When many people think of today’s focus on ESG (Environmental, Social, Governance) they think of stock market investments. Beginning in the 1960s, some investors promoted the idea of investing in companies that work to improve the world and their communities. They felt it wasn’t responsible to contribute to companies that don’t improve our society. That movement didn’t quite catch on back then.
But today is a different story. Many feel that a strong ESG strategy is a business imperative. It appears that having started as a way of enhancing a firm’s reputation, ESG has quickly risen to an accepted way of measuring a company’s financial performance as well.
According to Wall Street Journal writer, Charley Grant, “It seems the modern corporate mission statement could use an update: Do well by doing good—or else. Earning the perception of good corporate citizenship, in the form of environmental, social and governance, is no longer optional for the modern executive.” Grant says that the ESG movement is “a framework that calls for investors to consider a company’s overall impact on the world beyond its financial returns. The trend shows no signs of slowing down.”
Similarly, Wall Street Journal writer, Barbara Chai, predicts that, “Increasingly, consumers will demand that companies protect the health and well-being of society and the environment . . . consumers will take social and environmental issues more seriously and will seek out businesses that make the world cleaner, safer and more equitable.” Chai claims that, “Business can be a force for good, and that business needs to be part of making the world a better place.”
Thirteen years ago, the doctoral research for my dissertation, studying the cross-industry relationship between business and nonprofits, showed that 72% of the American public would prefer to do business with companies that are actively engaged in making the world a better place.
But experts in the field caution that the success of the application of ESG boils down to one core theme: authenticity. Paul Knopp, writer for Chief Executive Magazine, says that “for an ESG plan to resonate, it needs to be specifically tailored to a company’s values and approach to business. A recent study shows that nowadays 77 percent of the public is looking to business to address societal challenges.”
>> Many nonprofits are embracing the principles and practices of ESG.
Even though the concept of ESG has been primarily a corporate practice, nonprofits are finding benefits in similar activities. Businesses are also realizing that nonprofits may hold the key to their effectiveness in implementing their ESG practices.
The popular Board Effect recommends that “embracing ESG is more than a matter of ethics and morals. Investors and donors are sure to take notice of your efforts to promote ESG principles because they consider it to be part of good business practices that lead to profitability.” They suggest that nonprofits “open up the discussion about ESG with investors, employees, and members. Make a point to incorporate ESG goals and metrics into strategic planning efforts. Make plans to weave ESG principles into the nonprofit’s story so you can share it easily with others during your fundraising efforts.”
The Community Environmental Council offers an excellent example of a nonprofit partnering with business for successful ESG practices.
“With 50 years of partnering with Central Coast communities on solutions to our most pressing environmental challenges, CEC provides the perfect opportunity for businesses to invest in the “E” of Environment, Social, and Governance practices,” stated Sigrid Wright, CEO of Community Environmental Council (CEC).
“Today, as our region faces unprecedented megadroughts, wildfires, and extreme storms, CEC is putting the Central Coast – and California – on track for a climate-safe future with an ambitious plan to meet this urgent moment together and halt the climate crisis. Our business partners are imperative to this work. Support from local corporate sponsors such as Marborg Industries, Cox Communications, Central Coast Community Energy (3CE), and dozens more allows us to extend our reach and take strong action on climate in every sector.”
United Boys & Girls Clubs of Santa Barbara County (UBCGSBC) provides the perfect opportunity for businesses to contribute to the “S” of Environmental, Social, and Governance practices. And many businesses do just that. Deckers, Cox Communications, and Montecito Bank & Trust are stellar examples of businesses that are serious about contributing to the well-being of our community by donating financially, providing expertise, and serving on the all-volunteer board of directors.
Other nonprofits like the Foodbank of Santa Barbara County have contributed significantly to the health of local families through UBSCGSBC. “I am humbled by the faithful and generous contributions of our local businesses and nonprofits,” says Michael Baker, Chief Executive Officer of UBCGSBC. “They make a tremendous positive difference in our community.”
Our local Chamber of Commerce is an excellent example of implementing the “G” of Environmental, Social, and Governance. Kristen Miller, President & CEO explains that, “the Santa Barbara South Coast Chamber of Commerce has high regard for Governance when engaging Environmental, Social and Governance practices to make our community a better place.”
“Governance is a tool to make sure you have solid support, enthusiastic collaboration, and transparent systems to ensure you can do good work to change the world. We achieved a successful merger of three Chambers of Commerce on the south Coast by focusing what we wanted to achieve, then using best practices to govern our plans and agreements with each other. The key was not to let administrative challenges slow down our progress, but instead use our agreed-upon rules to give us confidence to achiever or merger goals.”
>> Nonprofits will benefit the communities they serve and enhance their attractiveness to donors and partners by embracing ESG strategies.
Forbes points out that, “advocates of ESG argue that environmental, social and governance issues are critical to the communities that these organizations serve and the planet where we all live and work.” They also argue that “nonprofit organizations have a special need for transparency and accountability as public charities who operate with substantial tax benefits. And increasingly, donors are paying more attention to how nonprofits conduct their work rather than simply what they do in communities.”
“Nonprofit organizations have both helped to drive this innovation — acting as both watchdog groups and advocates – and benefitted from ESG as recipients of grant funds and sponsorships as companies race to align themselves with pertinent social causes and reputable partners.”
The Orr Group claims that businesses can do good and do well at the same time, although some financial experts argue that it is not possible to achieve both outcomes simultaneously. But BlackRock’s founder and CEO, Larry Fink, writes, “Companies with better ESG profiles are performing better than their peers, enjoying a ‘sustainability premium’.”
Stephen Orr with the Orr Group points out that “as business and investment leaders incorporate ESG into their worldviews, they wind up embracing values that nonprofits have always fought for—fairness, justice, equity, and sustainability—and this alignment creates an unprecedented opportunity for sustainable, authentic, and meaningful partnerships.”
He reminds us that “in the past, corporate giving has often had a transactional quality: when you give at a certain level, your company logo appears on the museum wall or in the event program. ESG enables a different dynamic, with donor and charity striving toward common objectives.”
>> Nonprofits can begin to develop an ESG lens and weave these practices into their culture.
Florence Tandy from LinkedIn offers these guiding questions for nonprofits: What are your governance practices? Do you pay your employees a living wage? Do you use diverse contractors and vendors?
She tells us that “any nonprofit can extend their mission to intentionally include an ESG lens. It only takes awareness and becoming conscious about the little (and the big) things you can do to make a difference.”
“It starts with helping your staff develop an ESG mindset. It includes looking at your suppliers’ work practices. And it includes thinking through the unintended secondary consequences of your services. Can you recycle more? Can you convert to LED lighting in your facilities? Can you plant trees at your facilities or in the neighborhoods you serve? Can you diversify your staff, your board, and your suppliers? And can you involve your clients/beneficiaries/constituents in your work to greater extent?”
“All of this involves the conscious decision of leadership, communicating it throughout the organization, and then tracking and reporting your results. I guarantee that your impact will increase, your employee and board engagement will improve, and your community will be a better place as a result.”