In Principle 3 of the Code, charities need to be “aware of the importance, risk factors and issues on Environmental, Social and Governance (ESG) and conducts itself responsibly in these three areas.”
The sustainability of a charity describes its ability to serve its beneficiaries over the long term while remaining true to its purpose. The factors that can determine if a charity is sustainable are:
1. Qualifications, experience and diversity of Board members.
2. The charity’s ability to raise funds and attract donations.
3. Public interest warrants the continuity of the charity.
4. Clarity and credibility of the charity’s purpose, cause, mission, vision and strategy.
5. Fit for purpose. The relevance of a charity can atrophies over time if the charity doesn’t guard itself
against complacency and “business as usual” attitudes.
6. Quality of staff and management.
7. Ability to attract and retain a strong foundation of volunteers.
8. Effectiveness and efficiency of the charity’s operations, systems and processes.
9. Compliance with relevant laws and regulations, including those related to climate change.
10. Transparency of the charity’s business model.
11. Adequacy of financial reserves on hand to tide over a rainy day, should fund raising falls short.
These sustainability factors, which are all equally important, can be grouped by Environmental, Social and Governance (ESG) categories to make sense of the myriad factors that can impact charities. The ESG categories is a useful framework that is used by companies to track the performance of their sustainability factors. The Sustainability Accounting Standards Board (SASB) and Global Reporting Initiative (GRI) are two useful standards that charities can adopt to guide them in developing their ESG frameworks.
The more critical issue for charities is how can they determine the relevance and importance of each sustainability factor. How does a charity rank, for example, its purpose compared to the quality of its staff and volunteers? Without the right purpose or cause, the charity would be unable to attract the right talent. But without the right talent, the charity would be unable to give life to its purpose. And is the charity paying the right salaries for the right talent or is it paying what it can afford and hope that good enough talent can be attracted to join the charity? How can charities sustain their operations as a “non-profit organisation” if they must pay salaries at or close to market rates and build financial reserves to prepare for a rainy day?
The yardstick used in ranking and measuring each sustainability factor is ultimately dependent on the stakeholder groups that have an interest in the charity. Who are these stakeholders and what makes them unique to charities
This group of stakeholders are probably most interested in the purpose or cause of the charity - what is their “why”? Was it established to serve a religion, a specific group of people like the poor or those with a medical condition like kidney failure? Clarity of purpose is important to ensure credibility of the charity and garner public support and a steady stream of donations. Donors will also be keen to understand the charity’s business model i.e. how does it ensure that it builds up strong reserves albeit seen as a non-profit organisation. These are competing and conflicting objectives that charities have to manage in the eyes of its most challenging stakeholders amongst all the rest.
When you're riding a tiger, the hard part is getting off. This is a Chinese saying which means that once a difficult venture has begun, it’s not easy to discontinue it. Similarly, it’s not easy to sustain a charity. Beneficiaries need to believe that the charity’s operations is befitting of its purpose, staff are competent, there’s public confidence and donors continue their support. Everyone gets on the back of the tiger and needs to stay on, else the beneficiaries get the short end of the stick. Beneficiaries need to believe that everyone is committed to staying on the tiger’s back.
This group of stakeholders form the backbone of the charity. Usually not paid, they work tirelessly to help serve the purpose of the charity. In return, they may expect recognition, sometimes in the form of a few kind words, at other times perhaps a meal coupled with plaques of appreciation. Generally well meaning, volunteers are the ambassadors of the charity and needs proper management. This sustainability factor needs dedication and is a strategic matter.
Staff with the right competency and skills are needed to run the operations of a charity and talent comes with a price tag unless you are a volunteer. Granted that most people who work for charities expect to receive discounted salaries, there is a discount threshold below which there will be no takers. This is a sustainability factor that needs to be addressed and is a constant challenge. Where do you draw the line?
Because they receive donations from the public, charities are under intense scrutiny over how they raise funds, how they operate and how they report on it. Regulators must balance between having a soft touch and wielding the stick to ensure that charities comply with necessary rules and regulations. There have been enough financial scandals involving charities that the public interest has to be considered.
It’s not difficult to list down the sustainability factors that are material or important to charities. It’s more of a challenge to manage stakeholder expectations on how these sustainability factors relate to them and the sustainability of the charity. It can be a complex matrix.
Below are some of the steps on how charities should know and engage with their stakeholders:
1. Ensure that stakeholder engagement is a strategic matter and is properly planned and executed. It’s a full-time job. Both the Board and senior management of the charity must be involved in the planning and execution of stakeholder engagement. The Board must ensure clarity of purpose and management’s take on the charity’s strategy must be laser focused.
2. Regularly determine the sustainability factors relevant to each stakeholder group and how each factor is viewed and evaluated/measured. Benchmark your list of sustainability factors against other charities.
3. Schedule regular communication with each stakeholder group and not just donors and beneficiaries. Use a variety of communication channels in order to obtain diverse views and feedback. Charities can glean valuable feedback from their stakeholders through social media analytics, focus group sessions, surveys and “kopi sessions”.
“Beauty lies in the eye of the beholder” is an idiom that is used to express the fact that not all people have the same opinion about what is attractive. The sustainability of a charity depends on its stakeholders. Engage with your stakeholders and look them in their eyes.
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