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ESG for Not-For-Profits

October 22, 2020

Posted in: WATSON Views

Discussions of purpose, stakeholder capitalism, social license, and environmental, social, and governance (ESG) are front and centre on corporate boardroom agendas. But what about organizations that have always been purpose driven? While most discussions of ESG are geared towards the for-profit context, there are important lessons and frameworks that are widely applicable for all types of organizations, including not-for-profits (NFPs). We’ve identified five ways NFPs can build on their purpose-driven roots and leverage the important work being done in this emerging discipline.


1) Translate your purpose into action

NFPs have always been purpose driven. Without the guise of maximizing returns, they have always had to define their purpose beyond financial results. The challenge for NFPs often comes from consistently translating purpose into action, ensuring projects and services serve their purpose, and measuring impact. While some NFPs are clear on their purpose, others experience mission creep driven by good intentions to solve problems and fill immediate needs. All organizations, including NFPs, must ensure they have a clear and specific purpose that articulates why they exist. The board and management must be aligned on this purpose and how to achieve it.

Next comes execution. When executing, consider how a program, service, or direction will advance the organization’s mission and purpose. Ensure the board and management team are clear on this link. Think about any unintended consequences on stakeholder groups and the interdependencies of decision-making. Will a decision benefit one group at the cost of another? What might the fallout be? How will funders respond to a given direction and what impact will this have?


2) Broaden your view of the stakeholder landscape

NFPs typically have a clearly defined group or cause that the organization serves. Sometimes, because this group is so clearly defined, organizations and boards focus exclusively on this one group and don’t pay enough attention to other stakeholder groups. These boards are encouraged to consider all stakeholder groups in decision-making, including those who might not be directly impacted by the decision.

Other NFPs are further along the curve in thinking about this and recognize their complex stakeholder landscape, from employees, funders, and government, to beneficiary groups and communities impacted by the organization. These organizations have been thinking beyond their primary audience for some time.

All NFPs can take their approach to stakeholder engagement to the next level by mapping stakeholder groups and thinking about how to balance competing stakeholder interests. Within each stakeholder group, there are different sub-groups that might have different (or competing) concerns, needs, and priorities. It’s up the board and management team to understand how each group is impacted by the organization and what is important to the group in order to shape how the organization approaches its engagement approach. The board must assure itself that it is getting the right information to guide their oversight of this key area and make informed and balanced trade-offs based on high-quality intel.


3) Stay ahead of the curve and revisit key conversations as needed

The world is changing by the day. Societal expectations of all types of organizations are changing rapidly, as is the potential for fallout if behaviour is left unchecked (or if inaction continues). Don’t assume decisions made six months ago will be the right ones for today. At the same time, the board cannot constantly revisit past decisions. And it won’t always get everything right. The important thing is to stay vigilant, pay attention to what is happening at other organizations, and consider how societal shifts might impact your organization. When making decisions, take a longer-term view, not only thinking of the immediate and expectations of today, but also anticipating where society might be going and planning ahead with that in mind.


4) Leverage the G of ESG

The governance side of ESG looks at a range of factors – management structure, employee relations, compensation, workplace diversity and inclusion, board diversity, talent management, employee relations, health and safety, labour practices, board independence, board composition and renewal, and more. While the specifics of these will look different in a NFP context, these are important areas for all boards to pay attention to and there are helpful frameworks to serve as a starting off point for NFPs looking to provide greater oversight in these areas. While practices and metrics will look different, there are great opportunities for NFPs to leverage the work being done in the corporate space and adjust and adapt it to serve their context and needs.


5) Assess your board’s approach and prioritize key areas of focus

While some ESG frameworks are more technical and geared towards responsible investment, others are broadly focused on organizational purpose, the stakeholder landscape, and governance structures and practices. The latter can be highly applicable to the NFP context. WATSON has developed a short survey to help all types of boards (including NFPs) assess their approach to stakeholder capitalism. Draw on these tools to start the conversation and determine where to focus next. While NFPs may not have the same organizational capacity to take on sweeping ESG initiatives, start small and take it one step at a time.

NFPs have a real opportunity to build on the strength of their purpose-driven foundation, drawing on leading ESG practices in the for-profit space and adapting them to suit their context. We need strong, sustainable NFPs more than ever with skilled boards that are equipped to deliver on purpose, serve all stakeholders, and navigate a changing world with care and intention.