ESG stands for Environmental, Social, and Governance. It's a framework used to evaluate how organisations handle their responsibilities in these three areas.
While ESG is most commonly used in the corporate world, it is becoming increasingly important for charities and non-profit organisations, too. It helps them understand and demonstrate their commitment to ethical practices and sustainability in a structured way.
Embracing ESG principles helps charities manage risks, capitalise on opportunities, and align with the growing expectations of donors, volunteers, and the public.
Why is ESG important for Charities?
Charities are created to have a positive impact. By incorporating ESG principles, charities can measure and understand their impact in real terms.
ESG frameworks help charities make ethical and sustainable decisions that benefit their communities. This integration can enhance the credibility and overall effectiveness of charities.
What are the benefits of ESG for Charitable organisations?
Adopting ESG practices prevents several significant benefits for charities, including (but not limited to) the following:
- Enhanced reputation: Publicly demonstrating commitment to sustainability and ethics can greatly boost a charity's reputation.
- Increased donor trust: Transparency in ESG reporting builds trust with donors, potentially leading to increased funding, donations and supporter activity.
- Improved operational efficiency: ESG practices often lead to more efficient use of resources, reducing costs and boosting the overall effectiveness of charitable campaigns.
- Attracting more volunteers: A strong ESG commitment and the associated boost in reputation can attract volunteers who are passionate about ethics and sustainability.
ESG considerations for UK charities
Understanding the ESG issues that most affect your charity, operations, and donors will help you focus your efforts and resources strategically. Below are some examples.
Environmental initiatives for charities
Charities can significantly reduce their carbon footprint by using green practices. This includes using renewable energy sources and focusing on waste reduction through initiatives like recycling. Making simple changes like reducing paper use and using digital communications can also have a big impact.
Using eco-friendly products and supporting local suppliers are also part of promoting sustainability.
Charities can also take part in or support community-based environmental projects, such as tree planting, clean-up drives, and sustainability education programs.
Social considerations for charities
Charities depend upon their relationship with their communities. The social ESG principles encourage deeper engagement through listening to community needs and developing effective programs to address them.
Additionally, promoting diversity, equity, and inclusion (DEI) ensures that everyone, regardless of background, has equal opportunities and representation. Initiatives can involve creating DEI policies, training staff and volunteers, and actively working to include marginalised groups in the charity’s activities and management.
A charity’s impact is strengthened by the dedication of its staff and volunteers. Ensuring their well-being through fair policies, support programs, and a positive working environment is crucial. This could be mental health support, recognition of personal or team achievements, or providing opportunities for personal and professional development.
Governance and charities
Charities need good governance to be reputable. This means promoting transparent decision-making processes, clear accountability, and ethical leadership.
Secondly, understanding and following all laws and regulations that apply to a charity is a must. This includes financial reporting, data protection, and employment laws
It's also important for charities to identify and resolve problems efficiently. These problems could relate to money, operations, or public relations (PR). A solid risk management plan ensures the charity can navigate challenges and continue its mission effectively.
ESG Reporting for Charities
Reporting on ESG practices is vital for transparency and accountability. It shows stakeholders that the charity is committed to its ethical and sustainable goals and is actively measuring its progress toward them.
Common metrics to measure ESG include energy usage, volume and reduction of waste, diversity and inclusion statistics, and governance practices.
Adhering to recognised standards, such as the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB), will also enhance the credibility of the ESG report.
The future of ESG for charities
In the coming years, it is likely that ESG reporting will become a standard, perhaps mandatory practice for all UK charities. Charities can expect increasing regulatory requirements, changing donor expectations, and a growing need for ethical and sustainable operations in order to grow and succeed.
Our continued involvement with charities (beyond accounting)The Shorts team has a long and proud history of working with some of the best and most dedicated charities in our region, both as a firm and as individuals. Kirstie Wilson (Audit & Accounts Director) and Malcolm Pope (Audit & Accounts Partner), for example, are trustees for the wonderful Ashgate Hospice. Meanwhile, Matthew Lewis (Audit and Accounts Senior Manager) is a dedicated trustee at Barnsley FC Community Trust. Several others throughout the firm, from junior level to the partners, give their time to a range of regional charities through volunteering, trustee roles, fundraising and more. |
Kirstie Wilson
Kirstie is Audit and Accounts Director at Shorts. She is a fellow of the Association of Chartered Certified Accountants, and has an ICAEW Diploma in Charity Accounting. She also serves as a Trustee of Ashgate Hospice.
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