Creating An ESG Policy: Do's And Don'ts

Published on: 12 October 2022
by Eric Burdon
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One of the best ways to grow a business today is to embrace ESG (environmental, social and governance) values. Companies may feel that this can be a considerable undertaking, something beyond their ability in terms of time and resource allocation. However, ESG offers compounding benefits, and to realise these a company simply needs to be pragmatic and thorough when putting together policies or strategies. Make a solid start, commit, and work your way up from there.

So, this raises certain questions. What kind of policy will you adopt? Or, what should be specifically included in these policies? Perhaps most importantly, what constitutes a practical, reachable goal? Here is a quick guide that outlines what to do and not do when making an ESG policy.

Don’t: Dismiss The Issue

The first mistake is dismissing ESG or thinking of it as a passing trend. Thinking about sustainability in general is a rational component of building a successful business, simply because seeing your business as a system that can be optimised for resource savings means smoother operations and greater profitability.

So, ‘believing’ in ESG is perhaps less critical than seeing it as a tool to improve business health, and this should be the bottom line of why the company is on board with accepting change. ESG is no longer a trend, or a niche ‘space’ to be involved in, rather it is the next common thread for businesses - sustainability. Getting from acquisition and misuse of resources, to effective, ongoing management of the elements that make your business tick.

Do: Understand What They Are

ESG policies are simply the components that form your overall ESG strategy. You can set as many ESG goals as you like, but these policies serve as guidelines to make those goals possible to achieve. 

A simple example could be deciding on a policy of providing measurably improved indoor air quality (IAQ) in the workplace as both a direct environmental benefit, as well as a social benefit for employees. This would involve employees understanding the current air quality levels, what measures are being put in place to change those levels, and how those changes will be measured. 

This means using a clear and accessible source of information. Employees can understand why something is being done in a specific way, and what the potential benefits are for them. Working on how our direct environment directly affects our own health is a strong example to use, since it affects all of us equally. 

Don’t: Do Thoughtless Marketing

In recent years, companies have had higher expectations for ESG values placed on them by investors and consumers. As a result, businesses need to react faster on all of these issues and implement policies now. This is why there is so much disapproval when companies ignore ESG outright or are demonstrably shown to be greenwashing, where businesses and brands make statements that are either unsubstantiated or unsupported by their corporate actions.

They also face considerable and growing public scrutiny, especially through social media channels, if they only talk without follow-up concrete actions. This is why it makes sense, in marketing terms, to speak less. Issue statements that transparently reflect your efforts, even if those efforts are very much a work in progress. In an era of instant digital reaction and information porosity, the truth will always emerge. Better to be genuine, thoughtful, and bring the customer along for the ride.

Do: Know What Policies To Include

As this is ESG, the obvious answer is ‘environmental, social, and governance’. Suggestions include:

  • Environmental - Start by looking at reducing pollutants and harmful chemicals in products the company uses. Also consider renewable energy sources. Beyond that, work to reduce emissions and increase sustainability in supply chains.

  • Social - Look at what can be done for the community you’re working out of. Embrace inclusion and diversity in every aspect of your business. Reform pay and reward policies, especially executive compensation if that’s relevant.

  • Governance - Reform the board of directors to be more diverse. Embrace transparency in corporate reporting and especially around ESG-related reporting. Document and report governance, risk, and compliance strategies.

Don’t: Prioritise Only One Area

Companies may feel a compulsion to focus on one area at a time, but this can backfire in many ways. Take, for example, companies planting trees whenever someone buys their product. While overtly addressing an environmental goal by demonstrated action, planting a tree will not offset the emissions that your products create. The emissions reduction from the growing tree, while impactful, are tangential to your business operations. So, set up a rigorous tree planting programme, but clearly demonstrate the emissions reduction gains in tandem with efforts to reduce reductions in operational processes. X area of new afforestation needs to equal X portion of your operations. 

If the focus is solely on singular acts (of relative kindness, yes), then those acts are simply externalities to your business. Make such initiatives a part of your business stream, with importance weighted with the streams that produce traditional profitability.

ESG Is A Balancing Act

Yes, ESG is difficult, novel, and there is a learning curve. And, while change is indeed the only constant, this doesn’t make it any easier for existing businesses to make significant changes to how they operate if they are to embrace ESG values. But by understanding where to focus and assemble strong policies and by, first and foremost, embracing public transparency, the easier it’ll be to make a difference both internally and then externally.

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