The 'S' Opportunity for Not-for-Profit Leaders

What is ESG?

ESG (Environmental, Social, and Governance) principles and practices are significant factors for investors and members to consider when determining a company’s ethical value. Adherence to ESG frameworks is increasingly important for a company’s sustainability and for retaining its social license to operate. 

It is worth noting that companies that don’t define and measure their ESG authentically and ethically will face increasing scrutiny and potential backlash from a better-informed community. Breaking down ESG into its components helps us better understand its purpose in our organisational structure. 

• Environmental ethics consider issues such as carbon emissions, climate change, resource efficiency, conservation, pollution control, and waste management. 
• Social solidarity focuses on how companies engage with their communities and employees. Key aspects of this principle include community impact and engagement, diversity and inclusion, human rights, and labour practices. 
• Governance refers to company management and encompasses several important factors, such as board structure and independence, ethics, transparency, and executive compensation.

Measuring social outcomes, or ‘S’, in ESG has historically been poorly defined compared to Environmental impacts and Governance frameworks. This presents a challenge for all boards, including not-for-profit boards, to understand their contribution and transparently monitor whether the intended outcomes are being achieved. In this article, I will explore ABV’s model for sustainable social outcomes, which we have been dedicating our time to define. 

Social Outcomes: Community Engagement and Impact

A company’s level of community involvement and the impact of its operations on local communities are significant components of the social principle. The importance of this aspect cannot be overstated, as businesses do not exist in a vacuum; they are part of our society. Companies are evaluated on whether they positively contribute to the communities in which they operate.

Furthermore, a company’s contribution to local economic development and how it addresses any negative impacts are also significant considerations. A company with robust community engagement is often seen as having strong social responsibility, fostering trust and goodwill among its stakeholders.

As a CEO working for a mission-driven not-for-profit organisation, my primary focus is exceeding our partners’ expectations, demonstrating measurable results, and creating tangible positive outcomes for the people we impact.  Creating lasting social change requires expertise and dedicated resources. Board and management need to be clear on how ESG frameworks can be realistically and authentically implemented to create lasting and beneficial change for communities. We work closely with small businesses, entrepreneurs, families, neighbourhood centres, and business chambers to empower these groups through business support.

A case study in pivoting to needs of disaster affected communities in Australia.

Since 2020, ABV has undertaken a strategic shift to also work in disaster resilience initiatives aimed at mitigating the impact of disasters on regional Australian communities. This new program runs alongside strengthening small businesses in the Pacific which is work ABV has been doing for 40 years. As an international development agency, ABV saw a significant gap in supporting communities in preparedness and response through the 2019-2020 Black Summer bushfires on the East Coast of Australia. Communities hadn’t been engaged in their preparedness plans and were ill equipped to participate in their own response and recovery. ABV were able to bring international disaster preparedness and recovery principles alongside these communities, along with world class volunteer management, place-based planning capability and business continuity skills. Additionally, ABV’s volunteers weren’t able to travel into the Pacific and were available to pivot to this domestic work.

With time and skills on standby, ABV’s CEO, Liz Mackinlay, saw an opportunity to help communities and organisations impacted by the black summer bushfires. After emergency agencies were gone, businesses and charities were left scrambling for resources to rebuild their livelihoods. Liz knew that grant writing, business strategizing, marketing plans and other crucial business functions for resilience require expert guidance. ABV stepped in with remote business professionals who volunteered their time to support disaster resilience across New South Wales and Victoria. ABV’s pivot reflects a recognition of the increasing frequency and severity of natural disasters affecting Australia and the need for proactive measures to protect vulnerable communities.

How not-for-profits measure the social impact of our programs is important

Sustainability reporting often focuses only on the inputs and outputs of socially focused programs, such as the number of labour practices, employment programs, and community engagement. These metrics are easily measurable and make for simple reporting. However, what is left out is the outcomes of these programs, especially their long-term effects on community well-being and sustainability.

To measure outcomes, companies must engage deeply with the community and commit to understanding the effects of their social programs. The UN Sustainable Development Goals and other development frameworks prioritise the principle of doing no harm, and boards must ensure that their socially focussed programs produce no short—or long-term damage.

Truly understanding the needs of the community and implementing outcomes-based reporting is complex work. However, it will ensure that management and boards can be confident that their social responsibility efforts are designed and implemented effectively for the good of the community.

This article was first published in the 2024 Better Boards Conference Magazine.

Further Resources

ESG Governance Glossary

Reshaping the Board’s Role in Organisational Culture

Integrating ESG into Not-for-Profits: Managing Risks and Opportunities