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Do charities need to think about ESG?

Blog by By BoardClic.

A narrated version of this blog is available at the bottom of the page

Any modern operation, charities included, must mirror its stakeholder values

In recent years Environmental, Social and Governance (ESG) strategies and practices have become an important factor in evaluating the merits and credentials of commercial businesses. To the point where ESG evaluations now have a huge bearing on a company’s ability to attract the investment and consumer acceptance it needs to survive and grow. 

To be successful in this new world, an organisation must figure out which issues are important to its stakeholders and actively take steps to improve its performance in these areas and make its achievements publicly known. 

Are non-profits subject to the same ESG scrutiny as businesses? 

But what about the non-profit sector? Surely as its very purpose is to do good without any profit motive it doesn’t need to go to any special lengths to consider or evidence its ESG credentials? Do the signs above the door saying ‘we feed children’ or ‘we fund lifesaving medical research’ not automatically prove charities’ worthiness to the outside world, stakeholders included?

Increasingly the answer is no. Just because a non-profit has an unimpeachable goal as its purpose, does not mean it will be trusted with other people’s money, or responsibility for lifting up the most vulnerable in society. There have been a number of scandals in recent years that have brought this issue front and centre. Perhaps the pivotal moment which saw charities move from beneficiaries of corporate social responsibility (CSR) initiatives to becoming subjected to the same rigorous standards might be, at least in the UK, the Oxfam scandal of 2010. 

Focus on the G in ESG

In any case, gone are the days when the non-profit sector had a free pass, by virtue of its good work, from having to demonstrate impeccable ESG credentials. And, due to the sector’s reliance on public, governmental and corporate funding sources, all of whom must justify [to their stakeholders] the ethical credentials of charitable recipients, a case can be made that ESG is even more important for charities than their corporate cousins.

Not only are corporations held accountable for their own actions, but their stakeholders are also concerned that any third parties who receive support are also aligned to their beliefs and that the recipients are using the money efficiently and genuinely for the benefit of the particular cause.

It is no longer enough for a modern non-profit to shake its donation tin in front of corporations, not to mention governmental funding agencies and the ever-giving public, and expect the money to flow. In the contemporary climate charities must have their Environmental, Social – and crucially  – Governance, aligned and ready for the scrutinous eye of stakeholders and donors alike. To somehow feel immune from this requirement would paradoxically seem to be an extreme failure of governance in itself.

How governance can be measured

BoardClic provides tangible actions and solutions to help future-proof governance in all organisations irrespective of size, industry or ownership structure, and supplies a modern and cost-effective way of running top-level evaluations. We also provide unrivalled benchmarking on performance and transparency to align board and management teams. By doing so, governance can be monitored and measured, enabling organisations to substantially reduce their operational and financial risk, increase stakeholder value, and ultimately, achieve enhanced ESG compatibility. 

Narrated by a member of the ACEVO staff

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