The net zero challenge

Charities are increasingly taking action to reduce their carbon footprint in response to the climate crisis but still lag behind their corporate counterparts, Léa Legraien investigates.

Two people cycling over Southwark Bridge
  • Author: Léa Legraien
  • Published: 1 February 2023

Climate change action has gained momentum over the last few years. In 2019, the UK government became the first major economy in the world to introduce legislation to reach net-zero greenhouse gas emissions by 2050. Since then, leading businesses have followed suit, with 82% of FTSE 100 companies now committed to achieving net-zero by that date.

While the focus on climate change in charitable activities is gathering pace, only a few charities have started on the net-zero journey. According to a survey conducted by Charity Finance Group (CFG) in 2021, 84% of charities had not set a net-zero objective and just over one in 10 were reporting on their carbon emissions.

Charities are keen to play their part in tackling the climate crisis, though. The problem is that many do not know where to start. One of the challenges cited by the respondents to the CFG survey was the lack of information and practical guidance to transform pledges into action.

There’s a slight sense of everybody waiting for someone else to move. But we can’t afford to wait for clarity to do anything, we have to start doing the things that we can and logically that should carry us in the right direction.
says Alison Taylor, chief executive officer of CAF Bank and CAF charity services

Leading the way

Bridge House Estates (BHE) is among the charities that have been taking the lead in the fight against climate change. BHE has been bridging London for over 900 years, making it one of the oldest charities in the UK, and it is also one of the largest in terms of investment portfolio.

BHE’s overarching climate action strategy began to take shape at the City of London Corporation, its corporate trustee, in 2019 and was adopted the following year. At the time, the charity set up a cross-cutting responsible business team that was tasked with identifying areas where action was needed. It later created a climate working group whose mission was to bring staff and board members on board with sustainability.

Engagement was a key component of the journey to net zero. But it was not easy to win the hearts and minds of everyone, admits Karen Atkinson, finance director of BHE. A lot of people were dubious about the strategy, even after it had been adopted.

To help board members understand some of the key issues faced, BHE set up a series of practical workshops to share knowledge and best practice. In a blog posted on CFG’s website, BHE wrote: The workshops set out to build consensus around the strategy but quickly moved on to how to implement it. Mapping out the journey over several workshops gave us the chance to keep educating, to gain understanding and consensus at different points.”

The strategy sets out how both the City Corporation in its role as trustee and BHE will achieve net-zero carbon emissions in operations (scopes one and two) by 2027 and across investments and the supply chain (scope three) by 2040.

BHE has significant portfolios. It owns 66 different investment properties as well as the bridges it maintains. As of March 2022, the value of BHE’s property and financial investment portfolios were £888m and £879m respectively. For a charity of that size, one of the key elements to consider was the amount of funding required as well as the financial impact on areas like investments.

Overall, City Corporation will be investing £68m to support its net-zero goals. Atkinson says that BHE will be spending £3.5m over the next five years to improve energy efficiency in premises and align investment portfolios with net zero, among other things. She adds that as a major charity, BHE feels that it could even achieve net zero across the full value chain before 2040, as intended by the corporation, and has designated a £15m funding pot to enable that.

Effectively, we see this as planned expenditure. It’s not that we’re diverting it from other things. This is so critical for us as a charity that has existed for 900 years to be sustainable and demonstrate that. The bridges, which are our primary responsibility, are going to be here in perpetuity. And for anything these days to be here in perpetuity, we’ve just got to operate sustainably. The two go tightly hand in hand for us.
Karen Atkinson

Atkinson feels that larger charities must take the lead in the path to net zero and guide their smaller counterparts.

It’s incumbent upon charities such as us to assist others. We can perhaps do more than what others can. There’s an onus on us to spread knowledge to others. At the moment, not many charities have done their plans and there is a limited number of people to share those thoughts with to get that debate going.
Karen Atkinson

Getting it right

Another charity that set out ambitious climate goals is Ashden. Two years ago, it developed a twofold strategy: reaching net zero by 2030 and achieving zero carbon by 2035.

Ashden is a London-based climate solutions charity that supports climate innovation in the UK and developing countries. Edward Dean, its director of business development, argues that it is crucial to put our money where our mouth is and demonstrate to the world that we’re as ambitious on net zero and zero carbon as we expect others to be”.

To be zero carbon, the charity must reduce its emissions by 7% year-on-year. Our biggest challenge is how to minimise flying because it’s disproportionately the largest bit of our carbon footprint. To offset our flying, that’s going to cost us at least £10,000 a year at the current rate and we may need to spend more to cut deep into that.

Our biggest challenge is how to minimise flying because it’s disproportionately the largest bit of our carbon footprint. To offset our flying, that’s going to cost us at least £10,000 a year at the current rate and we may need to spend more to cut deep into that.
Edward Dean

Any staff member who wishes to fly to a country for work must put their case to a committee, explaining why it is important strategically in terms of the impact the charity is creating through its work. You can’t just arbitrarily book a flight, there has to be a good reason for it,” Dean adds.

Flying is also a big problem for an international charity like Tearfund, which launched a new environmental policy back in 2019. As a Christian charity that works with churches in over 50 of the world’s poorest countries, flights are the biggest challenge to reduce its carbon emissions.

We’re making progress on reducing the number of flights we take without compromising our ability to support the communities that we work in. In the current financial year, all departments across Tearfund reduced their flights when compared to pre-pandemic levels: by 30% for UK-based departments and by 14% for international teams. When we do have to fly, we offset our international air travel with the offsetting company Climate Stewards

Closer to home, Ashden implemented a policy of vegan-only food for the numerous events it runs alongside its awards to reduce its dependency on high carbon meat-based products”.

For Dean, the main difficulty is to find innovative ways to meet the net-zero challenge. What is the best practice to get to net zero as an organisation? We need to share and learn from others a bit more.”

This is a concern shared by Taylor. How can one measure the environmental impact organisations are having, she asks, be they charitable or not? How do we capture that measurement and monitor it in a way that means we can evidence that we’re achieving what we say we’re trying to achieve?”

The other challenge, she argues, is that the sector has to navigate two other crises at once: the Covid-19 pandemic and the cost-of-living crisis. These are existential threats for a lot of charities and so while their desire to focus on sustainability and net zero is strong, the nature of these issues is such that there’s a danger it slips down people’s agenda. However pressing other agendas are for charities, ESG and net zero have to be in the top five things they’re thinking about.

The Greenwashing dilemma

Then there is the greenwashing dilemma, when words are not matching deeds. The John Ellerman Foundation has a lot of money invested in markets (just under £160m at March 2022) all through ESG funds. According to its latest annual report, the independent grantmaking foundation has seven fund managers who are responsible for all asset allocation decisions.

Sufina Ahmad, the foundation’s director, says the foundation has been extensively thinking about how it can become a credible and impactful net-zero investor. It wants to ensure the investments it makes do not contradict the work it supports through its grantmaking, notably in terms of its environmental work.

We meet with our fund managers at least once a year and have made it very clear that for us it’s not just about financial returns, it’s about ensuring that ESG considerations are taken into account in a meaningful and impactful way. Being very clear and communicating what our intentions and requirements are. Listening and learning from them, challenging and encouraging where it’s appropriate. We had to grow our confidence and credibility in this space in terms of how we hold our fund managers to account. Likewise, we can see that they too are improving the way that they report to us and support our requirements. We try not to be hostile. We try to work in a way that is collegial because we want them to achieve our ambitions. Equally, though – and this is something we can do and have done – we can also change our fund managers if we feel that the approach simply isn’t working. We’re open with our fund managers about what we want and how we think it could be achieved

Elaina Elzinga, who leads Wellcome’s net-zero work in the investments team, adds that charities should also seek evidence of positive environmental impact by asking their fund managers to give them examples of what has been done.

Digging a bit deeper than the headline statement can also be quite revealing. Often, it’s fair for them to say well, we’ve done this small thing and there’s more to come’ and then you need to make sure you’re following up on that. That’s the key bit, the follow-up and consistency of the dialogue, tracking progress versus what the manager says they’re going to be doing
Elaina Elzinga

The role of finance

Charities transitioning to net zero need to understand the risks and consider several factors to inform decision-making. This is where the skills and experience of finance teams come in. As holders of the purse strings, they can work out the costs of different mitigation and adaptation plans and identify whether funding can be set aside to support these costs.

Atkinson points out that finance professionals do not merely look at finances but tend to have a businesswide view. 

We see what’s going on and can contribute a lot more, not just how much the budget is and how we’re spending against that. Although that’s important to monitor, it’s a lot more important that we’re involved in the full strategy in any working groups involved. Right now, some of the carbon footprint for a lot of organisations that hold significant investments has actually increased because the investments that are performing well are the ones in oil and gas. We have a policy of engagement, not disinvestment, which means that our carbon footprint hasn’t continued on a downward scale as we would have hoped because of what’s going on in the world. It’s those sorts of things that the finance team is going to be aware of and make sure those impacts are balanced.
Karen Atkinson

With their insights, finance teams can play a crucial decision-support role in the journey towards net zero. 

They should be working to bring the whole executive team on board with the net-zero journey but also to bring data into the discussion
Adds Elzinga

The need for transparency

In recent years, charities have come under increased scrutiny from stakeholders, donors and the public, who expect more transparency and reassurances that their activities are having a positive and meaningful impact.

Until recently there was no reporting requirements for charities to disclose their environmental successes. Since 2019, large incorporated charitable companies that meet certain requirements must report their energy use and associated greenhouse gas emissions under the Streamlined Energy and Carbon Reporting rules. Section

172 of the Companies Act also requires trustees of large charitable companies to include a statement in their strategic report that covers the impact of the company’s operations on the community and the environment.

Taylor and Dean argue that greater disclosure on environmental matters in the sector could be beneficial, but warn that it cannot be done as things stand.

Dean explains: There should be some legal requirement or compliance around disclosing carbon footprint. If we don’t have that transparency and openness then how can we lobby for no investment in fossil fuels? But equally, charities should be supported to do so. It’s all very well for high turnover charities to sing credentials to the world but for smaller organisations that are struggling to stay afloat, it’s really hard.”

Richard Sagar, head of policy at CFG, argues that existing guidance needs to be updated, especially the relevant sections in the Charity Commission’s CC14 guidance. He says: It would make sense to focus on net zero as additional obligations.” He too believes that the government and others need to step in with additional funding to help charities make the transition to net zero.

It’s one thing putting out guidance, it’s another ensuring they’ve got the resources to meet those obligations. At the moment, during a cost-of-living crisis and lots of other issues charities are facing while meeting their core charitable purpose, it’s perhaps understandable why it’s not the priority. But with funding, we hope that might change.”

Reaching net zero

Net-zero action in the charity sector is crucial to help halt climate change across the entire economy. For too long, charities were waiting to be told what to do and for the situation to become clearer to make plans, Taylor says. Climate change is a real issue and it is time to act.

We’re not very well set up yet as a country in terms of how the energy situation is going to play out, in particular over the next couple of years. It feels like whereas before we were looking at a situation with a fairly known backdrop, now there’s a heightened degree of uncertainty that we have to navigate. We can’t wait for someone else to give clarity to start to act.

The important thing for everybody is to do what they can now. Even if it’s not perfect, we might do more and add more things to the plan later down the track. At least, start talking about it, talk to your customers, suppliers and staff and make sure everybody knows that the aspiration is net zero and the direction of travel is to get there as quickly as we possibly can.”

Of course, charities have to be seen as part of a much wider tapestry if the country is to reach net zero”, Sagar points out. It needs to be all or nothing in terms of net zero. Every sector needs to play its part.”

Engagement versus divestment?

The divestment versus engagement debate when pursuing sustainability outcomes still divides charity investors. Take the fossil fuel sector. A charity with climate concerns that has invested in carbon-intensive companies might want to divest and invest into climate-friendly companies. Or, it might decide to engage with these firms to create change.

The latter approach was taken by the Church Commissioners, the charity investment arm of the Church of England, which manages an investment fund of £10.1bn. By favouring engagement over divestment, the charity believes that it can make a much greater impact in the world by staying invested in companies and changing them through direct engagement as a shareholder (where there is a belief that such engagement may lead to change)” rather than divesting and handing shares over to other investors who may not have the same objective.

Richard Sagar, head of policy at CFG, believes that there is no right or wrong approach to the matter. Speaking in a personal capacity, he says: It depends on the organisation. I wouldn’t say a blanket approach of divestment is necessarily the best approach. It can be for some organisations, it might not be for others. There’s a concern where someone signs up for divestment and thinks they’re done with their obligations, which is quite easy to do in many respects. Engagement requires more work but can often pay more dividends.”

For Katie Stewart, research manager at ShareAction, engagement and divestment are not competing tactics. She says: A successful engagement requires a good escalation strategy, which may end in divestment if companies aren’t willing to change or take action on what is being asked of them. It’s not a case of picking one or the other, but trying to think what is the best use of the different tactics to actually drive that transition.”

Elaina Elzinga, a principal in Wellcome’s investments team, calls divestment a very blunt tool”. We do consider all of the externalities and the risks around our investment decisions. We need to have confidence that business models are sophisticated on this and are going to be around for the long term. We very much favour engagement: that’s the way to have real-world influence and that’s what our strategy has been based on.”

This article appeared in the February edition of Charity Finance, written by Léa Legraien