ESG is irrelevant to small not-for-profits - right?
Julian Lomas
A lot is said, and done, in the corporate world about ESG (Environmental, Social and Governance). Large companies are required to report on the ESG performance annually and many others are getting on board for a host of reasons. So what has this got to do with small and medium sized charities and social enterprises?
Surely, with the values that underpin the sector, charities and non-profits will be ahead of the corporate world in this area. You’d hope so but we wonder whether that is really the case. We think charities of all sizes can benefit from adopting some of the principles of ESG in their work.
What is ESG?
ESG is a framework for organisations to assess their sustainability and ethical impact.
E - Environmental - is about impact on the environment (e.g. carbon emissions, resource consumption, waste management, pollution, climate change etc.).
S - Social - is impact on society (e.g. human resource practices, human rights, community involvement, diversity, customer satisfaction, etc.)
G - Governance - is about an organisation’s management and decision-making processes. In the charity world this is encapsulated in the principles of Charity Governance Code: clarity of purpose; leadership; integrity; decision making, risk and control; board effectiveness; equity, diversity and inclusion; and openness and accountability).
Why should small non-profits pay attention to ESG?
Of course small organisations of any kind, non-profit or otherwise, shouldn’t be investing substantial time and effort in the formalities of ESG and associated reporting in the same way as large businesses. That would not be a sensible use of precious resources. But the framework that ESG offers can be helpful in stimulating strategic thinking and improving the way things are done in a charity or social enterprise to maximise benefit to the people and communities they serve.
For example, apart from non-profits with environmental purposes, our experience is that most charities and social enterprises give little thought to these issues. As z realist many have a disproportionate impact on the environment and are not efficient in their use of resources. It’s not just about the moral imperatives of tackling climate change and reducing environmental harm (important though that is). Time spent addressing these issues frequently drives innovation in service delivery leading to greater impact for beneficiaries and more efficient use of resources. Umbrella/infrastructure organisations in particular, can also make substantial positive impacts in this area through their support for networks and members.
Equally, many non-profits can be complacent about their social impact, falling into the trap of thinking that, because they are pursuing a social purpose, they don’t need to think beyond direct service delivery. But that would be to ignore critical aspects of their social responsibilities, for example through their investment in and support of staff and responsibilities for addressing equity, diversity and inclusion. Again, while there are strong moral and legal imperative in these areas, careful thought given to how things can be done differently frequently drives innovation in service delivery and more efficient use of resources.
Governance is, of course, critical to effective non-profits, as we have written about many times in our blogs both from a compliance/regulatory perspective and to ensure efficient and effective service delivery.
Other key benefits of considering ESG more widely in the sector include:
Enhanced reputation and a competitive advantage for funding (funders care a lot about these issues, particularly equity, diversity and inclusion).
Improved recruitment and retention of good staff and volunteers, because they want to work for an organisation that cares about them and the world at large.
Increased alignment with the corporate sector could help secure more corporate partnerships and support for your cause.
These are just a few of the many reasons why we think the sector should, in a proportionate way, embrace ESG as a tool for innovation and improvement.
If you would like to find out more about the governance support and training we offer, please contact us at julian@almondtreeconsulting.co.uk to arrange free initial telephone discussion.