ESG Funding and The Obstacles Public-Private Partnerships will have to Overcome

The major shift in the discussion around Environmental, Social, and Governance (ESG) investing has undoubtedly become louder and louder over the past few years. Especially in times of crises like COVID-19, we see companies that put purpose at the forefront of their business being rewarded, and companies that don’t being punished or simply left out of the conversation.

Larry Fink, CEO of BlackRock Investment Institute, in an interview with CNBC said, “The companies that focus on all their stakeholders – their clients, their employees, the society where they work and operate – are going to be the companies that are going to be the winners for the future.”

Companies large and small are catching on and it’s not hard to see why – at the beginning of 2019, ESG funds represented $31 Trillion USD. That’s up from $20 Trillion USD in 2018 and it’s only growing. This trend has also influenced how the private sector partners with non-profits.

As a global health Non-governmental organization (NGO) that has the support and partnership of several multinational corporations, Vitamin Angels is in a unique position to speak to some of the trends we are seeing and how the end-goals of these types of partnerships are defined. These goals are typically created collaboratively, but their outcomes and purpose can fulfill a different role once looked under the lens of ESG scoring and can also be used to determine the value of the company.

It becomes clear that no matter what the initiative looks like, it will be judged on the quality of the data it can produce. Data that the implementation partner, usually the NGO, will ultimately provide.

Once a business does a materiality analysis and identifies its core areas of impact and focus, they can typically do two things: assess and rethink their internal strategy and operations to increase progress towards their targets and/or engage with an NGO organization that has shared goals and leverage the organization’s expertise, assets, and reputation in that area.

To illustrate this, we can imagine a garment company engaging with an NGO that specializes in women’s leadership and work training to increase productivity and retention for its garment factory workers. Additionally, they may work to mitigate reputational risks and add value to the local community and support women that work along its supply chain. Ultimately, creating a productive and robust local workforce is good for society and investors alike.

Another example could be a furniture company partnering with a forestry NGO that can leverage its experience in environmental best practices to ensure that lumber sourced is sustainability harvested – protecting both the planet and long-term profits.

Now these examples are not exactly novel and there are several examples of partnerships like this in place. However, what has changed is how they are communicating the impacts of these joint initiatives. There is now a greater need for NGOs to report on the impact of their partnerships and in ways not previously demanded from their program evaluation professionals. Not only are there several reporting frameworks that are becoming standards for Fortune 500 companies, but reporting standards are continuously evolving. It’s not unlikely that you’ll find GRI and SASB standards utilized in the same annual or integrated reports of larger sized publicly traded companies – all data-heavy indexes that require a robust internal platform to collect. These reporting frameworks are becoming common place for corporations, but NGO programming on its own may have little need for this type of reporting based on their size or stakeholder audience.

However, if an NGO is partnered with a corporation, they are also expected to provide the data and analysis needed to satisfy corporate auditors, financial analyst firms, and institutional investors with an eye towards ESG. This is not something traditional non-profits typically have experience with. The cost of monitoring and evaluation (M&E) platforms can add substantial overhead and the usual impact reporting may not be robust enough to withstand scrutiny needed to influence a private-sector partner’s valuation.

Beyond this, other key metrics for consideration in this space regard the measuring of employee recruitment and retention, consumer sentiment, better regulatory relationships, market share size, and carbon foot print.

Needless to say, for an NGO that relies on private sector funds, building out this M&E capacity is important not only to ensure they are having the impact they claim, but also as a way to continue mobilizing the immense engine of a private sector that is increasingly aiming to reach any number of the UN Sustainable Development Goals (SDGs).

Now being on the NGO side, I agree that this can seem daunting for smaller NGOs. But, in Vitamin Angels’ experience, we’ve learned that investing in these capacities allows you to understand the difference between a true sustainability partnership and being a company’s “charity of the month”. Your private sector partners should understand these issues and work together with you on a plan to help the partnerships be successful.

More than that, I believe it’s a win for NGOs to have longer-term, more engrained partnerships with increased scrutiny from their corporate stakeholders. Ideally, the partnerships will become more focused, strengthen program evaluation platforms, yield better data and insights, and will force all sectors to become more accountable. The trillions of dollars in ESG funding is proof that the appetite for people, profits and planet is strong, but it will require new models of collaboration and partnership to bear fruit.