How charities should be addressing ESG

ESG stands for Environmental, Social, and Governance. Around a decade ago, nobody had ever heard of ESG. This isn’t because the ideas and concepts were not around, they were just under the name Corporate Social Responsibility (CSR).

This focused on giving (or trying to give) a corporate entity a “human” face. However, there were two main problems with this way of looking at things. First, the corporate part seemed to disapply the idea from non-corporate organisations. Secondly, the rise to prominence of environmental considerations which were often not given sufficient emphasis under CSR. Hence the change of name and focus.

So, what should charities be doing to fulfil their obligations under ESG? How should you get started?

Ian Huggett, Partner at Westcotts Barnstaple and Bideford Office, shares his advice for charities looking to improve their ESG credentials.

Why should a charity be addressing ESG?

The issues raised by ESG are considered to be the right thing to do. They are increasingly becoming part of the public’s perceptions of how an organisation should behave.

Charities as public-facing entities are right at the centre of this. They interact with the public as part of the services that they provide, and their supporters are part of the public. Also, grant makers will be looking to ensure that the grants provided are used in environmentally and socially responsible ways. In addition, regulation, if not already, will demand that ESG considerations are addressed.

So put simply, ESG is something that every charity needs to engage with. This goes for both larger, national and international charities and smaller local charities.

 How to address ESG

Charities have a head start on at least two-thirds of the issues. First, they have a highly regulated governance structure which ensures that they are operating correctly. Furthermore, charities are by their very nature socially aware organisations required to operate with public benefit at their heart.

Taking action doesn’t need to be a complex task.

As a starting point, you need to establish where you are now; don’t be afraid to highlight failings or deficiencies, and then plan to address any issues identified. Keep revisiting the plan as time progresses. You could put it on the agenda for trustee meetings and examine how you are doing against the original plan. Tweak for relevance if necessary, and very importantly, tell people about your progress and actions.

ESG development is not something to hide under a box. Let your supporters know, let the grant makers know and let the public know that you are taking ESG seriously.

So, let’s look at some pointers to help get you started:

Governance

The ‘G’ in ESG stands for Governance and good governance matters.

The Charity Commission publish useful documents on good governance for charities. These provide a firm foundation so have a read of those, particularly the Charity Governance Code.

Good governance is central to everything that you are doing, your governance must be open (both in actuality and perception). It is also important that your governance and trustee body is as diverse as possible, with representation from minority groups and most importantly your service users.

Social

ESG’s ‘S’ stands for Social. The social aspect of a charity is the most important function for it to get right. Each year, all charities are required to state they have considered the way in which they operate for the benefit of the public. This means the wider public as well as their beneficiaries.

As a word of warning, it may well be that your charity’s operation encounters areas of social conflict between groups of beneficiaries. Such conflict is not wrong and is sometimes inevitable, the important part is how that conflict is managed to avoid damage to your charity – a key concern for trustees.

Environment

The ‘E’ in ESG stands for Environment. Sustainable operation is now fundamental to all organisations, charities included. In 2021, the charity finance group reported that 8 out of 10 charities had not yet started on their net zero plan. This is despite the Charity Commission having published a document entitled Going Green as long ago as 2008.

Environmental considerations extend beyond a commitment to net zero. Charities should also be considering their use of plastic, attitude to waste, and consumption of resources.

And, if you are a grant-making charity that has little of its own operational consumption you still have significant responsibilities across your funding streams. Whether that is the climate-friendliness of a property portfolio or looking at the ESG credentials of those bodies to whom you provide grant funding.

Next steps

In short, ESG is for all charities, and you should take action, and keep this under regular review. Make a fuss about the progress you are making. But above all—start NOW.

At Westcotts, we understand the importance of ESG to your organisation and can provide personalised, expert advice. If you need a helping hand, please contact our Charity and Not-for-Profit team by calling 01271 374138 or email Ian at ian.huggett@westcotts.uk.