Providing leadership on ESG

It is now more critical than ever that those in leadership positions take responsibility for their surrounding environment and society.

Providing leadership on ESG

It is now more critical than ever that those in leadership positions take responsibility for their surrounding environment and society.

With awareness of the challenges such as the cost of living and climate crisis at an all-time high, it is now more critical than ever that those in leadership positions take responsibility for their surrounding environment and society. Leaders of charities, whether trustees or senior management, are well-placed to set a high standard that can be the envy of those in commerce.

ESG (Environmental, Social and Governance) conveniently brings this thinking together under one umbrella. Charities also have a head start when it comes to ESG. The fundamental purpose of a charity is to offer a public benefit and cause no harm to the environment. Both principles sit at the heart of ESG.

A beneficial side effect of implementing ESG initiatives are longer-term cost-efficiencies, which are critical in the current cost of living crisis. For example, resource efficiencies, such as re-using and recycling initiatives, energy efficiency and accessing government schemes to promote ESG factors and adopting new and renewable energy sources. Organisations globally are also under heavier scrutiny than ever before. Anyone with access to a computer or a phone can research the charities they interact with. If practices that fall below society’s expectations, including but not limited to improper waste disposal, poor engagement with diversity and inclusion or overly inflated remuneration, are discovered people can and will readily move on — and also potentially share damaging performance information on social media channels which can expose the charity to reputational damage.

RSM’s The Real Economy survey of over 400 middle market businesses leaders in 2021, found that 84 per cent of organisations that had an ESG policy felt that it contributed to their future sustainability. Reasons given for this include cost reductions, energy efficiency, and attraction and retention of clients and investors.

Benefits of engaging on ESG

Engaging in ESG now could help you in the long term by:

  • Demonstrating value and responsibility to funders
  • Contributing to requirements for bid proposals
  • Helping attract the best talent and retention of staff
  • Providing partnership opportunities with corporates who want to engage with sustainable and responsible charities
  • Driving improvements in operational efficiencies
  • Building understanding of wider stakeholder needs

Ask your board this question…

But for many trustees, ESG will be a new – and possibly daunting – concept. A good question to pose and to help action your ESG strategy is: “In the context of ESG, is your charity board steering or rowing?” Using the metaphor of your charity being a boat, then your board of trustees and senior management can make two types of contribution: steering and rowing.

A board’s contribution that is steering will set the ESG strategy of the charity, ensuring that the right capability on ESG matters is in the boat. A board that is rowing is providing ESG expertise to management, championing the ESG cause or helping out on the front line to make ESG happen.

An effective board that is leading the way on ESG will combine both, with effective steering whilst maximising rowing. Conversely a poorly performing board on ESG matters with no steering will go round in circles and will not go anywhere without rowing.

What type of board do you have when it comes to ESG? Steering, Rowing or the perfect combination of both?

Making it happen

When exploring ESG principles, some charities will be more progressed than perhaps first anticipated as some activity will already exist in their operations and strategic planning but are simply not being identified. At the outset it is a good idea to reach a consensus in your charity as to how far you want to go on your ESG journey – from a basic awareness to best in class. This agreeing the route to take, which of course requires steering.

But to make ESG happen, it will require some effort: the rowing and at the outset it is helpful to identify the rowers! Whilst there are few examples of a dedicated employee having ESG as their primary role, it is clear that ESG does form a part of several peoples’ roles rather than being a specific set of responsibilities for one person. There is merit in identifying a lead or figure head (even if it forms part of several peoples’ roles) as it does focus activity around ESG and the importance within the charity’s culture. An alternative could be having an ESG or sustainability working group with Board sponsorship and splitting core responsibilities across all members of the group.

Checklist to help with your ESG journey:

  • Get your leadership teams on board and let them lead by example.
  • Find out what kind of ESG activity really matters to your employees and engage them in the wider discussion around your organisation’s ESG activities.

Clearly define and assign your ESG reporting and strategy responsibilities.

Nick Sladden

Nick heads the RSM charities and independent schools teams. He advises on audit, assurance and financial reporting and is an audit partner for our Top 250 charity clients. Using his 20 years’ experience in the sector, Nick has developed RSM’s in-house guidance on charities SORP FRS102 as well as responding to Charity Commission/OSCR consultations on financial reporting developments in the last few years. Nick holds the Diploma in Charity Accounting and has completed the Governing for Non-profit Excellence Program at Harvard Business School and is a trustee of two national charities and a school governor.

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