Guiding for-purpose organisations towards a sustainable future

However, while the programs of an NFP are sustainability oriented, the NFP as an organisation may not be as sustainable as often assumed. In this article, we highlight the significant advantages NPFs can gain from integrating holistic sustainability considerations into their strategy and operations. We also offer recommendations to help NFPs begin or advance their Environmental, Social, and Governance (ESG) journey.

What is sustainability and why does it matter to have a sustainability strategy?

“Sustainable Development is development that meets the needs of the present without compromising the ability of future generations to meet their needs”[1].

In practice, the concept of sustainability is often operationalised through the popular ESG framework. To be sustainable, an organisation needs to consider and balance a wide range of ESG topics such as diversity and inclusion, ethics, human rights, climate change or biodiversity.

Sustainability is about considering a wider scope of risks across a much longer time horizon. Ultimately, sustainability is about future-proofing your organisation.

Organisations often have a short-term view when it comes to risk management or planning. Integrating sustainability considerations requires organisations to have a much more forward-looking approach, considering short, medium, and long term. By doing so, organisations can better anticipate risks and seize opportunities.

Overall, by proactively integrating sustainability considerations and develop an ad hoc sustainability strategy, NFPs can ensure their success over the short, medium, and long-term.

What is the main the driving force pushing organisations to develop and implement a sustainability strategy and ESG reporting?

The most important driving force is donors or philanthropic investors that set specific requirements to provide funding. For example, one of the key values of the Myer Foundation is environmental sustainability[2]. By demonstrating their commitment and reporting on their actions to enhance environmental sustainability, NFPs would improve their chances of getting funding. Another example is the Lord Mayor’s Charitable Foundation that include sustainability as one of its funding principles. This is explained as follows: “Sustainability of the activity following the conclusion of the grant will be taken into consideration when assessing grants noting that change takes time.”[3] When assessing grant applications, Perpetual is “looking for organisations that understand what a sustainable business model looks like to them and how this is measured” and expect the “organisation has a good understanding of the wide range of risks relevant to it and its work and is actively working to mitigate and manage these risks.”[4] This approach aligns with the definition of sustainability previously mentioned, that sustainability is about future-proofing an organisation by considering a broader scope of risks over a longer time period.

Paying attention to the difference between the organisation and its programs

NPFs have usually several programs that align with their values and mission. These programs often pursue environmental or social causes. For example, a specific NFP may have advocacy programs to improve the inclusion of people with a disability in the workplace. However, this NFP as an employer may not have implemented policies and infrastructures to facilitate the inclusion of people with a disability. This discrepancy is problematic and NPFs should ensure that their programs are also reflected in the way they operate as an organisation. Sustainability should be embedded at the program level but also at the organisational level to meet funders requirements.

How to develop and implement a sustainability strategy?

The first step for an NFP aiming to develop a sustainability strategy is to educate its directors and senior executives on what is sustainability and the different sustainability related risks and opportunities.

Then, the NFP needs to identify the sustainability topics that matter most to the organisation and its stakeholders. While there is a very wide range of sustainability topics, not all these topics will be material (i.e. have important financial effects and/or have a significant impact on stakeholders). By performing a materiality assessment, the NFP can narrow the scope of sustainability topics and then develop a focused sustainability strategy.

How to engage with stakeholders?

Stakeholders may be affected by different sustainability topics and so it is important to clearly link stakeholders to specific sustainability matters. For example, gender pay equity is likely to be a key sustainability topic that impacts employees, while biodiversity preservation may be impact more nature (a silent stakeholder as per the Corporate Sustainability Reporting Directive - CSRD) and local communities.

NFP needs to develop a specific strategy to engage with its different stakeholders. Factors to consider include:

• Level of influence on stakeholder on the decision process: The NFP needs to decide if its only seeks to gather the view of the stakeholders (e.g. through a survey) or it aims to give power to stakeholders over its decision process on the sustainability issue that affect them (e.g. citizen jury).
• Number and access to stakeholders: An NFP with 5 donors will probably choose to engage with its donor through private dialogue and direct discussions. In contrast, for an NFP with 10,000 donors, using survey and having follow up interviews with a limited number of donors is more appropriate.

Don’t brush away climate risks too quickly

For NFPs (as for businesses), it may be tempting to quickly rebuke climate change as one of the material sustainability topics. A few precautions should however be taken. First, it is important to highlight that climate-related risks should be considered over the short, medium, and long-term, such as up to 2050. Second, there is a strong presumption that any organisations will be impacted in a way or another by climate change. Therefore, NFPs should spend adequate time analysing their potential exposure to climate-related risks and opportunities.

Greenwashing and the importance of a “balanced” ESG reporting

A few years ago, I interviewed a number of NFPs to understand how they report their service performance. One question asked was about the willingness of NFPs to report on “bad news” (e.g. delays, project that failed, ...) and provide a balanced service performance report. Most of respondents expressed reluctance to disclose “bad” news as the reporting often serves also as a fund-raising document and donors may be unhappy about that “bad” news. Two implications from this finding:

First, it is important to highlight that disclosing “bad news” can be an opportunity to build up trust with a donor as mentioned by a few philanthropists we talked to. Proactive and timely disclosures give the opportunity for donors to potentially provide assistance to remedy delays or other issues faced by the NFP.

Second, NFPs need to be particularly vigilant with the temptation of embellishing their sustainability performance in their reporting. Regulators are cracking down on greenwashing claimsand so NFPs want to make sure that they can substantiate their environmental claims and reliably report on their sustainability performance. In this regard, the Australian Competition & Consumer Commission (ACCC) has published eight principles in its Making environmental claims: A guide for business[5] that would be relevant for NFPs to consider.

If you would like more information or you require assistance with preparing, navigating or reporting on sustainability measures, please contact your usual Forvis Mazars advisor or alternatively our sustainability experts via the form below or on:

Author: Damien Lambert

Published: 11/7/2024   

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[1]Frequently Asked Questions | UNEP - UN Environment Programme

[2]Sidney Myer Fund & The Myer Foundation

[3]Lord Mayor's Charitable Foundation - About (lmcf.org.au)

[4]IMPACT Funding (perpetual.com.au)

[5]Making environmental claims: A guide for business | ACCC