Why Not-for-Profits Should Care About ESG

Not-for-profits are held to a high standard of transparency and accountability by stakeholders, donors, beneficiaries, and the public. Creating an ESG strategy and producing an ESG report can serve as a mechanism to meet and exceed the expectations of those involved.

Below are several reasons why not-for-profits should implement an ESG strategy and produce an ESG report to support their ESG objectives:

Transparency and Donor Engagement

Donors are starting to pay more attention to how not-for-profits conduct their work instead of solely focusing on community impacts.

An ESG report provides clear insights into the organization’s operations, emphasizing its commitment to ethical, sustainable, and responsible actions. This transparency increases donor engagement and retention.

Mission Alignment

Not-for-profits will see an increase in ESG trends—such as mission-aligned investing and responsible grantmaking. They’ll want to capitalize on these opportunities by producing an ESG report that shows their financial and operational strategies align with other organizations’ missions, visions, and values to increase external engagement. For effective mission alignment, not-for-profits should integrate ESG principles into their strategic planning, decision-making processes, and daily operations.

Risk Management

Regular ESG reporting can help identify and address potential risks related to environmental, social, or governance factors, making your not-for-profits more prepared and resilient.

Not-for-profits’ ESG risks can range from, but are not limited to:

  • Climate change risk. Not-for-profits operating in areas prone to climate-related disasters are at a higher risk of experiencing operational disruptions. To address physical climate challenges, not-for-profits should incorporate climate risk assessments into their strategic planning.
  • Community relations risk. Not-for-profits should plan and manage for potential negative impacts based on their interactions with the communities in which they operate. Community relations risk can result from a variety of factors, including environmental concerns, labor practices, or privacy and data security breaches.
  • Organizational governance risk. Not-for-profits’ governance risk can stem from many areas, ranging from conflict-of-interest scenarios to ineffective board management. To address this type of risk, not-for-profits should implement clear governance policies and encourage transparency throughout their operations to mitigate reputational and operational consequences.

Specifically, not-for-profits should include ESG factors within their due diligence process for donors and potential partnerships. As ESG expectations continue to heighten, not-for-profits should ensure their donor base has no ESG conflicts—at the risk of losing their funding.

Regulatory Compliance

As the global push for sustainability intensifies, regulations around transparency and ESG reporting are becoming more common. Not-for-profits’ donors and investors will be encouraged and mandated to support ESG efforts. Producing an ESG report can help attract funding sources and make it easier for them to understand the organization’s ESG strategy and how it may support their compliance efforts.

An ESG strategy and report reflects an organization’s commitment to positive change, responsibility, and transparency. For not-for-profits, it’s an opportunity to bolster their mission, engage stakeholders, attract and retain donors, and drive meaningful impact in their area of focus.

We’re Here to Help

For more information about ESG as it relates to not-for-profits and implementing an ESG strategy and producing an ESG report, contact your Moss Adams professional.

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