“[It was] important to get external verification of our use of proceeds and to signal to the market that we were very concerned about best practices and adopting the highest possible disclosure standards currently expected by investors.”
As you undertake such initiatives, pay close attention to how you communicate your efforts. Especially in the not-for-profit environment, where one can be forgiven for thinking a purpose-driven mission is enough, it’s especially important to state what you are planning to do. Specifically, communications play a vital role in addressing and managing stakeholder concerns and expectations. This means crafting forthright disclosures, making scrupulous claims, adopting realistic and measurable metrics, and setting achievable goals. In some cases, such as issuing an ESG bond, it might make sense to arrange for a third party to provide objective assurance. Karen Kearney of Stanford University shared her institution’s experience: “Because this was our first ESG bond, it was important to get external verification of our use of proceeds and to signal to the market that we were very concerned about best practices and adopting the highest possible disclosure standards currently expected by investors.”
As scrutiny over ESG data continues to increase, take steps to avoid greenwashing — talking a good ESG game without following up with meaningful action or, conversely, overstating the significance of the actions you have taken. Forthcoming SEC regulations regarding ESG topics will raise the stakes for disclosures; while such regulations would not apply to not-for-profits, there might be some transferable reporting best practices of relevance to adopt.
Your not-for-profit has special opportunities — and challenges
Not-for-profits can seize a number of ESG opportunities, but each comes with its own challenges. For example, universities and other not-for-profits can apply ESG principles to their endowments and, as the holders of considerable investable assets, they are in a uniquely powerful position to advance positive change by selectively and intentionally investing such resources in a manner that aligns with ESG goals.
In light of the above, endowments must still comply with state, federal and prudent investor rules. In the early years of socially conscious investing, this posed special challenges. Jose Rasco pointed out, “Investing in something that didn’t have a positive screening strategy and investing in something that didn’t necessarily make money wasn’t really investing; that was more philanthropy or giving.”
Fortunately, the growth of impact investing — comprising, in part, positive screens (which include funds whose ESG policies provide a material advantage) and negative screens (which exclude funds with ESG flaws) — makes it easier for institutions to be both socially responsible and good stewards of funds. Because of this, it’s especially important to be thoughtful in the selection of fund managers.
Similarly, institutions of higher education can do more than meet today’s expectations. They can educate the next generation to preserve the environment, advance positive social change and promote good governance.
Ultimately, not-for-profits are well positioned to advance ESG solutions. The key to their broad success is a smartly conceived strategic approach to the many options available.
5 key takeaways
- Identify your place on the ESG maturity curve. What’s a reasonable approach, given your organization’s mission, size, complexity, geography, regulatory environment, access to data, current systems, ambition and level of institutional leadership buy-in?
- Focus on materiality. Of the available options, which are important to your stakeholders and will have the greatest operational impacts?
- Target your efforts. Devote time and resources to prioritized projects.
- Prioritize accurate data and disclosure. These are especially important in the absence of SEC or other regulations applicable to not-for-profits — and for providing assurance in a market moving toward addressing instances of greenwashing.
- Acknowledge the unique position of your nonprofit. Given the pervasive recognition of the need to address ESG, you are likely in a position to effect great change.
For further information and details, register to replay the webcast, The Future of Environmental, Social and Governance (ESG) Practices for the Not-for-Profit Industry.