Charity Governance: the key to ESG

With ESG considerations impacting on areas of a charity’s operations including procurement, estate management, HR, IT, as well as a charity’s brand, it is important that the charity trustees and leadership team are on board and committed to making a success of ESG.

As a result of its pervasive nature, it is also vital that responsibility for and oversight of embedding ESG into a charity’s operations is allocated to a particular person, persons or committee at a senior level.

This could involve putting ESG as a standing item on the Agenda of every trustee / board meeting, and consider whether one trustee – or a sub-committee of trustees – should be “ESG Champion(s)”.

Also, the charity’s trustees and leadership team should engage with all employees about ESG policies. It will make them feel more involved, and the chances are they will have some great ideas that won’t have occurred to trustees.

Where to start for charity trustees?

All charity trustees who are unsure whether they have the remit to look beyond fulfilling their charity’s purposes for the public benefit to embed ESG considerations into the operations of their charity can take comfort from the Charity Governance Code.

Although the Charity Governance Code is not officially a piece of Charity Commission guidance, it has been endorsed by the Commission, and it encourages “all charities to read, follow and apply it proportionately to their circumstance.”

The “Governance” in ESG

The Charity Governance Code is the main starting point for working towards the “governance” element of ESG. Its principles cover many issues encompassed within that component of ESG, including:

  • Integrity – the board adopts values, applies ethical principles to decisions and creates a welcoming and supportive culture which helps achieve the charity’s purposes,
  • Equality, diversity and inclusion – these principles should be embedded in the charity and help to deliver the charity’s public benefit, with obstacles to participation reduced, and
  • Openness and accountability – the charity should be open in its work, with real accountability through genuine and open two-way communication

The “Environmental” and “Social” components

Trustees of charitable companies should already be aware of the duty to promote the success of their charitable company, contained in s.172 Companies Act 2006, which includes having regard to the impact of the company's operations on the community and the environment – opening the door to consideration of non-governance ESG matters.

The Charity Governance Code’s first principle, however, also provides all charity trustees with direction in relation to non-governance ESG matters:

Principle 1. Organisational Purpose; The board is clear about the charity’s aims and ensures that these are being delivered effectively and sustainably.

Included in the recommended practice for this first principle is: 1.5.3 The board recognises its broader responsibilities towards communities, stakeholders, wider society and the environment, and acts on them in a manner consistent with the charity’s purposes, values and available resources.

It is clear that charity trustees not only can take various ESG considerations into account in running their charity, but should recognise the charity’s responsibilities in these areas, and act on them, as a matter of good practice.

Visit our ESG page for more information about ESG at Mills and Reeve.

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Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.

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