what is going to happen and you want to protect yourself against an outcome that is negative for the pound, assuming you have pound donations and are sending them overseas," Lawson told Third Sector.
"Once it becomes clear what is going to happen, the markets will have reacted, the pound will already have fallen and it is too late."
He said that the currency had become more volatile of late and was likely to be so into the future, with a no-deal Brexit likely to reduce the value of the pound from $1.26 to $1.15 or $1.10.
"Historically, there has not been a large degree of volatility, so hedging has been less important," Lawson said.
"But since the referendum in 2016, there has been a 20 per cent fall in the value of the pound, then a 20 per cent rise, and since then we have fallen another 10 to 15 per cent.
"These are significant swings, which will really affect the NGO sector’s ability to do the good work it needs to do."
Lawson said that the most likely outcomes of Brexit were now either a no-deal Brexit or a reversal of the decision to leave the EU, either as a result of a referendum or through parliament.
Given the EU’s reluctance to renegotiate the deal agreed with Theresa May, and the positions on Brexit of many of the front runners in the Conservative Party’s leadership contest, a general election could also be called or forced before the UK is due to leave the EU on 31 October, he said.
Lawson said that charities should therefore urgently plan for the worst-case scenario.
"You should never do nothing," he said. "You should always be thinking about doing something, even if it is just protecting a small amount of your risk or at least formulating a plan."