The latest trends in sustainability

Getting ahead of sustainability is fast becoming a pressing consideration. Environmental, Social, and Governance (ESG) decisions influence everything from operations to how charities are perceived by the public. There’s no room to ignore the impact that businesses and charities have on the environment and community.

 

Here, we look at existing and emerging sustainability trends, and how charities can get involved.

 

 

Sustainability targets aren’t just nice to have

 

Thinking about the environment, community, and impact that organisations have isn’t going away. Reporting on sustainability targets are a must-have.

 

Forbes Magazine describes the conundrum for non-profits. Charities work for the social good, and, historically have not needed to justify how they operate. The ESG movement benefits charities by channelling funding and recognition to the work they do.

 

However, there’s been little scrutiny by donors on charitable operations, as Timothy J. McClimon suggested in Forbes: “It’s possible that non-profit leaders believe that positive ESG performance will not significantly impact their trustworthiness and reputation while negative performance might quickly diminish it — so there is little incentive to engage in this kind of public targeting and reporting.”

 

Commitments are moving beyond just doing good. Trends in sustainability mean that charities need to measure and report on how they make a difference in ESG categories. Donors are demanding more information from charities.  

 

 

The ESG movement is spurring innovation

 

Non-profits are innovating and trialling how they can push sustainability activities further.

 

Within the financial world, ESG factors mean that investors take note of, and make decisions based not only on returns, but on impact. Many financial products are even labelled ESG funds. Charities haven’t missed a beat here.

 

Piloting new ideas in the fund space, Friends Provident Foundation (FPF) launched an unusual request for proposals in early 2020. Acknowledging that ESG standards are becoming the norm, they asked financial managers to pitch ideas on what they would do to maximise results.

 

Being more specific, FPF wanted traditional and non-traditional managers to create a fund that focuses on impact, reporting, and inclusivity. The request attracted a lot of attention and was termed the ESG Investing Olympics.

 

What is new about FPF’s request is the engagement with traditional, financial asset managers. Through the invitation process, FPF is building appetite for sustainable investing practices and more transparent reporting.

 

 

Charities are cleaning up their investments

 

Similar to growing ESG in the financial investment space, charities are becoming more conscientious investors. Charities and foundations are divesting their assets of ‘dirty’ energy companies, including those related to oil and gas industries.

 

The Church of England, National Trust, and the Bill and Melinda Gates Foundation have all publicised selling shares of oil companies.

 

The Church of England has already sold their last remaining holdings worth £8.4 million, while The National Trust pledged to sell their remaining stock, worth approximately 4% of its £1 billion worth of assets.

 

Looking ahead, other charities will likely follow suit to improve their ESG credentials.

 

 

The “S” in ESG is becoming more relevant

 

While reducing the environmental impact of operations is a worthy goal, the social sides of sustainability and ESG are becoming less fuzzy.

 

Learnings from FPF’s ESG Investing Olympics are relevant.

 

Cazenove Capital outlines learnings from the process. They note in their State of the Sector Report that for financial asset managers, social factors are notoriously difficult to quantify and measure.

 

They do say that the onus is on the financial sector to learn and do more with charities: “Asset managers need to develop greater in-house ESG expertise to be able to take a materiality approach and make judgements on the best available evidence; and overcome an aversion to working with social and environmental NGOs.”

 

 

Impact investing is the new norm

 

Impact investing in the UK is growing at pace. While many members of the public tightened their belts during the pandemic, research shows that impact investing is one area that has seen growth in spending. Triodos Bank, an ethical financial services provider, says that 22% of people surveyed want to explore ethical investing.

 

Data from Big Society Capital (BSC), the UK’s largest social impact investor and registered charity, shows similar findings. Their research demonstrates that the value of social impact investments increased by 26% during the pandemic. The growth is higher than the previous, non-pandemic years of 2018–19, where the value of investments rose by a mere 21%.

 

Stephen Muers, CEO of Big Society Capital, suggests that public support for social impact investments is growing due to the pandemic: “Social enterprises and charities have been a fundamental lifeline for many of the millions who were furloughed, made redundant, or isolated from their regular social networks and support. They became frontline services for the nation and have played an important role in the recovery.”

 

For many, impact investing is a way to not only earn a financial return, but to support a good cause overall.