One of the clearest trends on the institutional side of the nonprofit sector is the push toward diversity, equity, and inclusion (DEI) and environmental, social, and governance (ESG) investments. As we observed in a previous blog post, philanthropic investors have never had a wider range of options when it comes to building their portfolios, and we believe DEI and ESG programs will comprise a growing share of these investments in the coming years.
In this post, we’ll take a look at the emerging synthesis between foundations, companies, and investors to strengthen DEI and ESG initiatives in the nonprofit and corporate sectors. As consumers continue to emphasize the importance of social responsibility and investors look for ways to use their resources for the public good, foundations will be crucial facilitators and sources of expertise.
Focusing on DEI at every level
Many nonprofits are focused on securing equity as broadly as possible by addressing systemic disparities in health, education, and economic outcomes. The private sector increasingly shares this focus – according to a 2021 survey conducted by PwC, 61 percent of executives say their companies are investing more time and resources in DEI efforts. Partnerships between foundations and the private sector can help companies with their DEI initiatives from strategy to execution, which will inspire confidence from philanthropic investors.
Foundations can also help nonprofits improve their own DEI efforts. As capacity-building becomes increasingly important in the sector, foundations should direct resources toward unrestricted general operating support that secures DEI goals. For example, a 2021 survey found that more than two-thirds of nonprofits struggle to maintain diversity at the leadership and board level. Foundations and other grantors can make targeted investments to address this problem.
ESG investments are becoming more important
A 2021 Edelman report found that 62 percent of consumers say they will choose or abandon a brand based on where it stands on social issues, while 92 percent of U.S. investors believe business leaders have a responsibility to “use their power and influence to advocate for positive change in society.” Meanwhile, 91 percent of business leaders say their companies should take action on ESG issues.
This emerging paradigm could have a huge impact on many of the biggest issues we face, from climate change to racial injustice. The nonprofit sector has a vital role to play as companies and investors consider how they can contribute to these causes and many other problems communities confront around the country and world.
Where expertise meets capital
When donors are considering which organizations to support, they should always treat this decision like an investment. Just as they wouldn’t invest in a company if they didn’t expect a return, they should apply the same logic to philanthropic investments. This return will be partially financial with some forms of investing, but we’re using the word “return” in a broader sense: investors should only support organizations that can demonstrate their effectiveness.
Philanthropic investors have to make educated decisions about where they allocate their resources – a crucial step toward scaling impact as much as possible. This is why they should work with foundations, consultants with experience in the sector, and other experts to make sure their investments are being deployed effectively.
Stay tuned for Trend #3 2022, coming next week…