ESG & the Third Sector: embracing challenges and opportunities

ESG is heading down the track

Open the papers, watch the news, read the regulations – there is no escaping ESG* in 2023! Something our clients and contacts in the third sector are coming to terms with. ESG is heading down the track and it’s not slowing down.

On the surface, charities and non-profits are best positioned to integrate ESG into their organisations. By their very nature they address the Social (and often the Environmental too), existing to make a positive public impact. But behind the scenes, we see the traditional corporate challenges of diversity and inclusion, governance and carbon footprints. These are often trickier to address with smaller teams and restricted funding. While charities aren’t yet seeing the same level of regulation as the public and private sectors, the benefits they can unlock from engaging early can be huge, from increasing public trust to their appeal to corporates for strategic partnerships.

This June, we hosted a private roundtable for charity professionals who are grappling with ESG. We looked at everything from how they embrace the material issues without detracting from their headline cause, to how they resource and fund the activity. While not far removed from the challenges corporates and professional services are facing, charities and non-profits are finding specific nuances when it comes to both strategy and communications in this space. Let’s uncover some of the key challenges and opportunities…

Top of the challenges:

1. The right start for you – prioritisation and relevance The top challenge from many is simply: where do we start? Without clear guidance from any governing bodies (for the moment), it can be hard to narrow down what areas of ESG to elevate or progress. We’d recommend tapping into materiality – look at where you are best positioned to have a positive impact, as well as which areas you might potentially negatively impact. For example, do you have a big retail presence contributing to your carbon emissions, or merchandise driving your plastic use? If you give health and wellbeing support to your beneficiaries, do you extend advice inwardly too, for your staff and volunteers?

• Facing the resource gap Next we face the reality of resourcing the work – from funding to training. Economic downturn has reduced public donations, leaving charities even less equipped to employ or train specialists in these areas and contributing to an ESG knowledge gap exacerbated by the fast pace of change. Particularly for smaller organisations, strategic partnerships will be key. Many organisations are turning to skills-based sharing as part of their own ESG strategies, so tapping into the volunteering they are offering could be a brilliant way to fill your gaps and increase community engagement also.

• Laying your reporting foundations Without clear disclosure requirements, it can be hard to know where to start with measuring ESG activity. From how to baseline effectively to choosing frameworks to align to, there is not only growing inconsistency but also reporting paralysis. Luckily, the external environment is catching up and new research is being published regularly. A recent report from RSM looked at what ESG means for the charity sector. It found that while few charities have a specific ESG strategy, nearly a quarter do reference ESG-aligned activity in their annual reporting, so soon we will see frontrunners in the space leading by example. The Charity Governance Code is also catching up, with equality, diversity and inclusion already integrated. Keep horizon scanning and tapping into your networks…

Top of the opportunities:

1. Growing meaningful partnerships and ethical supply chains With ESG on the agenda for all sectors, this has increased the potential for collaborative, transformational impact. As long as you do your due diligence on corporate partners, ensuring your values are aligned and they aren’t using your name to purpose-wash activity, you can harness corporate resources to go further and faster. The same goes with supply chains – being transparent about what you care about and what your standards are can help you build more powerful procurement practices. These can double down and broaden the positive impact you can have.

• A chance for a governance refresh To put issues of ESG on the table requires establishing a good level of Board and Trustee buy-in. Who is making the decisions? How can you help educate and excite them on the topics? How can you help them address the risk of not doing this? This can be a catalyst to examine your governance structure in itself, and ensure it is still fit for purpose. Many organisations are long-running and may benefit from a bit of a shake-up and modernisation. You can let urgent topics like the climate crisis be that nudge for change.

• Getting the message right A recent report from the Charities Commission confirmed the ‘stubbornly persistent scepticism regarding how charities use their money and how they behave’. Getting purposeful and transparent around ESG could well help move the dial here. If you can connect your core purpose to long-term sustainability for people and planet through your theory of change or articles of association, you can attract a new generation of donors while increasing your transparency for older generations. Often you will find that restricted funding can still be unlocked, because sustainability and stability for the planet is a prerequisite to a safe and positive life for your beneficiaries. Effective and engaging messaging is our bread and butter, and we can help you take your first steps.

The good news is, while this path may be new for third sector professionals, it is well-trodden by public and private sectors, so there are many tips, tricks and learns to be passed forward. If you lean into this, you will strengthen collaboration both with non-profit peers and strategic partnerships too. Charities have always led the drive for positive change, and ESG integration feels a natural next step.

Are you a charity or non-profit starting to tackle these challenges? Get in touch and see how we can help