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Why charities must embrace ESG reporting

Author: ICAEW Insights

Published: 07 Jun 2022

Higher levels of ESG reporting in the charity sector will help to support accountability, best practices and access to finance, explain Nick Sladden and Carys Tetlaw of RSM UK.

As the volume of environmental, social and governance (ESG) reporting required from businesses continues to mount, expectations are high among stakeholders that charities will follow suit.

With that in mind, an ICAEW webinar on Monday 13 June will provide charity accountants and trustees with some timely advice on the growing importance of ESG reporting in their field – and, for those who have yet to begin that journey, how to get started.

Evidence suggests that ESG awareness in the third sector is low. Indeed, a recent study of 114 charities’ annual accounts, by auditing and consulting firm RSM UK, found that none of those organisations had included a specific ESG section in their paperwork. However, almost a quarter (23%) had included a section referencing activities that were broadly aligned with ESG reporting.

The study’s findings suggest that charities must not only enhance their overall grasp of what ESG reporting entails, but formalise the knowledge they have already gathered. The webinar’s presenters, RSM Head of Charities Nick Sladden and Senior Consultant Carys Tetlaw, who led the study, explain why ESG is a topic that charities should be paying much greater attention to.

Why should ESG awareness be on charity trustees’ radars?

Larger charities may be familiar with ESG terminology through their investment into ‘responsible’ assets – but we believe that the essential concepts at the heart of ESG are relevant to charities’ operations and strategic planning, too.

Effective governance is critical for a well-run charity, and that underpins the ESG agenda. However, governance also considers the impact that a charity has on wider society – including opportunities and risks across areas such as climate change, diversity and inclusion, and executive pay.

ESG measures whether an organisation is doing the right thing – not just in terms of its charitable cause, but how well its day-to-day activities align with that mission.

Which primary responsibilities are incumbent upon charity trustees in an ESG context?

  • Ensuring the charity carries out its purpose for the public benefit, as required under charity law.
  • Complying with the charity’s governing document and the law. Recent updates to the Charity Governance Code included the publication of ethical principles in response to safeguarding incidents, together with Principle 6 (‘Equality, diversity and inclusion’). Those updates were designed to support good governance and delivery of charitable purpose, two important concepts within ESG.
  • Ensuring your charity is accountable. Reporting on ESG data helps to drive a charity’s accountability to its members, plus compliance with relevant laws and codes.

In which ways could it benefit a charity to know how its ESG reporting compares to that of similar organisations?

While the charity sector can look at established ESG reporting frameworks for guidance, they are often investor focused – so do not explicitly address the reporting requirements of charitable organisations.

As such, it can be useful to understand how other charities are meaningfully reporting on ESG, or relevant topics within an ESG-like approach – for example, towards managing climate change in operations, or diversity pay gaps.

That could include understanding which ESG topics are most relevant to a charity working in a similar sector – or even to see which methodologies or approaches that charity has taken to calculate particular metrics.

How is ESG awareness in charities evolving, compared to other sectors?

We recently attended a civil society conference and spoke to a number of charities about ESG. It became apparent that they are starting to consider the wider impacts of their operations in social or environmental contexts.

A number of other sectors have increased their awareness of ESG, and quality of reporting – but that can be driven by a range of factors. For example, the social housing sector has developed its own ESG reporting framework, with key stakeholders such as banks, investment managers and housing associations involved in the working group.

The aim is to secure long-term, well-priced finance – and encourage better performance – across the whole sector.

What will attendees get out of the webinar?

We hope that it will be an informative session for attendees, regardless of their current ESG awareness. We will draw on some examples of how charities have considered ESG in their day-to-day activities. The volume of ESG reporting across other sectors has increased, so we will also provide attendees with an overview of ESG reporting frameworks that could be relevant for their charity.

And as well as providing practical steps for getting started on ESG reporting, we will highlight examples of where it has been done well so far.

Book your place on ICAEW’s webinar Communicating impact – a step by step guide for reporting on your charity’s Environmental, Social and Governance (ESG) performance (Monday 13 June, 13:00-14:00)

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