The ESG Opportunity For Nonprofits: It Starts With Looking In The Mirror

Created By: Stephen K. Orr, Tisha L. Hyter, and Shaby T. Rosales
May 18, 2021

Not every business trend deserves the consideration of nonprofit executives. You may not need to free up any bandwidth to learn about Six Sigma or Total Quality Management, but the emerging focus on Environmental, Social, and Governance (ESG) matters is well worth careful attention because it represents a fundamental shift in values, with ramifications for every business, including the business of philanthropy. In our quest to advance our partners’ missions and to enable a better global society, Orr Group is on an ESG journey of our own.

ESG: A SHIFT IN BUSINESS STRATEGY

Bloomberg’s John Authers puts the matter succinctly in his column “ESG Drives a Stake Through [Milton] Friedman’s Legacy,” referring to the influential economist’s unapologetically single-minded focus on maximizing profits. Investor and Philanthropist Paul Tudor Jones elaborated at a recent event for JUST Capital (the nonprofit he co-founded and a former Orr Group partner): “When you just look and say that the only thing that a company has to worry about is making a profit, it gives that company a pass not to pay attention to pay equity, not to pay attention to gender equity, not to pay attention to racial equality. Not to pay attention to a whole host of social factors that at the end of the day are the basis and the foundation of a strong, vibrant society.”

Businesses are realizing that they can do good and do well at the same time. In his 2021 Letter to CEOs, BlackRock’s Larry Fink writes, “Companies with better ESG profiles are performing better than their peers, enjoying a ‘sustainability premium’.” As business and investment leaders incorporate ESG into their worldviews, they wind up embracing values that nonprofits have always fought for—fairness, justice, equity, sustainability, and so on—and this alignment creates an unprecedented opportunity for sustainable, authentic, and meaningful partnerships. 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.

To cite just one example of the new kind of corporate partnership, we recommend reading “Change Up: How Will New York City Define the Future of Work?” This 2019 publication was part of a joint effort between Echoing Green, an Orr Group partner, and Barclays that included a Social Innovation Challenge & Bootcamp, salons featuring the work of Echoing Green Fellows, and a Leadership Roundtable with social entrepreneurs. It was good for the nonprofit, good for the bank, and good for the city they both call home.

WHAT DOES ESG MEAN FOR YOUR NONPROFIT ORGANIZATION?

Corporations, investors, and CEOs aren’t changing overnight. This is a long road, with many twists and turns ahead, but smart nonprofits are already hearing the rumblings of ESG and positioning themselves to fit into the new landscape. The first step is a long, hard look in the mirror to see how you measure up according to metrics that can, admittedly, seem vague.

Among the three of us, there are several decades of corporate and nonprofit experience addressing most or all of the issues that nonprofits might confront when undertaking the work of ESG, and we offer these observations in the spirit of helping you and your organization reflect and adapt.

Environment

Even if your organization seemingly has nothing to do with, say, endangered species or solar power, it does have an ecological footprint, and virtually every decision you make as a leader has consequences. Do you allow your staff to telecommute when possible? Do you consider the origin of those goodies in the swag bag? Is all that air travel really necessary? The way you handle decisions about things like recycling and energy-efficient light bulbs says a lot about your organization. Current and prospective staff—as well as current and prospective donors—are paying attention.

Society

The pandemic and the overlapping racial reckoning have exposed cracks in the national foundation like never before. We are all still coming to terms with the role we play, both personally and professionally, in the inequities that have held back women, people of color, and the disabled for too long. Another transformational three-letter abbreviation—DEI (Diversity, Equity, and Inclusion)—is transforming corporations and nonprofits alike. This is no time for complacency. The people around you demand genuine, lasting change and not just performative goodwill gestures. Donors who see themselves as “Investors” in your cause will grow to expect it even more.

Governance

We all know that nonprofit board members have an important fundraising role to play, but there’s another dimension that demands humility and courage in equal measure: the backgrounds and lived experience of the people on your board. A board that is nearly entirely white, heterosexual, and male, with perhaps a tokenized woman or person of color, simply cannot provide the leadership necessary for an organization to address the changing world we live in. Proximate engagement, meaning voices of those closest to your mission, should be an integral component of what’s helping you achieve your vision. A board constituted along these lines will also be more helpful with establishing ESG objectives and metrics.

Environment, Society, and Governance should not be viewed in isolation from one another or separate from the ethos of your organization. They belong in every meeting and every casual interaction, creating an enriched donor experience, employee retention and opportunity to better amplify your efforts. The good news is that, with practice, they will take your organization to greater heights than ever before—not least because you’ll feel more connected to the planet and the people who live here.