3 Reasons Why Your Nonprofit Needs to Implement an ESG Strategy
Article

3 Reasons Why Your Nonprofit Needs to Implement an ESG Strategy

by Mary Tressel, Michael Boulton
November 19, 2021

The environmental, social and governance (ESG) movement is driving organizations to create resilient finance and operational strategies. Because of climate change, social justice movements and stakeholder pressure, ESG has moved to the forefront of concerns for nonprofits looking to bolster their mission to be more cognizant of their impact and influence on the environment, social causes and government policies.

What Is ESG?

An ESG strategy prioritizes sustainable and responsible business practices in three different categories: environmental, social and governance. Implementing ESG standards ensures ethical and sustainable operations within your organization and provides measurable data to stakeholders, who are increasingly focused on using ESG factors to determine whether they want to engage with your nonprofit.

The CFA Institute breaks down ESG into the following criteria:

  • Environmental – Examines conservation of the natural world (e.g., carbon emissions, water usage, etc.)
  • Social – Considers people and relationships (i.e., how you treat your workers, clients and communities)
  • Governance – Looks at standards for running an organization (i.e., equitable board representation, anti-corruption policies)

Many nonprofit organizations already follow ESG tenets without even knowing it. By implementing an ESG framework and formalizing practices you may already have in place, you are making your strategy more visible and intentional within and outside of your organization.

Consider these top reasons to incorporate ESG programs and goals into your operating model:

#1: Hiring and retaining talented team members is harder than ever in the Great Resignation.

Nonprofits have historically relied on the power of their missions to procure donations and recruit employees. But today’s job market is a war for talent, and in the wake of the COVID-19 pandemic, people are re-evaluating their work lives and redefining their job expectations, even in the nonprofit sector. They are no longer forgoing larger salaries or extra vacation days simply because they believe in the mission.

According to a recent Cone Communications survey, 75% of Gen Z-ers conduct research on the organizations they support to ensure the organizations put into practice the same ESG values that they uphold. Transparency has become table stakes for corporate and nonprofit organizations alike, and a mission statement alone is simply not enough to convince top young recruits and donors to support you.

Staff need to know that they are working for an organization that walks the walk. They want to share similar principles with their employer and be confident that they will be treated equitably and their greater concerns will be heard.

#2: Socially responsible endowment investment policies are a differentiator.

Today’s nonprofits must work with their investment managers to establish and promote socially responsible investment strategies to build their donor and employee base. Making proactive choices to invest in companies that adhere to an ESG framework and are doing good in the world is a critical differentiator in your nonprofit’s investment policies.

Focusing on ESG themes has already proved to be profitable. According to CNBC, sustainable investing is the same as value investing because both focus on long-term results. And Financial Times Advisor conducted a recent study that showed European ESG stocks outperform competitors by 12% annually.

For foundations and nonprofits that have large endowment funds, donors want to know that those funds are being invested responsibly and reflect the nonprofit’s passion for the world’s future well-being. Capitalism with a cause is the wave of the future, and you need to make sure your organization’s priorities are aligned with more than just a mission statement if you want to remain relevant in your donors’ eyes.

#3: Climate change, global health and social unrest impact everyone.

The effects of the COVID-19 pandemic have had devastating impacts on nonprofit organizations, and the continued physical distancing and mask mandates mean that little relief is on the horizon. Unrest across the globe has created heightened awareness and increased demand for racial justice reform and programs.

Additionally, climate change continues to affect the operating models of many nonprofits. For example, in an article for Chatelaine, climate scientist Katharine Hayhoe details how weather patterns exacerbated by climate change impact the lifesaving work of nonprofits that support people experiencing homelessness. Extreme heat waves drive more people to seek shelter, while severe rainfall delays or cancels local bus routes, making it impossible for clients to get to work or appointments.

The time for ESG action is now. Nonprofits need to identify and measure the ESG standards they are implementing internally to ensure their organizations are sustainable for the future.

Finding Balance

Every nonprofit organization cannot address all ESG factors because their operational models differ. What is important is to determine the factors that are aligned strategically with your mission and focus on pursuing excellence in the specific areas where your organization can make the most difference.

Implementing an ESG strategy helps your organization find that balance. Establishing ESG-centric goals will reset your organization’s equilibrium, help you attract and retain talented team members and provide measurable, actionable steps to move forward.

Armanino is proud to be a certified B Corporation. To learn more about creating and measuring ESG programs and policies for your own organization, reach out to our ESG experts.

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Authors
Mary Tressel - Operations | Armanino
Practice Leader, ESG Services
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