Environmental, social and governance (ESG) considerations have come to the fore in recent years. Companies that may not have known what ESG stands for several years ago are now routinely implementing ESG strategies to address their impact on ecology and the communities where they operate, and their broader societal and governance responsibilities.
ESG has moved from afterthought to strategic imperative — and in tandem, organizations are elevating their efforts.
If your organization needs to implement a strategy to improve its ESG approach, what do you need to consider? What are the components of ESG, and how do you build an ESG strategy?
The Benefits of Setting an ESG Strategy?
The benefits of setting an ESG strategy are numerous. You're not just improving the external environment, taking responsibility for improving the community where you are based, and committing to best practices in corporate governance and compliance.
Operating in a more environmentally friendly way should increase efficiency, reduce waste, and as a result, cut costs. By paying closer attention to compliance and governance, your business meets regulatory requirements (therefore avoiding the penalties and reputational damage that accompany breaches). And via closer ties with your local community, you engage with potential customers, suppliers and stakeholders.
But it's not all plain sailing. There are also considerations to take on board when establishing an ESG strategy.
ESG Strategy Considerations
Your strategy has to deliver value — something a recent PwC survey suggests is lacking from many organizations' ESG approaches. It cannot be created in isolation from your corporate goals or without regard to the commercial landscape.
Your priorities should align with your business strategy, your sector's direction of travel, and your stakeholders' priorities. Your ESG strategy needs to take into account external stimuli — the introduction of new regulations or legislation, for instance, or pressure on your industry from the media or investors.
The 5 Critical Steps to Success in Setting an ESG Strategy
1) Identify What ESG Best Practice Looks Like
Looking at what others are doing is always a good place to start.
Different sectors are at different stages of their ESG journeys and will have varying priorities. Businesses in the energy sector, for example, have typically focused on their environmental impacts. Others may prioritize their social or community impact. And the importance of the 'G' in ESG cannot be under-estimated.
Best practice ESG for your organization will be bespoke — but there are clear leaders when it comes to ESG implementation; companies are regularly recognized for their achievements. Study their approaches, and you will take away some actionable tips for your own business.
2) Consult With Your Stakeholders
Stakeholders increasingly take account of ESG risk scores when evaluating a company's activities; as a result, stakeholder intelligence company Alva believes that, 'In the future, ESG issues will define the approach to stakeholder engagement.'
And just as shareholders and other stakeholders can motivate organizations to start their ESG journey, they can also provide invaluable input to your strategy.
Stakeholders today comprise not just shareholders or investors but also employees and consumers. Establish the stakeholder sentiment around your strategy; what do they value most? Where do they feel you're currently performing well — or poorly? Identifying stakeholder ESG priorities is an excellent way to determine your own.
3) Involve the Right People
Operationalizing your ESG principles requires a team drawn from across your organization. You need demonstrable buy-in from senior leadership, married with accountability at all levels and clear roles for those involved.
Representation from a diverse cross-section of the business will give you multiple lenses to view your ESG performance and set objectives. It also provides you with a range of champions who can spread the ESG message within the business.
4) Assemble the Data and Evidence You Need
This is one of the most crucial but, for many firms, most challenging aspects of an ESG strategy. ESG has been labeled more effective than its relative corporate social responsibility, in part because it can be more clearly defined and measured. But this measurement can be tricky if you have no centralized metrics to form a baseline from which to measure improvement.
Setting an ESG strategy and then monitoring, reporting on and communicating your achievements requires a disciplined, ordered and robust approach to data, one that enables you to visualize and report ESG performance across all your entities. Explore solutions that can deliver the actionable intelligence you need.
5) Measure and Refocus
No corporate strategy is static — and when it comes to ESG, this is particularly true.
As more is understood about corporations' impact on their communities and the environment at large, their ESG priorities will evolve. Sometimes, this will be driven by external imperatives — new legislation or reporting requirements such as those set by the Task Force on Climate-related Financial Disclosures (TCFD), updates SEC disclosure requirements or European Council and Parliament (such as the new EU Corporate Sustainability Reporting Directive). At others, it will reflect the shifting concerns of stakeholders.
You'll need to continually measure, evaluate and finesse your ESG strategy if it's to remain relevant.
Take the Essential First Steps To Create an ESG StrategyIf you're facing the challenge of building an ESG strategy, these five steps have hopefully given you a start point. To find out more, you can visit our ESG hub, which has more resources to support you, as well as information on Diligent's market-leading ESG Solutions — an essential foundation for any organization operationalizing its ESG principles.
Learn More About Diligent's ESG Solutions
Learn how companies can use Diligent ESG to operationalize ESG principles, track progress against standards, and monitor stakeholder sentiment.