Why transparency on ESG matters for charities
Donors, volunteers, and partners support charities because of their missions. They want to help charities and nonprofits achieve their goals, whether those goals are creating a community feeding program, raising money for scholarships, or cleaning up a local waterway.
A growing number of people are deciding where to put their time, money and energy based not only on the goals of a charity, but also its commitment to environmental sustainability, leadership, employee diversity and other social responsibility issues. They want to know details about these efforts, even if they don’t seem tied to the nonprofit’s stated mission.
Prompted by investors, consumers, and in some cases regulators, many organisations have created a set of ESG (environmental, social and governance) standards and goals. They measure and publicly report their progress on these goals.
Charity leaders understand the critical importance of providing detailed information about how they meet the goals of their mission. However, they don’t necessarily have the experience or technical skills to track and report the ways their organisation is setting and working toward ESG goals and commitments.
Also, leaders may not yet see the importance of ESG reporting. They see their mission reporting as the primary way they communicate their worth and effectiveness to the public. However, as noted in a Forbes article, “increasingly, donors are paying more attention to how nonprofits conduct their work rather than simply what they do in communities.”
The Opportunity for Charities
ESG reporting offers an opportunity for charities and nonprofits to show that their organisations are committed to their mission and to the overall betterment of society. Setting ESG standards for operations is a natural fit for charities in light of their missions.
Reporting to donors, volunteers and vendors is also a way to improve your reputation and earn trust. Doing so will improve the working conditions at your organisation, paving the way for better job satisfaction among current employees and attracting future employees.
The board and leadership can set the tone for the organisation by requiring ESG data to be collected and distributed. They can take a hard look at what they are doing well and what needs to be improved. Honesty and transparency go a long way in building trust.
“The charity sector should be proud of the efforts they have made to date reporting on ESG, however we shouldn’t be complacent. ESG is evolving rapidly so it’s vital to stay up to date and abreast of any new regulations,” says Nick Sladden, head of charities at RSM.
Environmental, social and governance initiatives, widely known as ESG, has immense implications for charities, not-for-profit and public sector organisations as well. Our guide “Understanding ESG for Not-for-profit and Public Sector Organisations” is your go-to source for understanding ESG.
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Manage Risk through Reporting
An employee makes a claim of discrimination based on their sexual orientation. An organisation with a social justice mission only has white men in leadership positions. It’s revealed that an environmental organisation doesn’t track the carbon footprint and impact of employee travel.
Reporting of ESG initiatives and results can also be seen as risk management for a charity. Your mission and your reputation are everything;. Losing the trust of your donors, partners, and employees takes a long time to repair.
When these incidents happen, donors, volunteers, and corporate partners take note. If you know where your strengths lie and where you need to do more work, you can better control the narrative when you do report ESG metrics.
Reporting your ESG efforts and accomplishments builds trust and reputation, putting your organisation in a better position to fulfill its mission. If you fall short, let people know what you’re doing to bolster or improve in those areas.
ESG Scrutiny Both Ways
You may even have policies that require your organisation to look at the ESG records of companies before you do business with them.
Evaluating vendors, partners, and/or funders for their alignment to ESG policies and actions and finding out about the ESG practices of funders helps prevent organisations from taking donations from questionable sources.
The scrutiny goes both ways, with potential funders seeking ESG information from organisations when considering where to spend their money. Responsibility and accountability regarding ESG metrics is growing and will continue to expand.
Benefits of Transparency on ESG for Charities
The board plays a leadership role promoting ESG principles. You can show that your organisation leads by example. Your transparency allows your current and future employees and volunteers understand that you and your organisation are focused on things that matter to them, including diversity, equity, and sustainability. Keeping track of your progress through ESG reporting helps potential donors and supporters figure out where to put their efforts and attention.
Your commitment to ESG standards and to transparency in reporting results could bring other benefits as well.
You will attract new board members who want to be part of an organisation that makes social responsibility a priority. By encouraging diversity on your board and your leadership, your organisation will benefit from fresh ideas and new energy.
Like-minded donors, volunteers, and employees are more likely to support organisations with ESG goals and results. Likewise, it will be easier to gain the support of corporate funders when they see the organisation is fulfilling its mission in a socially responsible and sustainable way.
Your ESG standards results reporting could make you more competitive when seeking grant funding from other nonprofits, foundations, and government agencies.
As regulations around diversity and sustainability for charities and not-for-profits increase, your organisation will have a head start on compliance. You will have an advantage over competitors in your space that should have paid more attention to the ESG reporting trends.
The advantages of ESG tracking and reporting are clearer when you consider the generations who will make up most of your employees, donors, and clients. According to Marsh McLennan, “By 2029, the Millennial and Gen Z generations will make up 72 percent of the world’s workforce, compared to 52 percent in 2019.”
These generations are at the heart of the push for ESG reporting and ethical business practices and expect their employers and social organisations to prioritise these issues. Recruiting new employees and talent, as well as new partners, volunteers, and donors, could depend on your ability to track and report ESG efforts.
Where to Start or Continue
You may have metrics in place for ESG elements already but haven’t yet disaggregated them as ESG measures. Individual board committees may oversee certain aspects of ESG, such as an audit committee that manages risk.
According to Jennifer Hawkins, corporate secretary and chief of staff at the American Red Cross, if nonprofits want “a more robust ESG framework for tracking a wide range of metrics,” they will want to emphasise and centralise these metrics and results. Hawkins recommends that annual reports include a section on ESG goals and results.
Other recommendations for reporting and transparency include developing a dashboard or other tool on the public-facing section of your website and sending regular information and updates in newsletters or other communications. Your communications and marketing teams can use the data for social media and marketing efforts, and foundation staff can include the information in grant applications and donation requests.
The advantages of ESG reporting and transparency are clear. However, not all charities are in the same place regarding experience and capacity. Hiring staff members such as a chief equity or social responsibility officer may not be practical or sustainable for many organisations.
Technology tools can help. It’s essential that the board lead by example in ESG matters, and that could include training for members who are not up to speed on the importance of ESG. Many board members are volunteers who have other jobs and responsibilities. They believe in the importance of ESG but may not know where to start.
Through solutions like BoardEffect, boards can evaluate and assess ESG metrics and capabilities through questionnaires and surveys. They can use this information to create individual training for board members, and in groups with a facilitator, if necessary. The conversations and questions that surface during training can be securely stored and easily referenced later as issues arise.
Training is a measure of ESG commitment and should be an element of organisational reporting.
Technology Can Help With ESG Transparency
Technology tools make it easy for your staff to track and compile data and information to report to board members. It allows your organisation to showcase your accomplishments and identify where efforts need to increase. Partners, donors, clients, and others can easily see where your board and organisation stand.
People want to know that organisations share their values before they meaningfully engage. Measuring and reporting on effort and progress toward ESG principles demonstrate your values and how they compare to other organisations in your space. It sends a strong message about who and what you are.
If you would like to learn more about how BoardEffect can support your board to manage ESG and governance, we’d love to speak with you! Request a demo and let us share how we help more than 14,000 boards in 48 countries.
BoardEffect, a Diligent solution, leads in providing innovative boardroom technology to nonprofit organisations. Serving mission-driven organisations, we empower boards with tools to drive positive change. Our secure board management software streamlines operations, enhances governance practices, and enables confident decision-making. With BoardEffect, mission-driven organisations unlock potential, accelerate mission delivery, and make lasting impact in their communities.
