ESG in the charity sector
As environmental and social concerns increase, so do the expectations on organisations to be run ethically. So, what actions should charities be implementing to embed ESG into their organisations?
Consultant, Campbell Tickell
Environmental, social, and governance (ESG) as a concept is gaining traction in the corporate world and increasingly in the not-for-profit sector. Interest in how organisations operate beyond doing the day job, being more mindful of their environmental and social impact on society, is an important factor when people decide where to buy products, where to work or what services they will access. Increasingly there will be pressure, from government, funders, regulators and the public, to prove that an organisation’s good intentions lead to tangible, positive actions.
What is ESG?
ESG is an approach that helps demonstrate that an organisation is values-driven and makes a positive difference over and above the bottom line. Although ESG might not be a particularly familiar concept, many organisations will already be taking actions on some of the key aspects. ESG is split into three areas:
- Environmental which examines how an organisation performs on environmental sustainability. For example, in areas such as waste management and recycling, energy reduction, the equipment you use and sustainable travel.
- Social which looks at an organisation’s relationships, inclusion and composition. This includes around diversity, human rights, consumer protection, animal welfare, employee relations, pay gaps and working conditions.
- Governance examines how an organisation operates at a strategic level including around board diversity and structure, bribery, corruption, donations, overall remuneration and responsible investment.
“Having a strong ESG proposition can help an organisation to attract and retain good employees, enhancing motivation by instilling a sense of purpose and increasing productivity.”
Why is it important?
Stark warnings about the need for immediate action to mitigate climate change have prompted people to take action to lessen their impact on the environment. This has led to many taking conscious decisions to support organisations that have better environmental credentials.
Over the past few years, there has been consumer outrage over the behaviour of some companies. The low levels of tax paid by some giant corporations has led to sections of consumers boycotting their products or services. In addition, the recent actions of P&O gives customers pause for thought when giving their custom to companies that appear to place such a low value on their workforce.
Codes of governance in all sectors place a responsibility on organisations to demonstrate high standards in how they operate. Most now explicitly require actions to progress diversity, sustainability and to improve the culture within organisations.
There is evidence to suggest consumers attach higher value to purpose-led brands. People who observe an organisation that acts responsibly towards its people and the environment are more likely to have trust in that organisation to deliver a good service.
Having a strong ESG proposition can help an organisation to attract and retain good employees, enhancing motivation by instilling a sense of purpose and increasing productivity.
What can charities do?
The first thing is to bring the discussion to the board, to consider if embedding ESG in the organisation will make a positive difference to the charity. In particular whether it will:
- Help the charity to better meet its purposes
- Improve overall governance by incorporating good practice
- Improve trust among those it helps and build wider public confidence
- Help meet regulatory requirements
- Enable access to more sources of funding
Responsibility and reporting
It is important that someone takes overall responsibility for overseeing ESG and for driving the agenda forward. Scattering responsibility into separate areas can lead to a disjointed approach. It might be that an audit committee could have oversight.
Finding effective measures that demonstrate change is key to monitoring performance and reporting more widely. Measures need to be meaningful and linked with clear action plans. Too many companies publish polished strategies that do not reflect reality, or see ESG as a tick-box exercise.
Environmental and social concerns will only increase, as will the expectations on organisations to be run ethically and effectively. Perhaps now is the time to consider what actions your organisation needs to take to embed ESG and to report more widely on your achievements.