With the publication of the Intergovernmental Panel on Climate Change’s sixth assessment report (AR6), and the recent COP26 event, environmental issues are once again at the forefront of media reports and public consciousness. Climate change is just one aspect of environmental concern; a host of issues including biodiversity, sustainability, waste disposal, energy efficiency and resource consumption are increasingly discussed and debated. For this reason, reporting requirements for larger companies have already been expanded to include sections on environmental policy and sustainability. But these mandatory requirements are yet to be extended to charities.
Should my charity report on the environment and sustainability?
Charities are often perceived to be at the forefront of the shift towards more environmentally sustainable policy and practice, with the importance of this stated in charitable objectives and mission statements. Indeed, some trustees’ annual reports (TAR) already contain some of these measurements in the form of impact reporting, and readers of charity accounts may be surprised if the topical issue of the environment is omitted.
Currently, the regulatory requirements for environmental reporting are very limited:
- Only large and medium UK companies are legally required to report their greenhouse gas emissions in their strategic reports (under the Streamlined Energy and Carbon Reporting (SECR) requirements); and
- Only quoted companies must address their environmental impact in any more detail.
However, the current focus on environmental issues may result in an extension of these requirements to other types of entity, including non-company charities that currently fall outside the scope of the legislation.
How should my charity be reporting?
A charity’s first concern when reporting on any matter should be to do so in a comprehensible and digestible way. Consider:
- Keeping the report succinct;
- Establishing numerical indicators that can be benchmarked within the charity across time, or against sector averages;
- Presenting numerical data graphically for a more direct and digestible impact; and
- Limiting jargon to engage readers.
What environmental factors could my charity report on?
Charities should first understand their own targets and priorities: which areas of the environment are of principal concern or relevance to the charity’s day-to-day operations? The government’s guidance on environmental reporting, a useful reference point for any charity considering expanding their environmental reporting, gives six areas of environmental impact. Charities will need to consider which of these are most relevant to their direct activities:
- Greenhouse gases.
- Materials and resource efficiency.
- Biodiversity and ecosystems.
- Emissions to air, land and water (pollution).
Having identified the key areas relevant to its operations, the charity should consider its aims and objectives for sustainability in each and present its plan. For the six areas above, for example, the trustees may consider explaining the charity’s:
- Policy on achieving carbon neutrality;
- Approach to monitoring water usage, particularly if it works with or in water stressed areas;
- Recycling procedures for office and other waste;
- Utilisation of raw materials and steps taken to make this as efficient as possible;
- Commitment to minimising impacts on natural habitats or animal welfare policy; or
- Use of energy efficient, public or green transportation to minimise atmospheric emissions.
A short summary of progress against any targets or adherence to policy may also be helpful as would a description of the way in which the charity communicates with stakeholders, suppliers, etc to encourage broader environmental good practice (see below).
Charities should be aware of key environmental legislation that is directly applicable to their activities and be able to demonstrate that they are compliant.
The power of numbers
Qualitative descriptions of policies often read well, but quantitative data is easier to interpret and used to emphasise that intentions are being translated into practice. The government’s is, once again, a useful starting point and encourages organisations to develop key performance indicators (KPIs) for their environmental impact in different areas. There are two aspects to consider here:
- The ability to measure primary data – can information be easily collected, stored and used to provide meaningful ratios?
- The type of KPI chosen – these should be relevant to the charity’s primary activities, but also comparable with data from other sectors and organisations. Some examples for charities might include:
- Tonnes of CO2 emitted per beneficiary;
- Volume of water usage per staff member;
- Percentage of head office waste recycled; and
- Proportion of staff and/or volunteer journeys undertaken by bicycle, public transport and private car.
What about the broader impact?
Like the different components of the Earth and environmental system itself, no individual charity, private company or plc exists in isolation. The decision any organisation takes in engaging suppliers, supporting beneficiaries, supplying customers and striking up partnerships with other entities may have far-reaching implications beyond its immediate operational field. Therefore, charity trustees should strive to understand how their decisions affect the world indirectly, as well as through the more direct ways discussed above. The answers to the following questions may provide valuable information for inclusion in the TAR:
- Does the charity understand its suppliers’ and service providers’ policies on environmental issues?
- Do the charity’s suppliers’ practices follow their stated policies? Are both in line with the charity’s own environmental goals?
- How does the charity’s investment policy support its environmental policy and objectives, as well as its charitable aims?
- Are the charity’s volunteers committed to upholding its environmental policy?
- Are the charity’s staff members made aware of (and engaged in delivering) its environmental commitments?
These points are naturally more subjective and can be difficult to quantify. Useful approaches might include emphasising engagement with stakeholders and suppliers on environmental matters or including a reference to suppliers’ own environmental reporting, to demonstrate that the charity’s impact on the environment through its wider supply chain has been considered.
Investing in sustainability
Investing is a powerful tool for driving change but formulating a policy to support a charity’s environmental policy is not as straight forward as might at first be thought. It can be tempting to think that disposing of investments in companies considered to be environmentally damaging is the best approach, but this is often an oversimplification. For example, many of the large fossil fuel providers are at the leading edge of research programmes into sustainable energy, meaning that removing investment may sometimes hinder such research.
Also, often it is useful to maintain a shareholder voice, often through the charity’s investment manager, to ensure a continuing dialogue with such companies – persuading management to take action to enhance the company’s environmental impact and sustainability. Broadening investment into different organisations such as alternative energy companies may also be beneficial to environmental sustainability in the long-term. As with reporting your environmental impact, consideration should be given to the interconnections in the market and indirect implications of decisions when setting environmental policy or green investment strategies.
The future of reporting
Although none of the suggestions above are mandatory, charities should seize the opportunity to get ahead of the curve. Should greater disclosure on environmental matters become mandatory, having an awareness of the key areas for your charity will lessen the impact in the first year of compulsory reporting. Not only that, but starting to consider the impact of the environment in your TAR will set your charity apart as a forward-thinking organisation that cares not only about its beneficiaries, but also the world around it.
Amanda Francis is a partner and Matt King is an audit manager in the charity and not for profit team at Buzzacott
Charity Finance wishes to thanks Buzzacott for its support with this article