Charities could lose potential supporters if they are not more open about ESG matters, report concludes

Charities have been warned that potential supporters will “readily move on” unless they are more transparent about their environmental and social impact.

A new report by the finance firm RSM argues that charities face exposure on social media if their environmental, social and governance standards fall below public expectations.

The research, What Does ESG Mean for the Charity Sector?, examines the annual accounts and websites of 114 UK charities to establish the quality of ESG reporting in the sector.

RSM found that fewer than one in four charities in its study - 23 per cent - included a section in their annual accounts that looked at activities that “fall under the ESG umbrella”. 

No charities had sections dedicated exclusively to ESG on either their website or in their annual report.

Charities with annual incomes of more than £25m were six times more likely to publish some ESG details than those with an income of £5m or less, researchers found.

The report says charities, like private companies, are “under heavier scrutiny than ever before”. 

It says: “Anyone with access to a computer or a phone can research the charities they interact with. 

“If practices that fall below society’s expectations, including but not limited to improper waste disposal, poor engagement with diversity and inclusion or overly inflated remuneration, are discovered people can and will readily move on — and also potentially share damaging performance information on social media channels which can expose the charity to reputational damage. 

“So it is more important than ever before to start including a separate section devoted to ESG within annual reports. It is direct communication to stakeholders which helps keep them updated.”

One in three of the charities investigated have a published governance code, while nearly all of the largest charities published the information on carbon and energy use required by the government.

RSM urged charities to consider their ESG commitments when choosing corporate partners, especially given the financial pressures created by the pandemic. 

The report says: “Involvement with charities and local communities is a pivotal part of many corporate ESG strategies and charities must ensure they partner with a corporate that is the right strategic fit for the individual charity’s purpose.”

Charities were chosen at random from a representative sample taken from regulators in England and Wales, Scotland and Northern Ireland, based on income and the focus of their work.

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