ESG Reporting In The Nonprofit Sector

In just the last decade, the percentage of S&P 500 companies producing annual Environmental, Social and Governance (ESG) or Sustainability Reports has sky-rocketed from about 20% in 2011 to 90% in 2019. Recently, we found ourselves ruminating on whether ESG reporting among nonprofit organizations has mirrored this growth. Spoiler alert: it hasn’t. 

A Sample Survey

Together with PBO Advisory, a San Diego-based consulting group with business advisory services, we decided to test our hypothesis by asking a sample of nonprofit organizations in the Greater San Diego area about their familiarity and experience with ESG reporting. These entities represented a broad range of sizes and missions. Based on answers from the 31 respondents, we gleaned the following:

• 54% of respondents were very or somewhat familiar with ESG, about 30% had only heard of it and 16% were not at all familiar with ESG. 

• Almost 90% of respondent organizations currently publish reports on their community impacts, significantly more than on any other ESG topic.

• 45% of respondents either have no ESG program or believe they compare negatively to their peers on these topics. Only 16% consider themselves leaders on sustainability and ESG topics. 

• The top three stakeholder groups respondents believe have the most interest in ESG topics are: executive leadership, employees, and board members, in that order. Donors rank a close fourth.

• The top three benefits nonprofit leaders believe ESG programs and reporting provide to NGOs are “Better decision making” and “Demonstrate/communicate mission” and “Employee engagement.”

While nearly all of the respondents say they report on their community impact, a much smaller percentage consider this impact report as part of an ESG framework or connected to other ways the organization addresses environmental, diversity or social justice issues. Typically, ESG and Sustainability reports outline how entities are reducing greenhouse gas emissions, trying to create more diverse and inclusive work environments and focusing on the health and safety of employees, among other issues. 

The most widely used reporting framework is the Global Reporting Initiative (GRI), a voluntary set of standards created by experts across the globe that provide private and nonprofit sector entities with disclosures that matter to their stakeholders. However, the database of GRI reports submitted by entities currently lists only 30 nonprofit organizations in North America that have filed GRI-based reports in the past 15 years. We took this conundrum to Dr. Emily Young, Executive Director of University of San Diego’s Nonprofit Institute and an expert on nonprofit governance. 

Q&A with Dr. Emily Young

SN: Emily, why do you think there is a disconnect between nonprofits doing such important ESG-related work and not reporting on that work using an ESG framework?

EY: People don’t know what they don’t know. We held a Governance Symposium about four years ago and one of the sessions was called People, Planet, Purpose. We covered topics such as investing endowments in socially responsible funds, board member education and how almost all nonprofit work has a sustainability angle. We were surprised by how challenging it was to find organizations that were deeply engaged in this work.

SN: What do you think could shift their thinking? How can they start to connect those dots?

EY: While there is growing recognition among businesses that strong ESG practices contribute to enhanced employee engagement, customer loyalty, and corporate reputation, we don’t see the same thing happening in the nonprofit community. Indeed, in a recent survey of local nonprofits we found that, with the exception of environmental groups, most organizations don’t consider climate change as a critical issue that affects their mission. But if you are not thinking about climate change – no matter what your mission is – you are behind the eight ball. 

That said, it is never too late to begin this work. The first step is to explore the why. It’s been six years since the Pope’s “Care For Our Common Home” encyclical came out, which eloquently linked exploitation of the environment with poverty and other social ills. Nonprofits need to make similar links.

SN: What are the impediments to doing this work?

EY: Unfortunately, we have siloed all of our issues historically. For instance, nonprofits tend to separate social justice, climate change and public health, which is kind of a reflection of the way we work as a society and in academia. But their missions are linked and the more they can recognize that the better. For instance, indigenous communities have deep connections to the lands and waters where they fish, hunt and gather, making their health and livelihoods highly vulnerable to the impacts of climate change. Just as historic redlining and discriminatory housing policies have disproportionately impacted communities of color, so has the disproportionate siting of toxic facilities in Black and Brown neighborhoods.  

One of the many things the pandemic has brought into sharp focus is just how interconnected these issues are. Now is the time for our nonprofit community to embrace ESG as a framework for advancing their missions to build a better world. 

We’re grateful to Emily for these insights. Our team at SustainabilityNext has significant experience working with the nonprofit and philanthropic sector and we look forward to working together with our colleagues at The Nonprofit Institute, PBO Advisory and elsewhere to help nonprofits focus holistically on ESG and sustainability.