There are two essential truths driving corporations to become more sustainable. The first is as follows:
According to the UN’s Intergovernmental Panel on Climate Change 2023 report, because of global warming caused by humans, there have been rapid and widespread changes in the atmosphere, oceans, cryosphere, and biosphere.
“Human-caused climate change is already affecting many weather and climate extremes in every region across the globe. This has led to widespread adverse impacts and related losses and damages to nature and people,” the report states.
The current global plans for mitigation have gaps that may lead to further increased temperatures. In short, more must be done to prevent further global emissions.
The second truth:
As consumers and investors become more knowledgeable about this precarious situation we’re all in, they are becoming more selective in where they spend their hard-earned money. People want to invest in and work with companies that put their money where their mouth is regarding sustainability. For this reason, it makes sense ethically and financially to develop and implement an environmental, social, and corporate governance strategy at your business, regardless of size.
What is ESG?
Environmental, social, and governance is a set of standards for a company’s behaviour used by socially conscious individuals to screen companies and encourage them to act sustainably and responsibly, according to Investopedia.
Corporate climate policy, energy consumption, waste, pollution, natural resource conservation, and animal welfare are all examples of environmental concerns. The environmental hazards a firm faces and the way it handles those risks may be assessed with the use of ESG factors.
Greenhouse gas emissions (both direct and indirect), hazardous waste management, and environmental law compliance are all possible factors.
Social consideration is given to how the business interacts with both its internal and external communities.
Does it insist that its vendors meet its own ESG criteria? Does the corporation make charitable contributions, or does it promote employee participation in community service? Is there a strong emphasis on employee safety and health in the workplace? Is the firm ethical, or do they exploit their customers?
Accounting accuracy, leadership diversity, and shareholder accountability are all bolstered by adhering to ESG governance norms.
To reassure ESG investors, businesses may need to demonstrate that they avoid conflicts of interest when selecting board members and top executives, don’t make political donations to influence policy, and don’t break the law.
What is an ESG strategy?
While ESG metrics are a newer concept, their relevance has increased as concerns about climate change, diminishing natural resources, economic inequality, and reporting fraud have grown. Companies that place a premium on ESG factors will have an edge in the market and set themselves up for sustained success.
To ensure the longevity and success of a business, it is essential to implement an ESG strategy. To ensure your programme has the internal support it needs to be successful, we advise prioritising the assembly of a team of cross-functional stakeholders who can identify and evaluate ESG risks, opportunities, and performance in your company from all necessary perspectives.
Some of the reasons why ESG matters for companies are as follows:
- Improve the long-term viability and efficiency of your company’s operations. Companies with strong ESG practises are better able to save costs in areas such as energy use, water usage, and waste disposal. McKinsey found that companies with ESG targets saw a 60 percent rise in profits while cutting costs by the same amount.
- As we noted in the opening, shoppers and investors alike don’t want to support unethical or unsustainable companies. To stay popular with buyers, companies must demonstrate they care about the community and the environment. 62% of generation Z and 50% of millennials, agree that they’d rather support ethical companies.
- Business resilience may be increased, and risks like supply chain interruptions, regulatory compliance challenges, and reputational harm can be reduced by taking ESG factors into account. By giving ESG issues top priority, companies may strengthen their capacity to weather volatile markets.
Steps to Developing and Implementing an ESG Strategy
Once you have assembled your team of stakeholders to ensure the success of your ESG strategy, you can begin to build and implement it.
Conduct an Impact Analysis
The first step is to establish your ESG objectives. Specific, quantifiable, realistic, relevant, and time bound ESG goals are recommended. Clearly outlining your ESG goals and why you’re doing what you’re doing can help you communicate with customers, partners, and employees about your brand’s commitment to sustainability.
Perform a Materiality Analysis
Stakeholders, both internal and external to your organisation, are polled to determine how important they feel ESG problems are. Materiality evaluations should include the perspectives of internal and external stakeholders to prevent bias and the omission of ESG subjects.
Concerns about environmental, social, and governance (ESG) issues are summed up in the materiality assessment. It is not uncommon for businesses to take on projects on the fly or to neglect previously agreed-upon goals in favour of more pressing matters. Defining an ESG topic of interest to your company’s stakeholders may be challenging. Prioritisation is facilitated by stakeholder input. We recommend combining impact screening with materiality assessment to zero in on the ESG threats and opportunities that will have the greatest impact on your business.
Think about where you are as a starting point
Once you’ve decided on your top ESG priorities, it’s time to take stock of your company’s current programmes, policies, metrics, and engagements.
To do this, you may collaborate directly with stakeholders within your organisation who are well-versed in each of your organisation’s major ESG concerns. We suggest starting with reports, policies, and data systems for general information, and then moving on to interviews with internal stakeholders for more in-depth knowledge. The results of this evaluation will give you a sense of the level of development of ESG practises throughout your whole firm.
There may be pockets of ESG work inside the company that haven’t been integrated into the overall strategy or messaging. A company’s degree of ambition and readiness to achieve ESG objectives may be evaluated by taking the temperature of its approach to ESG.
You may learn about the ESG maturity of your rivals and the problems, opportunities, and leading ESG practises in your sector by including peer benchmarking in the evaluation.
Set some clear objectives.
Having established an ESG starting point, you can begin to plan where your attention should be directed going forward. To develop a vision for your ESG performance and objectives, we suggest having topic-focused working sessions with key stakeholders.
What are you doing right now that just needs to be kept up or shared? ‘Complying with relevant product safety rules’ is an example of something that is both ‘table stakes’ and crucial to the success of a firm. It’s possible that there are environmental, social, and governance (ESG) factors where you don’t intend to place a high priority on resources in the near future and where you don’t see a chance to give substantial ESG value. But since it’s crucial to keep them on track, you’ve decided to keep up your present efforts to guarantee compliance.
How can you better align with competitors, satisfy stakeholder needs, or show your dedication to environmental, social, and governance (ESG) factors? Even if your organisation has internal inclusion and diversity programmes, you may not be telling the outside world why or how these initiatives matter. Strategic goals might include things like publishing reports on progress towards inclusion and diversity targets to the outside world.
Where should current efforts be focused to achieve ESG market leadership? We suggest narrowing your focus to between one and three areas to maximise your efforts and position yourself as a leader in your field. The strategic goal may be to complete a company-wide decarbonization strategy and establish a science-based target after you have already assessed and disclosed your operational carbon footprint and set site-level greenhouse gas emissions objectives.
Create an ESG Long-Term Plan.
After settling on certain ESG targets, it’s time to begin monitoring progress towards those objectives. You may do this through the use of ESG frameworks. To standardise the reporting and disclosure of ESG data, several organisations use what are called “ESG frameworks.”
There are a number of ESG frameworks to choose from, but one of the most popular is the Global Reporting Initiative (GRI) framework.
There are several other types of ESG frameworks you may choose from, including:
- Carbon Disclosure Project (CDP) Reporting
- Climate Disclosure Standards Board (CDSB)
- Sustainability Accounting Standards Board (SASB)
- Science Based Targets initiative (SBTi)
Action plan execution.
For an ESG programme to work well, it needs to be integrated into business practises and processes. You need to plan out ways to stay in shape all year so that when the ESG attention shines on your business, you are ready. Here are some of the best ways to make sure execution goes well:
- Figure out what success means to you in terms of clear, measurable results.
- Use centralised management systems or data tools to make it easier to keep track of key numbers and performance and see how they are changing over time.
- Set up a regular schedule for contact and changes with key partners so that goals can be evaluated, statistics can be kept up-to-date, and best practises can be compared. By keeping an eye on your plans all the time, you can know if any changes need to be made to help you reach your goals.
Even though it is helpful for a company to keep an eye on ESG, it is important to remember that real change happens on the ground. Your facilities teams will probably need detailed tips and instructions to get real results as you push team members who are in charge of putting actions into place to take responsibility.
Create a Status Report
ESG reporting is not a “one-size-fits-all” process, just like making goals. No matter what standards, models, or guidelines you use to tell your story, the most important part of reporting is getting your information out to the public in a clear and concise way. Before you can write your report, you need to decide what you want it to do. It should be a mix of the following:
- Sharing the ESG plan with partners and showing how it fits with business goals.
- ESG policies and programmes that are already in place are brought to light.
- ESG goals and data should be shared.
- Taking a look at how you’re doing and what you’re doing in key ESG areas.
While the development and implementation of an ESG strategy at your corporation will take some time and careful planning, it has benefits in many areas. Not only does it benefit the environment to ensure that your company has a plan to become sustainable, but it also improves your standing in the eyes of investors, companies, and prospective employees. Getting started now will behove businesses large and small, as governments worldwide are beginning to set standards and procedures requiring clear ESG practises.