ESG is a hot topic but the 'G' is often overlooked. We look at what it is and why it's important for charities and other not-for-profit organisations.
What is ESG?
ESG, short for environmental, social and governance, is a set of standards used to help stakeholders understand an organisation's wider impact. In the investment and corporate worlds ESG is well-established, and we are now seeing it on the rise in the charity sector too.
Despite the increasing awareness of ESG, it is often seen primarily through the environmental lens, with people thinking of environmental sustainability, carbon footprints, and reducing waste alone.
Increasingly, the social aspect is also being considered, with organisations becoming more concerned about their supply chains and the working conditions of their employees and suppliers.
However, arguably most important aspect of all, governance, is often overlooked. Good governance is crucial to the success of any organisation and without it, it would be very difficult for a charity to deliver its purposes successfully, let alone reduce its wider impact through the 'E' and 'S' aspects of ESG.
What is good governance?
Good governance is about ensuring that an organisation is effectively and properly run, now and in the future. It helps organisations to meet their legal and regulatory requirements, helps to prevent misconduct and mismanagement and provides comfort to stakeholders.
As the Charity Governance Code states, "good governance in charities is fundamental to their success. It enables and supports a charity's compliance with the law and relevant regulations. It also promotes a culture where everything works towards fulfilling the charity's vision." It is therefore crucial that charities take good governance seriously and keep it under review throughout the life of their organisation.
How can we ensure we have good governance in our charity?
There are many different elements that make up good governance but some things you may want to consider include:
- Reviewing your governing document and policies regularly and make sure that they are up to date, fit for purpose and in line with current law and best practice.
- Ensuring all of your trustees understand their legal duties, by providing them with the Charity Commission's 'Essential Trustee' guidance and by offering trustee training.
- Carrying out a skills audit of your board of trustees, identifying any missing skills and recruiting accordingly or sourcing appropriate training to fill the gap.
- Considering the diversity of the board and recruiting accordingly.
- Considering your charity's decision-making and delegation frameworks, checking they comply with the law and best practice and are implemented correctly.
- Using the Charity Governance Code as a toolkit to identify areas of governance where your charity needs work.
Conclusion
ESG considerations are becoming increasingly important to stakeholders in all sectors and charities could be seen to have a head start with this as their purposes often align with ESG principles already. However, it is crucial that charities ensure they demonstrate good governance as this underpins all other aspects of ESG, as well as the general success of the organisation and its ability to deliver its charitable objects for the public benefit.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
