All the talk at the moment in corporate reporting is around ESG reporting – Environmental, Social and Governance. There is a plethora of initiatives out there encouraging large corporates to disclose more about approaches to net zero, diversity, pay levels, supply chains, employee wellbeing etc.
Is this something confined to the corporate space or is this something that the charity sector ought to be more focussed on?
Why for the charity sector?
I start this with a genuine question. There is a perfectly reasonable school of thought that says that through the SORP requirements of trustees’ report, the CC annual return not to mention reporting to donors and supporters – there is already a lot being asked of charities. I am sympathetic to this argument. We don’t want to increase the compliance burden unnecessarily.
The other school of thought says that the charity is a major employer and contributor to the economy. It should and indeed must play its part. After all many of the underlying principles that lie behind ESG reporting – environmental protection, equal opportunity, poverty reduction, human rights – go right to the heart of what many charities exist to highlight and actively campaign for/work to reduce.
And what is more – many charities actively hold corporate to account for their performance on ESG factors. Their voice in doing so would have much more credibility if those charities individually and the sector more broadly saw this as something important. So as a sector there is a need I believe to walk the walk.
The final part of the case for why doing more now is the direction of travel in the regulatory arena. For some aspects of ESG reporting – it is highly likely that the next SORP update will require this – particularly for larger charities.
So better to be trying things now so that when such reporting becomes mandated we have some experience of what can be reported, ease of reporting and proportionality of reporting.
What are we doing already?
Breaking ‘ESG’ down to its component parts, charities (with income over £500,000) are already required to report on a range of governance and social factors. Certainly more than an equivalent commercial company.
On governance, there is the requirement to report on board recruitment, induction and training. There are the expectations of the Charity Code of Governance, risk management statements, disclosure of trustee related party transactions, investment policies etc.
There have been some more recent additions to the trustee report for social factors. Charities have for a long time had to report pay levels in bands over £60k. Then in response to some of the exposes on CEO pay – the need was added for remuneration policies to be disclosed. Charities employing over 250 staff need to make statements on employee engagement and gender pay gap reporting. Then Charities Act 2011 brought in the fundraising statement as well.
But what about environmental factors?
Until recently there was no requirement on any charities to make any specific disclosures on environmental factors. Some have been voluntarily reporting on their carbon footprint but nothing was mandated. Since April 2019 a charitable company that falls into the large company bracket (income over £38m, 250 plus employees) has to report under the snappy Streamlined Energy and Carbon Reporting (SECR). But this is not designed for charities and in practice drives a big data collection exercise rather than changing business practices.
While charities can disclose any additional environmental information on a voluntary basis, I am still struck by how few actually do.
Want to disclose more?
What can the charity sector learn from wider ESG reporting initiatives:
Probably of most relevance to the charity sector is the ESG Social Housing Reporting standard. This has been driven by the demands of social housing capital investors and includes consideration of:
- Beneficiary voice
- Climate change
- Resource management
- Structure & governance
- Staff wellbeing
- Supply chain
There are also a number of corporate initiatives charities could look at when considering frameworks for ESG reporting, which some larger charities have started to do. These initiatives include:
- The Global Reporting Initiative (GRI)
- Sustainability Accounting Standards Board (SASB)
- Task Force on Climate Related Disclosures (TFCRF)
While charities already report on issues that come under the social and governance banners, it is clear they could be doing much more on the environment. There is no doubt the obligation to do more will come, so charities, large and small, should start thinking about how they might approach it.
Some of the areas they could consider reporting on include:
- Carbon emissions
- Investment policy – how you use your investments to promote/safeguard environment sustainability
- Ethical procurement policy
- Changes in business practices (e.g., public transport, remote meetings)
- Employee practices (e.g., pension, cycle to work)
However, we recommend whatever a charity decides to do, it must be proportionate, flexible, and adapted to their individual circumstances and set within some form of external framework.
To find out more, listen to the Sayer Vincent webinar on Reporting on Sustainability, click here to request a recording.