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COVER STORY ESG: What does it mean in the non-profit sector?

What does it mean in the non-profit sector?

Many people wanting to donate to a charity choose one that has a specific personal meaning or connection. Others start with a topic they’re passionate about and then look for a nonprofit doing work in that space.

But at some point, most donors have to decide: which organization should I support?

The traditional approach has been to look at an organization’s accomplishments relative to its costs. The assumption is that less overhead means a better-run organization. But that lower overhead often comes at a price when other considerations are factored in.

Increasingly, donors and philanthropists are following the lead of the private sector and looking for elements of ESG (environmental, social and governance) in the nonprofits they are considering supporting. These three key factors are used when measuring the sustainability and ethical impact of an investment in a business or company. Most socially responsible investors check companies out using ESG criteria as a screening method.

“In the investment world, the expectations to be a leader in ESG performance have drastically increased for all companies,” says Jana Hanova, senior manager for EY’s sustainability services division. “The same rings true for non-profits. There is an expectation that non-profits deliver on ESG performance as well.” While the concept of ESG started in the investment world, it is now taking root in the non-profit sector, with more charities seeking to minimize their environmental impact, ensure they are not contributing to social problems, and diversify their governance practices. There are many ways non-profits in Ottawa are doing this: from tree planting and water refill stations at events, to adding board members who have relevant lived experiences, to improving the treatment of staff. In fact, one of the most important aspects for charities that find themselves under the ESG lens is the way in which employees are managed, which falls under the ”social” aspect.

This has been exacerbated by the pandemic. Studies show that workers are leaving the sector because of inadequate working conditions, and not just pay. For example, an Association of Fundraising Professionals survey found one-

quarter of responding workers at various non-profits had purchased home office supplies and equipment using their own money during the pandemic, rather than having these essentials supplied by their employer. “The expectations on ESG performance have drastically increased over the course of COVID,” says Hanova. “Some theorized that ESG would take a back seat, but the opposite has happened. ESG has been Jana Hanova catapulted to the forefront of people’s minds – people matter. Their treatment and experience in their workplace matters.” “Change only happens if we invite change in,” adds Sam Laprade, fundraising consultant and host of An Hour to Give on CityNews Ottawa. “We’re going through our messy adolescence in this sector. It’s good to be messy.” In this year’s Giving Guide, we look at the three aspects of ESG and how they apply to the non-profit sector. — By Phil Gaudreau

ESG

ENVIRONMENT

How a company performs as a steward of the environment. SOCIAL How a company manages relationships with employees, suppliers, customers and communities.

GOVERNANCE How effective a company's internal controls, conflict of interest guidelines, and other policies are, as well as the appropriateness of its executive compensation and board composition.

ENVIRONMENTAL

Even simple green initiatives can pay off big time

If you’re fundraising in 2022, forget the tchotchkes and bypass the paper — donors are becoming more environmental impact, Kluke says it is important to think about the big picture. “From an environmental perspective, we’re environmentally conscious and that means charities must find new ways of engaging supporters that respect their increasingly “green” inclinations.

Of course, this shift is happening as many non-profits struggle with increased demand for their services, coupled with shrinking resources. Fortunately, Tim Kluke sometimes doing the smart environmental thing also means doing the smart financial thing.

“Doing the right thing and cost savings are often realized together. In fact, it’s very common for an organization starting out on their ESG journey,” says Jana Hanova, senior manager for EY’s sustainability services division. “There are numerous quick wins or low-hanging fruit that can yield savings in the short term. Installing heat trapping films on windows, reducing water consumption and encouraging employees to walk or bike to work has its inherent benefits. When it comes to some of the bigger-ticket items, they tend to pay for themselves over a number of months or years.”

The Ottawa Hospital Foundation is in the midst of a $500-million fundraising campaign in support of the new Civic hospital campus. The foundation wants to make sure it’s pursuing a 21st-century approach to fundraising for a 21st-century hospital.

“COVID provided us an opportunity to look at our paper systems,” says Tim Kluke, the foundation’s CEO. “Instead of printing boxes of brochures, we can walk a donor through a digital brochure over a Zoom call and send them an electronic copy to share with family.”

Kluke adds that the foundation is decreasing direct mail fundraising by encouraging more donors to give and subscribe digitally, while also shifting the foundation’s workplace to hybrid with a focus on “being present with a purpose.”

Ultimately, that fundraising effort is supporting a massive construction project – one that will pave over green space and has seen trees cut down, to the dismay of some local residents. But, when considering the currently working with an inefficient 100-yearold facility and juxtaposing that with a stateof-the-art, energy-efficient hospital project,” he suggests. Kluke points to features such as renewable energy use, water conservation and reuse, electric vehicle charging stations, better waste management and more energyefficient materials, along with more green space on the campus as part of the overall plan. The new campus will also feature improved accessibility and include elements important to local Indigenous communities.

“We have a great opportunity when you start from scratch on a project like this,” adds Kluke. “We want this hospital to be pointed to nationally and internationally as best in class.”

For any non-profit, considering environmental impacts is something that is increasingly important not only to donors, but also to staff and volunteers, including boards of directors.

“There is a groundswell of interest from employees and strategic direction set from (the) top to enhance the ESG performance of organizations,” notes Hanova. “Demand for ESG is pervasive throughout all levels and it can be a differentiating factor to attract funding, but also to attract employees, leadership and volunteers.” — By Phil Gaudreau

Putting ethical fundraising into practice Ethical fundraising is a set of standards and benchmarks that enables organizations to manage their funds responsibly and report their financial affairs accurately and completely. Organizations like Imagine Canada, the Association of Fundraising Professionals, and Michael Maidment the Canadian Association of Gift Planners publish industry guidelines and codes that help to define the practice.

For Michael Maidment, CEO of the Ottawa Regional Cancer Foundation, transparency is the top priority. “It really works in your commitment to what you’re saying to the donor, how you represent the organization, the cause and the work that you do,” he says. Maidment points to how his organization uses data to tell the story of the foundation’s impact on cancer survivorship and research. The charity is careful to frame the contributions of its donors toward programs that improve the quality of life for survivors and their families. Occasionally, if a project is already fully funded, Maidment’s team has a transparent conversation with the prospective donor. “There’s never a situation that you would make that decision alone and move that money somewhere else,” Maidment explains. “Honesty and open communication are always the best practices there. And I’ve never seen a situation where a donor withdraws their support – they often say, ‘Let’s talk about another area where I can make an impact.’” — By Phil Gaudreau

What is social finance?

Social finance is an investment that seeks a measurable social, cultural and/or environmental impact as well as a financial return for the investor(s). It stands in contrast to grants and donations, which do not require a financial return; it also stands in contrast to traditional investments, which typically emphasize financial returns only.

What could social finance mean for the charitable sector?

Social finance could reduce charities’ reliance on grants by providing money that helps them to acquire new assets, maintain positive cash flow, and develop new, self-sustaining revenue streams. This can help shield charities from the volatility that comes with relying on a single source of revenue and can give these organizations greater autonomy.

There are risks, however.

Some charities that take on social finance may struggle to pay back investors. There is also the risk of “mission drift” if organizational resources are diverted towards the pursuit and management of social finance.

If charities are interested in seeking social finance, many will have to think and act differently. They will, for example, need to develop business models that allow them to deliver social, cultural and/or environmental impacts and financial returns.

An edited excerpt from Imagine Canada, “Are Charities Ready for Social Finance?”, 2020

SOCIAL

NPOs that pay a living wage see benefits for many stakeholders

Rent is increasing. Food costs are up. And even though Ontario’s minimum wage increased again this fall to $15.50, for many it doesn’t go far enough.

That’s why some non-profits and other organizations have been lobbying for years for a “living wage” — a calculation of what a family of four with two parents each working full-time year-round would need to make to cover the costs of living in their community.

Generally, the living wage is noticeably higher than the minimum wage. The Ontario Living Wage Network calculated the living wage in Ottawa as $18.60 per hour in November 2021. The network publishes a list of living wage employers. To be certified, employers go through an application process, are licensed by the network, and pay a fee. They’re also subject to regular reviews.

There are currently 15 certified Living Wage employers in Ottawa, including the Ottawa Humane Society, the Ottawa Outdoor Gear Library, the Parkdale Food Centre, and Matthew House Ottawa, which provides shelter, furnishings and community to refugees and those transitioning to permanent housing.

Matthew House currently maintains four full homes and is looking to increase to seven by year’s end. It also furnishes up to 100 homes for refugee families each

month. Even with these commitments, Matthew House believes in paying employees a living wage. “One of our core values is human dignity and all of the work that we do is done in a way that provides dignity to the people that we serve,” says Allan ReesorMcDowell, Matthew House Ottawa’s executive director. “I was aware of the living wage program from a previous employer and we were already paying staff above minimum wage. All of a sudden, we're sitting around the board table one day and thinking, ‘Yeah, why aren't we doing this?’” While one of the ways his organization remains focused on dignity is to pay staff a wage that allows them to afford basic necessities, Reesor-McDowell notes there is another equally important reason to pursue the certification. “By providing better compensation consistently, we can retain quality employees, which is really important for our organization,” he adds. “People have a lot of different hats that they have to wear and we need really solid people to do the work. So, the question becomes, how do we treat people so they want to stay?” Sam Laprade, fundraising consultant and host of An Hour to Give on CityNews Ottawa, points to the work that most charities put into retaining donors, which can be a difficult and expensive task, perhaps to the detriment of focusing on internal resources. Allan Reesor-McDowell “The topic of how we treat staff has come up more in the last couple of years than it did in the first 28 years of my career,” she says. “We do a disservice to the sector, to its people and to donors when we underpay staff and equip them with outdated tools.” At Matthew House, programs have been running up against capacity limits and the natural instinct in that situation might be to fundraise more in an effort to do more and continue to grow. But Reesor-McDowell notes his organization is taking a big picture view of how it can grow in a healthy and sustained way that does not burn out staff or volunteers, benefits clients and staff, and ensures the continuity of the organization. In keeping with that mindset, Matthew House offers employees health benefits, matching retirement contributions and paid vacation time. Even ReesorMcDowell was able to unplug for two weeks this summer. “We're willing to make these investments because we're in it for the long term,” he says. “I never unplugged during my first four years on the job. It was especially hard when we had so many disruptions to our programs on a weekly basis during the pandemic but actually disconnecting from work felt amazing and I’m encouraging our staff to take time to do that as well.” Matthew House hasn’t left volunteers out of the equation. When Reesor-McDowell joined the team in 2018, he noted volunteers were burning out as they were covering staff roles due to inadequate staffing. It’s a work in progress, but leadership continues to look at which core roles need to be staffed and which roles are best filled by volunteers. “It’s looking at ways to treat people fairly,” he says. “If we’re relying on them day-to-day or regularly, we want to compensate that person as a staff person, retain them over the long term, and treat them well. Volunteers can show up less regularly because we don’t want to burn them out. That’s been part of the journey over the last few years.” — By Phil Gaudreau

GOVERNANCE

Board members with ‘lived experience’ help reflect their communities

If every non-profit is in business to put itself out of business, who would know how better to achieve that than someone with direct knowledge of the issue a charity is targeting?

While most boards of directors at non-profits haven’t historically made an effort to recruit board members with lived experience, the tide seems to be turning. It’s one reason why Volunteer Ottawa launched an initiative in 2015 aimed at helping local non-profits find interested and qualified board members to enhance their service delivery.

As the focus shifts away from COVID-19 programming, the Diversity in Leadership (DLO) initiative is relaunching and being augmented with a quarterly publication that includes listings of board and similar positions that are open to applications.

“Part of the idea of DLO is increasing that diversity in leadership and in governance so that it reflects the real diversity of Ottawa,” says Amy VanTorre, manager of communications and operations with Volunteer Ottawa. “This is a very diverse city and the makeup of the people who are in charge of these organizations should reflect that. It’s why we also provide training so people who would like to become board members or be in governance positions have more of a basis and a background to launch from.”

More than 100 organizations have participated in the DLO program, with 115 candidates placed on boards in the Greater Ottawa area. Additionally, 500 individuals have taken training through Volunteer Ottawa to help prepare themselves for board positions. The latest edition of the DLO initiative is supported in part by TD Bank Group and Volunteer Ottawa

continues to seek additional funding partners. Trinish Padayachee is an economist working for the provincial Ministry of Finance and a newcomer to Canada. She took the training to help her understand board responsibilities, as well as financial management and fundraising within a nonprofit environment. Padayachee later secured two board positions, including on the board of Carty House, a non-profit that aims to help female refugees in Ottawa. “I wanted to expand on a range of skills, so I targeted a mix of governance-focused and operational-focused boards,” she says, referring Amy VanTorre to the duties and responsibilities of different boards. “For Carty House, I was specifically drawn to their vision and mission statement, which deals with refugee women, most of whom come from Africa. Given that I was also born in Africa, this was an obvious choice based on solidarity with people from my home continent.” Beyond contributing to a meaningful cause, Padayachee credits her board experience with helping her integrate into her new community and learn about Canada. For some charities, the idea of asking a former client to give or serve might seem like too much. But fundraising consultant Sam Laprade notes there’s a strong sense of pride and purpose when a person who, for instance, overcame poverty is now able to contribute — even in a small way — to help someone else in a similar situation. “Having board members with lived experience changes the dynamic in the best way possible and it’s why some not-forprofits are starting to save spots on their board for those with lived experience,” she says. “Whether it’s time, talent or treasure, it’s a meaningful gift to that person.” — By Phil Gaudreau

Key aspects of diversity

Marts and Lundy, “Toward Diverse and Inclusive Philanthropy,” 2021

• The commitment to diversity, equity and inclusion (DEI) begins at the top. • DEI presents complex challenges that require a thoughtful investment of time and resources to gain the understanding needed for authentic engagement. • Donors want to see themselves reflected in the organization, including staff and volunteers. • Every person and every culture is unique. • Traditional engagement may not work with diverse donors. • Trusted relationships come before solicitations. • Stakeholders want to see how the organization is actively moving the DEI needle and how they can participate. • Mistakes are part of the journey and everyone needs to be open to learning, pivoting and adapting. • DEI is a long-term commitment and, as a sector, we need to hold each other accountable.

Donors look for meaningful advances in diversity

The understanding that organizations that are diverse are more effective at serving diverse populations is not new, but has also never been higher amongst funders and the public at large.

It’s clear that donors and funders are looking for evidence, as opposed to expressed organizational commitment, that meaningful advances in equity, diversity and inclusion (EDI) have been made. EDI efforts must be evidenced in both the organization’s strategy, but also in its publicfacing messaging ... community services organizations are increasingly committed to equity and inclusion by depicting the populations they serve as being empowered, rather than in need of “being saved.”

Meaningful advances in EDI efforts are also incredibly important to success in talent recruitment, with more candidates increasingly seeking out organizations that reflect a broader diversity of thought and talent and that have proven they can deliver on their EDI goals.

KCI Philanthropy, “Sector Series 2022: Where Do We Go From Here?”