This paper seeks to outline the rise of environmental, social (or sustainability1) and governance factors (ESG) in the commercial sector and explain how they will become increasingly relevant to modern charities. It covers the drive behind the increasing use of ESG factors in investment decisions, reputational risks, environmental awareness amongst consumers and clients and the need to attract talent with different motivations to work.
While larger charities, with funds to invest, will be aware of ESG in terms of investment decisions, such as avoiding carbon-heavy or extractive industries, others will not be familiar with the concept or believe that as they do not have substantial funds to use to influence corporate behaviour the ESG discussion is not relevant to them. However, this is not just about investment. There are increasing pressures on charities to demonstrate that they are making a positive impact on society and are not doing any harm to others in the pursuit of their charitable objects. ESG concerns are already being discussed by charities, of all sizes, they just might not recognise it as such. The pandemic has forced charities to re-evaluate how they operate: the use of digital; reduced travel; office space; flexible working and alternative business models are all elements of the ESG agenda instigated by ESG risk.
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