Giving Compass' Take:
- Here are some cases in which incorporating the Environmental, Social, and Governance (ESG) principles doesn't always benefit smaller nonprofit organizations.
- How can both CSR and ESG efforts fit with nonprofit organizational missions? What are ways for donors to help bridge these gaps?
- Learn more about some of the flaws of ESG investing and potential solutions.
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Why give nonprofits something like ESG to implement when they are already living its principles?
Recently, there has been some discussion that the corporate framework of Environmental, Social, and Governance (ESG) should be adopted formally by various nonprofit organizations. At first glance, this might make sense: after all, this framework is intended to “measure sustainability […] not only related to the environment but also the ethics of the business.” Sounds great in theory—right? I mean, what nonprofit wouldn’t want to be more environmentally sustainable and ethical?! But when we take a closer look at the bureaucracy of what this framework actually entails, we realize what an absolute waste of time and resources it would be for most nonprofits to go through such a process.
So, what is ESG?
ESG was originally developed as a tool to help investors decide how well a corporation was dealing with risks in a changing world so they could decide how good an investment that corporation might be.
It now seems to be referenced more broadly and is used as shorthand for how well a corporation protects the environment as well as carries out progressive practices (such as not discriminating by race, color, ethnicity, gender, or whatever other categories seem appropriate). It’s the hottest trend in investing and, according to “The Atlantic,” a sham. But anti-wokeness aside, it’s also about as likely to be successful as all of its predecessors in holding corporations accountable for the world they’ve wrought.
A Quick Aside about Corporate History—and Why Using Corporate Frameworks Doesn’t Work for Nonprofits
As many of us are probably all too painfully aware, America is primarily run to benefit the owners of large corporations. After the Civil War, corporations began to move away from government regulation; they have since been used to dodge the law, including not paying taxes and creating monopolies (Facebook and Microsoft, for example) while legislators seem to give them increasingly free reign to rob, plunder, and pollute.
Considering the long history of American corporate irresponsibility, many people—including occasionally Congress and often nonprofits themselves—have made strong efforts to rein in the beast: they have done everything from passing laws and regulations (which corporate lawyers almost immediately try to upend) to appealing to the (supposed) humanity of CEOs via voluntary measurements and organizations—all in an attempt to keep corporate misbehavior to a minimum. While these intentions are good, the results have not been all that promising. Time and again voluntary commitments are missed or only honored in name, not deed.
There are now more different indices to rate corporations than you could imagine (alongside a burgeoning corporate responsibility consulting industry), none of which have ever really brought corporations set on shareholder profits into the fold. ESG is one of many tools now being offered to help the corporate economy move back from the brink of planetary disaster that it created, and I’d argue it is as likely to be successful as all of its predecessors. In other words, it is mostly a tool for greenwashing with no real enforceability.
Read the full article about ESG for small nonprofits by Greg Gerritt at Blue Avocado.