This three-part series takes a look into the 1. Why 2. What and 3. How of ESG reporting for Not-for-Profit organisations.
Environmental, Social, and Governance (ESG) Reports, also commonly known as Sustainability Reports, Environmental Impact Reports or Climate Action Reports have gained increasing global traction in recent years. ESG reporting has become an important aspect for embedding and communicating an organisation's sustainability efforts to broader stakeholder groups.
Whilst traditionally associated with corporations, Charities and Social Impact Organisations (Not-for-Profits) are increasingly adopting ESG reporting as a means to enhance transparency, accountability, and impact measurement. This article delves into the "why" of ESG reporting for Not-for-Profits, providing practical examples to illustrate its benefits.
The Why: Understanding the Importance of ESG Reporting for Not-for-Profits
ESG reporting provides Not-for-Profit’s with both internal and external opportunities for long-term growth. Below are some of the key opportunities that can be leveraged based on expert resources.
Internal opportunities
1. Promote talent attraction and retention
Whilst the primary users of ESG reports have been known to be external audiences (i.e. regulators, investors, and competitors), employees are some of the biggest readers of an organisation’s ESG reports. It can provide employees with a clear roadmap and strategy to achieving ESG goals, tracks progress against quantifiable metrics and historical performance, and enhance internal buy-in or awareness on the Not-for-Profit’s mission.
According to Deloitte’s ‘2024 Gen Z and Millennial Survey’, 84% of Millennials believe it is vital for a business to make a positive impact on society beyond just making a profit. This sentiment is even stronger among Gen Z, with 90% expressing a desire for companies to act in a socially responsible manner.
Given that by 2025, Millennials will make up approximately 75% of the global workforce, and Gen Z will account for approximately a quarter of the global workforce – there is a strong case to be made between the value of ESG reporting and talent at traction or retention.
2. Drive cost savings through operational efficiency
Organisations and Not-for-Profits are strongly encouraged to disclose on areas including energy, water, and waste consumption within their ESG reports, with mitigation initiatives in place to reduce their environmental footprint. As a result, many organisations have explored the adoption of energy-efficient technologies (e.g. LED lighting), and renewable energy sources (e.g. solar panels on-site).
Whilst such efficiency and renewable initiatives may incur short-term capital expenditure (CAPEX) for Not-for-Profits, operational expenditure (OPEX) over the long term will be reduced through lower utility bills and access to government ESG grants.
In Singapore, the Charities Capability Fund provides support for Not-for-Profits internal ESG projects. Similarly, the Ministry of Sustainability and the Environment also administers the SG Eco Fund, which supports ground-up projects that advance environmental sustainability and engage the community to raise awareness. The Charity Council has published an 'ESG Playbook for Charities' offering a structured pathway for integrating ESG principles into their operations.
The environment is a crucial pillar of ESG, however, organisations should leverage on the social and governance cost-benefits that ESG can provide. Staff attrition is a major expense for Not-for-Profits, and this expense stem from a loss of productivity, recruitment, training, and onboarding. Losing a single employee can cost around 50% of the employee's annual salary, with replacement costs become even higher for leadership roles.
3. Future-proofing
Many jurisdictions have introduced the Code of Governance for charities and Not-for-Profit organisations. Those that proactively address new requirements are less likely to face legal, regulatory, and reputational challenges in the future. ESG compliance has a role in risk management as organisations with ESG strategies are better prepared to avoid and mitigate potential problems that lead to fines, reputational damage, and legal liabilities. By addressing these risks proactively, organisations can protect their long-term performance.
Reputational risk is not only a sustainability risk, but a financial risk that Not-for-Profits need to manage effectively. Although it is hard to quantify the value of a good reputation precisely, it is certainly the case that as supporters, donors, volunteers and other stakeholders lose trust in the organisation, this loss of reputation impacts fundraising.
External opportunities
4. Building Resilience to Future Requirements
Not-for-Profits should start preparing for potential future demands from donors. For example, grantees of corporate and philanthropic organisations may face requirements to align with the sustainability reporting and net zero goals of their donors.
Beyond meeting demands, incorporating best-practices from ESG reporting can naturally build resilience into a Not-for-Profits business strategy and model. These best-practices include considering the following:
· Conducting a materiality assessment to identify and prioritise the Not-for-Profit’s material issues, with policies and initiatives in place to manage these priorities.
· Identifying sustainability-related risks and opportunities across short, medium, and long-term horizons, including Governance, Strategy, Risk Management, and Metrics and Targets.
· Setting and tracking progress against ESG targets, with timelines and mitigation plans in place.
· Adopting internationally recognised ESG reporting frameworks and standards (e.g. GRI /SASB / IFRS), to allow for easier and fair comparability across peer reports.
5. Attracting Funding and Partnerships
A key output of ESG reporting is positioning the Not-for-Profits positively within the sector and wider economy by emphasising its commitment to sustainable missions and values. Donors are more likely to support transparent and ESG-driven organisations and ESG reports can help attract and retain a wider range of stakeholders who are interested in contributing to a given cause.
Not-for-Profits also have the opportunity to tap on synergies and unlock partnerships with other organisations with the same sustainability initiatives. This can include organisations committed to the same UN Sustainable Development Goals (SDGs) or networks (e.g. Global Green and Healthy Hospitals).
