As competition for funding within the not-for-profit (NFP) sector grows, innovative approaches to making an impact and sustaining growth must be at the forefront of every leader's agenda.
One clear way to drive value is by ingraining environmental, social, and governance (ESG) principles deeper into your strategy and operational ethos.
To date, the majority of ESG conversations have focused on for-profit businesses, but with the world becoming more focused on sustainability, ESG integration is no longer a nice-to-have, but a strategic imperative to do good, and improve overall performance.
What is ESG?
ESG refers to a three-pronged set of principles that should guide decision-making and improve social responsibility in organisations. The three components are often considered in the following ways:
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Although climate is often categorised as an environmental issue, its impact is much broader. In the World Bank's report on the social dimensions of climate change, climate is identified as being deeply intertwined with global patterns of inequality. It has found that the most vulnerable face disproportionate challenges in terms of extreme events, health effects, food security, livelihood security, water security, and cultural identity.
Four reasons ESG should matter to NFPs
Regardless of organisational structure, life cycle stage, or revenue model, growth requires an effective ESG strategy. Measuring performance today and creating a solid plan for tomorrow can help your NFP in four ways:
1. Attracting new donors
Success hinges on an organisation's ability to be progressive in its mission, adapt to the evolving needs of its stakeholders, and be fearlessly innovative in growing its operational programming.
Stakeholder expectations are rapidly changing as donors, staff, and volunteers embrace ESG considerations as part of their core values. If NFPs want to persuade philanthropists that they are a reliable vehicle for their donations, an effective ESG program is not just an asset, but a badge of credibility and integrity.
2. Talent acquisition and employee retention
The NFP sector is considered the backbone of Australia's economy by many, both for the impact it has on communities and for employing more than 1.4 million Australians. Yet, this sector has not been immune to staff shortage challenges in the market and faces similar challenges of attracting, retaining, and growing top talent as the private sector.
Staff and volunteers alike prioritise working with leading organisations that recognise how integral thoughtful ESG programs are to maintaining and creating sustainable organisational performance.
Millennials and Gen Z, who will soon comprise three-quarters of the workforce, want to work for an organisation that understands, values, and strives for better outcomes—not just as part of its cause, but through a comprehensive, transparent, and accountable ESG strategy.
3. Brand and reputation uplift
According to GlobalData's Market Pulse Consumer Survey 2020, customers are more likely to pay a premium for sustainability-aligned causes, and 81% would pay more for products supporting environmental protection.
Just as consumers prioritise ESG in their purchasing decisions, donors are increasingly interested in how an organisation operates over the more traditional details of what they do. By being an early adopter of ESG strategies, NFPs can stand out and gain positive recognition for their sustainability commitments.
4. Alignment with industry
Board members can bring ESG experience and perspectives from their corporate roles to their NFP board table. To leverage these skills, director profiles in board recruitment efforts are changing as nominating committees tactically search for members whose experience extends beyond mainstream governance to include leadership related to climate and social issues.
With ESG matters gaining momentum on the corporate side, board members are increasingly attuned to the reputational risks of being associated with a non-reporting organisation.
A recent Not-for-Profit Governance & Performance Study 2022-23 published by the Australian Institute of Company Directors (AICD) highlighted ESG as a key area of focus for NFP leaders, alongside issues like workforce planning. Recognising the impact external factors and stakeholder expectations have on NFPs, as with the broader market, the report shares, “NFPs are increasingly being challenged to look with a wider lens and understand their role in, and impact on, society.”
How BDO can help
Our team can help you identify opportunities for ESG-driven innovation and build a plan to map the qualitative and quantitative changes necessary to position your organisation as an industry leader in ESG.
To kickstart or enhance your sustainability journey, reach out to our national sustainability team.
This article originally appeared at: https://www.bdo.ca/insights/esg-for-not-for-profit-organizations