Four Reasons Nonprofits Should Care About ESG

ESG, or environmental, social, and governance, has become an expected reporting framework for companies that highlights how they are managing risks and opportunities within those three pillars. A concept that first originated in the 1950’s, ESG has grown to be a prominent component of companies’ strategies, with investors, employees, and consumers all paying attention to a company’s ESG performance.

With this growth in prominence of ESG, there’s a big opportunity for nonprofits, education institutions, and other social impact organizations to consider ESG factors as part of their overall strategies as well. After all, these factors impact every organization, not just companies, in numerous ways – and nonprofits should care about issues like sustainability, DEI, human rights, and transparency as part of their organizational missions and impact.

Here are four reasons why nonprofits and all social impact organizations should care about ESG:

1. Increase transparency to stand out

As Jennifer Hawkins, corporate secretary and chief of staff at the American Red Cross, pointed out in this article, more than ever, people want to be affiliated with organizations that share their values. Being transparent about your organization’s ESG activities can demonstrate to potential volunteers, employees, donors, and other stakeholders what your organization’s values are and how you are focused on continuing to ensure that your organization has a positive impact on the word beyond just its stated mission.

It’s also a way to stand out from the crowd. There are many organizations competing for your constituents’ time and resources. If you can demonstrate that not only are you focused on your mission, but you have also prioritized initiatives like increasing pay equity, reducing your carbon footprint, and diversifying your board of directors, that’s a message that will resonate and set you apart.

ESG transparency is becoming an increasingly important expectation for higher education institutions as well. The Association for the Advancement of Sustainability in Higher Education (AASHE) releases an annual Sustainable Campus Index that highlights the most sustainable colleges and universities across 17 impact areas. Nearly 600 institutions in 20 countries participate in the reporting, and are assigned Bronze, Silver, Gold, or Platinum ratings. In an era where young people place great importance on sustainability, reporting such as this can have an impact on student engagement and recruitment.

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2. Connect with corporate funders

Jennifer also highlighted how telling your own ESG story can help your organization stand out when submitting proposals for corporate grants. Since companies are already focused on telling their ESG stories and meeting their ESG goals, incorporating your own ESG framework into your proposals can help draw a clearer line between your organization’s priorities and work and their goals, bolstering your case for support.

3. Attract the next generation of employees

The Millennial and Gen Z generations will account for 72% of the world’s workforce by 2029, and these generations have been a driving force behind the push for ESG reporting and responsible business operations. These employees want to work for organizations they see as responsible. Consider this data:

  • 70% of Gen Zer’s are more likely to work for a company with a strong green footprint

Of course, social impact organizations already have the advantage of being mission-driven, but to attract top talent, simply touting your mission may not be enough. Your prospective and current employees want to see that you are also focused on matters that impact their daily experience and the community or world at large: diversity, equity, and inclusion, sustainable business practices, employee engagement practices, and more. And just as your donors benefit from seeing the impact of your work, prospective and current employees can keep track of your organization’s progress in these areas through ESG reporting.

4. Mature your organizational strategy

As ESG expert Timothy J. McClimon, president of The Celeste Group and former president of the American Express Foundation and SVP for Corporate Social Responsibility at American Express, said in an interview with the ENGAGE podcast last year, ESG is an operating strategy and a way for organizations to look at the work they do and the impact they have on various stakeholders. Tim explained that adopting an ESG framework can be as simple or as complex as needed. And at its core, is as simple as thinking about your impact on your employees, your constituents, your community, and the environment. All of which are elements that every successful organization should be thinking about and incorporating as part of their operations and business strategy.