2023 progress review: ESG in charities

Interest in environmental, social and governance (ESG) reporting has increased significantly over the past few years, and our latest research evidences this in charities.

In 2022, we launched our first publication into ESG reporting in the charity sector following our research of charities’ annual reports and websites. Our report, ‘The rise of ESG – what does it mean for the charities sector’, explored the ways in which charities are communicating their engagement with ESG matters, while also acting as a benchmarking tool for charities to assess and compare their ESG reporting to others in the market.

To assess the development in ESG performance reporting within the charity sector, we have conducted a research update, as charities begin to file this years’ accounts. Once again, we examined areas of ESG that are commonly reported using the annual reports and websites of charities across the UK. 

ESG is made up of three pillars

Environmental
How an organisation interacts with and impacts its surrounding environment

Social 
How it interacts with society

Governance
How it manages governance

Key findings

ESG-focused inclusion in annual reporting

Of the charities we analysed, still, no charity included a section specifically labelled ‘ESG’ in either their website or annual report. However, 27% of charities included a section referencing activity that falls under the ESG umbrella. This is an increase from the 23% we reported in 2022. Sections that were reported covered a range of topics demonstrating the breadth of opportunity for charities to engage with ESG. These sections provide examples of important ESG-related initiatives and reporting criteria such as: 

• diversity and inclusion;
• gender pay gap reporting;
• social investment policy;
• policy for employment of disabled persons;
• sustainability; and
• environment.
  
  

Overall, there is not a significant proportion of charities engaging directly under the ESG banner. This could be due to the already extensive Charities Statement of Recommended Practice (SORP) requirements for charity narrative reporting. Charities already struggle to accommodate additional narrative reporting, even voluntarily, in their annual reports as they have been getting longer over the last two decades. However, websites are more accessible and an easier medium to present more varied information. Going forward, this is something that charities could explore when considering their ESG reporting.

Encouragingly, there has been an increase in the number of charities with a separate page relating to ESG on their website, from 14% to 33%. These include ’sustainability’ or ‘responsible business’ pages.

Streamlined Energy and Carbon Reporting (SECR) requires obligated companies to report on their energy consumption and greenhouse gas emissions within financial reports. SECR applies to all companies that satisfy two or more of the following criteria:

• 250 or more employees;
• turnover in excess of £36 million; or
• Balance sheet in excess of £18 million.

Of the 48 charities researched, 12 met the above criteria. Four of these organisations include a section on SECR and a further five reported carbon emissions in other areas of the report, effectively complying with filing requirements. However, considering SECR is a legislative requirement determined by organisation size, the reporting says little about the intent for ESG initiatives.

Referencing The Charity Commission’s public benefit requirements

In England and Wales, 97% of charities stated in their annual report that their organisation met public benefit requirements. There are two aspects of public benefit: the ‘public aspect’ and the ‘benefit aspect’.

Recognition of ‘doing no harm’ fits firmly under the ‘public aspect’ and is directly linked to ESG considerations. This is a slight decrease of 1% from our last research but still shows an exceptionally high degree of consideration of the ‘social’ in ESG. This is not unexpected for the charity sector, given their public benefit and social purpose. Nonetheless, it is reassuring that charities are reporting on their purpose effectively.

Following the Charity Governance Code or other codes

The Charity Governance Code is just one example of a code or mechanism that indirectly encourages charities to think about their approach to ESG.

Adopting the Charity Governance Code can complement ESG initiatives within the charity through greater emphasis or clarity, such as the diversity principle, and highlighting the importance of safeguarding. There are other governance codes available to charities, especially those in sub-sectors, for example, sports charities and The Code for Sports Governance.

However, only a quarter of charities referenced a governance code (down from 34%). This may be a consequence of the move towards enhanced ESG reporting. However, it could be attributed to a decline in awareness surrounding the Charity Governance Code. The code was last updated in December 2020 and engagement with it is typically higher immediately following a refresh or update. These findings confirm the need for the sector to increase promotion of the Charity Governance Code to boost uptake and improve standards with charities striving for best practice.

Methodology

In late 2021, RSM conducted analysis of 114 charities, full details of which can be found in our ‘What does ESG mean for the charities sector?’ report.

To monitor progress, we took a snapshot of the sector in October 2022, analysing 48 charities to see how ESG reporting had moved on.

Due to the timing of the research, we were restricted on how many charities had filed year-end accounts for 2021. Due to different filing dates, no accounts for charities in Scotland were available.

Further reading

This short report acts as a small-scale insight to the prominence of ESG in charities. Our ‘The rise of ESG in charities report’ looks at how charities are communicating their engagement with ESG matters.

This 'ESG reporting for smaller charities' article by ACCA looks at how trustees of smaller charities can start on their own journey of ESG reporting.

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