“We all need to work together because there are no jobs on a dead planet; there is no equity without rights to decent work and social protection, no social justice without a shift in governance and ambition, and, ultimately, no peace for the peoples of the world without the guarantees of sustainability.” — Sharan Burrow
In recent years there has been an increasing emphasis on preserving the environment. This focus impacts nearly all types of companies, including social impact organizations.
The term for this focus is Environmental, Social, and Governance; ESG for short. While companies in the for-profit and government sectors have working to adopt ESG strategies, organizations in the social impact sector are just beginning to focus their attention on this framework.
Why does this matter to your board? Your social impact organization has donors, volunteers, and other stakeholders who are likely to care deeply about protecting the environment. Your stakeholders seek to connect with organizations that share their concerns and actively work to decrease their negative impact on the environment.
Few companies and even fewer social impact organizations were concerned about the environment in the past. That’s not the case anymore. Today, millennial and gen-Z job seekers are interested in careers with sustainable, environment-friendly, and socially responsible organizations. Social impact leaders must guide their organizations to commit to sustainable and ethical business practices if they are to attract top talent and investors.
It’s well known that competition for funding is extremely high in the social impact sector. Boards that actively incorporate ESG practices into their organizations will have an advantage in attracting both investors and volunteers.
ESG Basics
ESG is a term that describes standards that reflect an organization’s criteria for operating in an ethical and environmentally conscious way. ESG provides the metrics that measure how well an organization stewards nature and its resources. Social impact organizations can establish their commitment to ESG by demonstrating how they manage relationships with staff and other stakeholders and how ethically the organization governs itself.
ESG is quickly becoming the new measure of a thriving organization in numerous ways. Recent studies show a staggering 95% of millennials and gen-Zs strongly consider ESG and want to use their financial capital for socially responsible investing or contributing. Social impact organizations must demonstrate how their programs positively contribute to society while shrinking their impact on the environment.
A Quick History of ESG
The first social impact strategies were piloted in the mid-1950s and focused on increasing affordable housing and building community health facilities. In the 1970s, shareholders withdrew their equity from South African companies to protest apartheid policies. This strategy was adopted by activist investors and continues to be used today.
In 2004, the World Bank Group’s International Finance Corporation popularized the term ESG when they published a report called Who Cares Wins. The report concluded that companies that established ESG policies and practices would be more resilient and sustainable. The United Nations bolstered the ESG concept by establishing the Principles for Responsible Investment initiative in 2005. Since then, major corporations have started to use the triple bottom line standard by reporting their social and environmental results alongside their financial outcomes.
Why Social Impact Board Should Care About ESG
Donations and grants are the most widespread source of revenue for social impact organizations and represent a significant portion of the work that these organizations perform. An increasing number of donors view their donations as investments and have different expectations than past donors. These new investors give to a social impact organization with the explicit desire that there will be a measurable return on their investment. It’s not uncommon for these social impact investors to make significant multi-year financial contributions with the desire to see the organization become more robust and sustainable over time.
Recent polling shows that 71% of social impact investors want to make a positive social impact with their investment. Additionally, 81% of these investors reported that its imperative that their investments match their personal values.
We know that social impact organizations follow several of the same trends as for-profit corporations. So savvy social impact boards and organizations will follow the lead of the corporate sector and give importance to ESG principles by making them part of their culture and mission.
Boards of Directors that are able to incorporate and align ESG practices and strategies with the mission of the social impact organization will be in a position to engage with this emerging type of investor. Embracing ESG principles will provide them with a significant advantage of increased funding opportunities over peer organizations that have not adopted ESG policies.
Incorporating ESG Principles
Suppose your organization’s board is on the fence about adopting ESG principles and integrating them into its operations. In that case, it’s time to put it on the agenda and begin to talk about it. You can start the conversation by exploring how ESG relates to the everyday work of your organization. Discover connections between ESG and your organization’s mission. Review your vision and determine the changes you can make to strengthen the relationship between ESG and your organization’s mission and vision.
Once your board feels comfortable with ESG principles, talk about ESG with your donors, staff, participants, and other stakeholders. At this point, it’s vital to integrate ESG objectives and metrics into your strategic planning process. Reinvent your messaging by weaving ESG principles into your organization’s story. Your updated communication will make it easier to share your news with others.
Embracing and adopting ESG is more than just doing the right thing. It’s also a powerful way to connect with investors and donors who consider ESG principles to be effective business practices that will lead to sustainability and positive community change.
