A “jewel” in national life – that is how MSP Angus Robertson described arts festivals last week, as he promised them additional funding. It was a faintly ironic moment, coming two months after Robertson said that public money could not replace corporate sponsorship, when partnerships between investment management company Baillie Gifford and nine literary festivals came to an end.

The Baillie Gifford sponsorships – which helped fund the Hay festival, Edinburgh international book festival and Cheltenham literature festival among others – ended after a campaign by Fossil Free Books (FFB) calling for the asset manager to divest from fossil-fuel companies and firms linked to Israel.

Now, festivals are in the process of piecing together alternative funding solutions. In July, the nine festivals previously sponsored by Baillie Gifford put out a joint statement seeking support and asking for donations. Cheltenham has said it will cut costs “where it proves necessary”; Stratford will “make certain changes” to the festival’s management; Cambridge has increased ticket prices.

But “there doesn’t seem to be a magic fairy”, says Fiona Razvi, director of Wimbledon BookFest. Until June, Baillie Gifford was Wimbledon’s second-biggest sponsor. From Razvi’s perspective, the “ideal” solution would be another corporate company stepping in to replace Baillie Gifford. But a replacement is unlikely to come overnight: Baillie Gifford was “very unusual” in having a “broad portfolio of festivals that they sponsored across the country”, said Annie Ashworth, the director of Stratford literary festival, which Baillie Gifford sponsored for more than a decade.

And Razvi worries that the criticism the company faced over the investments it manages “does not send a good signal to the corporate sponsorship world” regarding the “repercussions that they might have if they’re associated with the arts or book festivals.”

If sponsors are not viewed as ethical, there is a risk that authors will boycott events, as a number of FFB supporters did at this year’s Hay festival before the sponsorship deal was terminated. Clearly, there are no literary festivals without authors willing to speak at them, so festivals are now facing a “dual challenge”, says Culture Unstained, a campaign group that calls on cultural organisations to cut ties to fossil fuels. Not only must they find funding in a difficult economic landscape, but they must also do so during a change in the sector’s “approach to ethical sponsorship”.

“What does ‘ethical’ mean now? I think that is the interesting question,” says Syima Aslam, founder of the Bradford literature festival, which has had Baillie Gifford sponsorship in the past, but did not have it this year. “The goalposts are shifting,” she adds, pointing out that Baillie Gifford sponsored festivals for many years before authors started criticising them. It wasn’t until after August 2023, when climate activist Greta Thunberg pulled out of her scheduled appearance at the Baillie Gifford-sponsored Edinburgh international book festival, that FFB was set up.

“What’s happened here is that something that would have been considered really good is now not. And how will that change again?” Aslam asks. “Will the parameters shift?”

Four of FFB’s organisers told the Guardian in an interview earlier this year that the result of their campaign – Baillie Gifford ending its sponsorships with festivals – was not what they had hoped for. The aim of their campaign was for Baillie Gifford to stop managing investments linked to fossil fuels and Israel. Even so, one FFB organiser, Guy Gunaratne, said they thought the end of Baillie Gifford’s sponsorship could mark a “transformational moment” for book festival funding. Another organiser, Jessica Gaitán Johannesson, said the group wanted to “continue having conversations with festivals, and be part of the transition to a more sustainable model.”

Since then, FFB has praised festivals that are sponsored by local businesses, such as Edinburgh’s book fringe, which is run by three independent bookshops. But though local sponsorships are certainly a good thing for festivals, they have become harder to secure, festival organisers say.

Having lost Baillie Gifford’s funding, which made up approximately 50% of its sponsorship revenue, Stratford festival is currently looking to more local sponsors for support. Ashworth anticipates this will mean securing “several sponsors for smaller amounts of money”, with the chance of getting a long-term commitment, as the festival had from Baillie Gifford, being “very unlikely”.

FFB suggests that greater support from publishing houses could be another way forward, and has begun contacting publishers already, with some success: last month, Bloomsbury donated £100,000 to the festivals previously sponsored by Baillie Gifford after an FFB organiser wrote to a member of senior management.

But one-off donations will not secure the future of many of these festivals. “Publishers should include in their budgets space for funding to make reading and festivals accessible,” says Sofia Akel, founder of the Free Books festival, a completely free literary festival in London that relies on a combination of donations and sponsorships.

Razvi agrees there is a “significant” conversation to be had with publishers about the value festivals bring “in helping building their authors, in helping selling their books”, and whether there is anything more that they can do.

Then, of course, there is the possibility of government funding. A slice of the additional £100m the Scottish government has promised to spend annually on the arts by 2028/29 will go to Scottish festivals, but it is yet to be announced how much that will be, and no extra funding has been promised for the rest of the UK. At present, arts funding is “woefully inadequate”, says Cathy Moore, CEO of Cambridge literary festival. “We remain cautiously hopeful that with a new government we become a country where art and culture are more highly valued as a vital part of personal and community enrichment and funded appropriately.”

Though Razvi feels that FFB’s campaign “hasn’t really achieved an outcome that will be positive for the sector, and positive for giving a voice to these issues”, FFB is pleased to have shown that investors in literary festivals “can’t get away with profiting from finance that’s killing people and planet.” The group expects that literary festivals “will scrutinise their funders more now”.

“Alternatives do exist,” says Culture Unstained. Sponsors with a “genuine commitment to the arts” will respond to new ethical standards, it believes.

“There are collective things that festivals can think about, but actually, each festival has its own trajectory, and how people will navigate moving forward from here will very much depend on that historical pathway and the parameters in which they are now operating,” Aslam says. “So it’s going to be an interesting couple of years as we work these challenges out.”

Additional reporting by Michaela Makusha