Why charities need to shout about ESG policies

Charities by their nature bring about enormous social change. They support their beneficiaries, who are often the most vulnerable people in the community. They also bring wider benefits to society, around philanthropy and kindness.

 

In addition, protecting the environment is increasingly seen as a priority for many in the sector. There is also an enormous amount of work going on around governance to ensure that charity organisations are fair, equitable, and give opportunities for all.

 

But too often this good work is going unnoticed, with latest research by finance firm RSM indicating that charities are not effectively promoting their strong environmental, social and governance (ESG) policies.

 

 

What is ESG?

 

ESG is a set of standards for an organisation’s operations to protect the planet, help society ,and improve its governance.

 

This includes green issues, such as not investing in fossil fuels as well as social impact investing. Societal issues, for example tackling prejudice, are also covered in charities’ ESG work.

 

Typical governance issues within ESG focus on executive pay, equality, diversity, and inclusion and whether a charity has adopted good practice principles in the Charities Governance Code, which more than a third (34%) of charities are signed up to, according to RSM.

 

 

Include ESG in annual reports

 

A great place for charities to shout about their ESG policies and achievements is their annual reports. However, RSM has found that out of 114 charities looked at, none included a specifically labelled ESG section in their annual report.

 

RSM found that just under a quarter (23%) of charities did include a section where ESG was referenced but only within the context of a range of other topics. This means that charities commitment and achievements regarding ESG is not easily found in most annual reports.

 

This makes it hard for stakeholders, policy makers, and supporters to see briefly how a charity is helping society, improving its governance and protecting the environment.

 

Within annual reports looked at, RSM noted that almost all (98%) of charities referenced they are meeting “public benefit requirements”, which would be better placed in a specific ESG section.

 

Any recruitment of dedicated ESG roles should also be mentioned, such as governance managers and sustainability directors. RSM found that just 6% of charities referenced a governance manager and 8% mentioned a director of ESG or sustainability in annual reports.

 

RSM acknowledges that “the charity sector has had an encouraging start to its ESG journey” adding that charities “now need to consider how to define and communicate their impact on other people and the planet more clearly in their annual reports”.

 

It also warns warning that green reporting is “where the charities sector is behind corporate reporting”.

 

 

ESG and charity websites

 

RSM points out that charity’s websites act “as a charity’s public face and source of knowledge for external stakeholders” adding that there is real value in clearly articulating “progress your charity is making with ESG”.

 

But only 14% of charities looked at have a separate page on their website for ESG.

 

Recommended is to include a clearly defined ESG section that can explain the charity’s commitment to ESG. RSM recommends charities “start small” and focus on key information.

 

Charities should also build a story for website visitors into how it is working for the public benefit to improve its organisation, support society, and protect the planet.

 

“Pulling all the different elements of ESG into a cohesive strategy and communicating the agreed strategy to the right stakeholders will be the next step forward for many charities”, predicts RSM.

 

Policy makers, especially civil servants, will particularly welcome clearer messaging around ESG. Gathering information from charity websites is among civil servants preferred ways to engage with the sector, according to research released in 2022 by think tank Pro Bono Economics.

 

Regulators will also welcome better promotion by charities of their ESG achievements. RSM says that “we are seeing regulators take a much deeper interest in ESG matters than ever before”.

 

 

Case study: The Soil Association

 

As a charity that supports the environment and works to protect the health of people and animals, ESG is at the heart of the work of charity the Soil Association.

 

To tell stakeholders about its work it has a “suite of metrics” to show its commitment to ESG, evidence its impact and share its progress. This is detailed on its website and annual report “through storytelling to inspire more change,” says the charity.

 

“We publish an annual progress report to assess change within the UK on the issues we are seeking to address,” it adds.

 

“We consider out annual report and accounts a perfect opportunity to explain our wider impact performance.”