Can ESG address long-term sustainability in the charity sector?

Environmental Social Governance (ESG) is a measure of sustainability. It is a framework that looks beyond financial data to consider the impact of a charity on the environment, the important work being carried out to benefit communities and society and the transparent and accountable nature of its governance.

The process of developing an effective ESG strategy for your charity is important to understand where the charity is now and how it can continue to meet its charitable objectives in the future.

Some key advantages to having a clear ESG strategy include:

  • Attracting donations and funding – donors are becoming increasingly conscious of their own impact on the environment and want to ensure that the charities they support are behaving responsibly. Charities that can demonstrate that they are sustainable in the long term and are thinking about their impact on the environment and wider society will potentially attract more funding.
  • Employees and volunteers – employees and volunteers are now much more aware of the importance of working for a sustainable organisation. They are seeking roles where the organisation has a strong commitment to social and environmental responsibility. Having a well-defined ESG strategy can attract and retain top talent. In addition, employees are likely to feel more connected and therefore loyal to a socially responsible organisation.
  • Risk management – investing time in developing an ESG strategy can highlight any risks associated with environmental and social issues, as well as governance challenges. These can then be dealt with early and can protect the charity from negative impacts on its operations and reputation.
  • New opportunities – some organisations now require those they work with to provide their plans to address and meet net zero targets. More and more companies are starting to think about this and may fall into the scope of climate reporting regulations. Being able to provide clear strategic goals in relation to your ESG strategy may mean new opportunities to work with other organisations.

Where to start

  • Understand your charity – go back to basics, begin by re-reading your charitable objectives, mission and vision. Look at your charity’s values, operations and identify your key stakeholders.
  • Stakeholder engagement – engage with your key stakeholders, including donors, volunteers, employees and the local community. Seek to understand their expectations of your charity, any concerns they may have and their priorities when it comes to ESG issues. Input from stakeholders is crucial to develop a strategy that aligns with the values and needs of the community. You could do in-person round table sessions, informal feedback surveys or even just a call with key stakeholders to find out what is important to them.
  • Learn from others - for the charity sector, not all ESG reporting is mandatory. However, charities need to consider both the legal requirements in terms of their reporting and what their stakeholders would want to know in order to determine what they include in
    their annual report. Larger charities are starting to publish their ESG policies and statements on their website and include an ESG section in their annual report. A word of warning, however, that whilst this is a good place to start to generate ideas, remember that an ESG strategy is unique to each individual organisation.

Measure where you are

Once you know what sustainability means to your charity and your stakeholders, you can start to measure where you are in relation to the main areas your organisation should focus on and the roadmap for how to get there by using an ESG framework. There are multiple frameworks available. Find one that works best for your charity. A couple of examples include the UN Sustainability Development Goals and the Charity Governance Code.

Set ESG goals and objectives that are specific, measurable, achievable, realistic and time-bound (‘SMART objectives’). These can form part of your overall short-term and long-term strategy as not all the aims of an ESG strategy will be ‘quick fixes’, they will take time to implement, monitor and achieve. It is important to identify key milestones and check on the progress regularly.

Take responsibility

Create a roadmap which details how you will meet your ESG objectives. Consider who will ‘own’ each ESG project and who will have ultimate responsibility for the ESG strategy in your charity. You may identify tools or services external to your charity, think about the investment that will be needed for this and include it in the overall roadmap.

Once you have developed an ESG strategy, start to report your policies and achievements to your stakeholders so they can see what you have achieved so far and all the work you are doing to ensure your charity is making a positive environmental and social impact. Ensure that you regularly review your progress and the overall strategy to ensure it is still appropriate and update your stakeholders as it evolves.

By investing in ESG now, you can increase the sustainability of your fundraising pipelines, attract and retain key staff and volunteers and demonstrate your charity has the ability to serve its beneficiaries in the long term.

Quick wins

You can read this article in full, including tips on some quick wins to think about when developing your ESG strategy, on page 6 of our latest Charity & NFP Outlook, available to download using the button below. 

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