We’re rapidly approaching the end of the days when organizations can pay lip service to their commitment to environmental, social, and governance (ESG) principles without backing up those claims with evidence and facts. And while a push is being made to standardize ESG policies, currently there’s no one “right” way. Instead, building your ESG policy in conjunction with your donors and/or grantors can help ensure their priorities on ESG are represented and tailored to your organization.
So how do you determine the right policies for your donors and grantors? It can be the worst of both worlds as ESG is both a hot topic and moving target. There currently are many different sets of standards, from the international Global Reporting Initiative (GRI) to the U.S.-based Sustainability Accounting Standards Board (SASB), that it can feel like a herculean task. While it may seem like a boilerplate process would simplify things, there’s no one-size-fits-all ESG program, because every organization faces unique issues and risks.
Some organizations are using their peers for guidance, or a “birds of a feather” approach. BlackRock developed its gold standard for ESG a few years ago, and there’s a trickle-down effect where emerging managers aim to match it. This approach can be helpful because no organization can follow the hundreds of recommendations found among the different sets of standards.
In addition, this could lead to various groups coming together to create a more uniform standard over the next few years and possibly result in a rise in third-party validation for ESG policies. Similar to how organizations maintain audited financial statements, they’ll also likely maintain audited ESG programs. But until then, there’s a lot of room for interpretation and confusion. That’s why the current focus should be on collaboration, not compliance.
Collaboration should focus on having comprehensive conversations with stakeholders, especially those who matter most—donors and/or grantors. Talk to them about their priorities and concerns regarding ESG and invite them into the process of crafting that policy. Collaboration with your donors and/or grantors can help align management and stakeholders in the ESG program’s execution. These conversations also can help establish a target that mitigates the risk of moving with the headlines.
To help build your ESG program, take this four-phase approach:
While you do need to assess the ESG concerns of your donors and/or grantors, executive leadership also must play a role in defining what success looks like, along with identifying risks, opportunities, and key performance indicators when selecting a reporting framework.
As you begin to design your ESG program, you should:
- Develop your narrative and messaging, identify data sources, assess the reliability of that data, design the ESG report, and develop a communication plan for stakeholders, e.g., donors, grantors, employees, constituents, students, and the media.
- Provide for the transparency of the reporting and look for tech solutions to facilitate reporting.
- Implement the messaging and a communication plan.
The effort doesn’t end there. You need to monitor the program, measuring and refining the reporting and messaging with feedback from stakeholders. It requires constant dialogue to verify the plan is working as it should. Recent research shows a growing appetite for third-party assurances from independent accounting firms to validate the efforts, given the ambiguous nature of measuring ESG results.
If there’s any hard-and-fast rule, it’s that an ESG policy can’t be a document that is written and then gathers dust. Donors and/or grantors will want to confirm organizations are living up to the standards and practices they’ve developed. Donors and grantors are now applying similar scrutiny to ESG metrics as they do to financial metrics—scrutiny that managers need.
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In addition, visit our ESG webpage to learn how we can help your organization navigate ESG and develop an effective ESG program.