Nonprofits should care about ESG, too

This article originally appeared on my LinkedIn page here on August 2, 2021.

While the Environmental, Social, and Governance (ESG) discussions have been largely focused on corporate (i.e., for-profit) entities, it is time for our nation’s nonprofit organizations to pay attention – and I would say, embrace – the practice.

What is ESG?

Wikipedia defines ESG as “the three central factors in measuring the sustainability and societal impact of an investment in a company or business.”[i] CNBC has an even simpler description: “investments made with an aim to contribute to a better environment, society, or workplace.”[ii]

The operating motive of nonprofit organizations (NPOs) differs markedly from for-profit corporations – achieving their purpose rather than making a profit. That is not to say that nonprofits cannot or do not make a profit. But rather than transferring their profit to shareholders they return any excess revenue toward their mission-based activities.

Nonprofits can set the example

Our nation’s nonprofit organizations can follow the lead of our corporate counterparts by developing standardized metrics and implementing an ESG mindset. We just need to learn how. Some would say that NPOs, because of what they are, have an ingrained ESG focus and their leaders are “born believers” in sustainability. After all, the nation’s “1.3 million charitable nonprofits feed, heal, shelter, educate, nurture, and inspire people of every age, gender, race, and socioeconomic status.”[iii] But that simplified belief belies the reality. Sure, an environmental nonprofit, for example, will likely ace the E part of ESG strategies. But what are their governance practices? Do they pay their employees a living wage? Do they use diverse contractors and vendors? Maybe they do, but who knows for sure – and how can we implement practices and metrics that work for nonprofits across the spectrum.

There are excellent examples all around us if we just pay attention. Take the Cincinnati Zoo, for example. They have a long-standing tradition of environmental action – advocating for and conserving nature, educating others, and serving the community. But they have gone several steps beyond that mission in recent years. The Zoo is located in a low income neighborhood in Cincinnati called Avondale. It has high unemployment, high crime, and is ‘underserved’ in many ways. The Zoo has committed to building a strong relationship with their neighbors and using their resources and influence to build a stronger, safer community.

To that end, the Cincinnati Zoo partnered with energy conservation solutions provider Donovan Energy and the Duke Energy Class Benefit Fund on the Light Up Avondale project.[iv] Not only did they convert to 100% LED lighting throughout the Zoo but they engaged with the community to extend those upgrades to churches, nonprofits, and residences in the neighborhood – about 90 by 2019. AND they added LED street lighting to local “trouble spots” to reduce crime and improve safety for residents. The project also had a workforce development and employment aspect, providing jobs for youth, young adults, and contractors in the neighborhood.

The Light Up Avondale project has been a large and successful effort with multiple benefits, in part because the Cincinnati Zoo is a large, well-funded, and highly-regarded nonprofit institution. But what about a smaller nonprofit? What can they do within their mission-based work to also promote better environmental, social, and governance practices?

Any nonprofit can extend their mission to intentionally include an ESG lens.

The answer, of course, is 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.

If you're ready to get started, here are some practical tips for nonprofits of all sizes.

[i] Environmental, social and corporate governance. Retrieved 10/26/2020 from https://en.wikipedia.org/wiki/Environmental,_social_and_corporate_governance.

[ii] Amaro, S. “Unregulated ‘greenwashing’? ESG investing is under the microscope as the money rolls in”. CNBC.com. Retrieved 11/13/2020 from https://www.cnbc.com/2020/10/14/esg-investing-meaning-is-under-the-microscope-as-the-money-rolls-in.html.

[iii] “Nonprofit Impact Matters: How America’s Charitable Nonprofits Strengthen Communities and Improve Lives.” National Council of Nonprofits. September 1, 2019. Retrieved 10/27/2020 from https://www.nonprofitimpactmatters.org/site/assets/files/1/nonprofit-impact-matters-sept-2019-1.pdf.

[iv] “Light Up Avondale.” Retrieved 11/11/2020 from http://cincinnatizoo.org/conservation/go-green/light-up-avondale/.