How Companies Can Implement ESG Into Their Operations
ESG planning is instrumental to businesses that are looking to address the environmental, social, and governance issues in the world. But with ESG an emerging topic of discussion, a lot of businesses have legitimate questions and have no clue how to implement ESG values into their operations..
And yet, employees, customers, and investors are all paying attention to these strategies and are basing the effectiveness of these plans on the businesses themselves. They consider this a point in determining whether to buy products or services, invest, or even partner with them.
So, how can businesses relieve that pressure and implement ESG values into their processes?
Step One: Perform A Materiality Assessment
This is a formal exercise designed to engage stakeholders to figure out what the most important ESG values are to them. With those insights, it’s easier to guide your strategy and communication towards a meaningful story pertaining to ESG values.
Materiality assessments go beyond business impact. They consider financial perspectives, as well as environmental and social perspectives. Overall, the materiality assessment should provide:
An understanding of how important ESG topics are to the business.
Insight on company stances on specific topics in comparison to peers and competition.
Guidance on topics to emphasise in annual reports and disclosures
And creative ways to define priorities to act upon.
When this is done properly, this step will validate ESG priorities for any strategy. A solid intro to materiality assessments is available here.
Step Two: Have A Baseline
How do you know what to improve if you have no idea where you are? Once you understand what the company values most, it’s important to know where you are starting with regards to upholding those values. This is where information gathering is important. Getting data from policies, data systems, and reports can give you an idea of where you stand on focus topics you want to address. From there, look at interviews internally to get detailed insights and information.
This step should give you a bird’s-eye view of the current state of progress and gauge how much of your ESG strategy is implemented across the whole company.
Step Three: Set Objectives & Goals
Goals provide a direction and set a benchmark to work towards, a crucial element of your strategy. As you work towards them, you’ll be able to compare your progress to the goal that you want to set. To do so effectively requires careful consideration from the outset of what your objectives really are.
What can be maintained? Things like checking if you’re complying with safety regulations. You shouldn’t pour more resources into this, but knowing that you can maintain current efforts to stay compliant is good. Note what is already being done that is ESG-relevant. Recognise this progress.
What can be improved? Improvement doesn’t need to be massive leaps and bounds of progress. They can be incremental steps. For example, if you value human rights, then you probably already have internal inclusion and diversity programmes. However, if these are not adequately communicated to external audiences, your target demographic is unaware. A small improvement is putting together a more robust programme, or simply posting on social media about it so you can reach your target audience in a familiar, personalised way.
What can be optimised? These are areas where you can apply considerable resources. Climate change is an important topic, but it needs to be broken down into manageable pieces to start working on. For example, analyse and communicate your current carbon footprint, then set targets you can realistically hit to make headway with a decarbonisation plan.
Once objectives are set, goals can then follow. For goals, consider the following:
What context is needed for the goals?
How are you going to measure performance?
How ambitious do you want to be (and can you actually be) with these goals?
What has to be done directly or indirectly to succeed?
Every business is different and will, therefore, have different answers to these questions. There is no ‘correct answer’, it’s more important to understand what is relevant to your business and to work towards it.
Step Four: Gap Analysis
The first three steps are a ‘warm up’ to ESG. The fourth step is ensuring you’re aware of the potential problems your business could face while working towards these goals. This is where a gap analysis is helpful. It uses your current state and objectives to identify what’s missing, so you can plan and strategize proactively.
Some gaps are small - such as requiring additional metrics. Others will be larger - like setting up a sustainability council. The idea of this step is to understand the potential issues between now and five years from now.
Step Five: Make An ESG Roadmap & Framework
Regardless of the size of the ESG programme, it can’t function on words alone. A framework is needed which will outline the company’s vision and purpose. A roadmap is helpful in this regard because it allocates roles to specific teams or staff, and thus creates accountability and transparency for everyone when it’s shared.
These should also be implemented into the overall business strategy. As such, you might need to talk to suppliers to see if their collaboration can be guaranteed as part of your overall roadmap.
Step Six: Take Action And Measure KPIs
KPIs (Key Performance Indicators) are essential markers that determine whether the plan is effective or needs adjustments. KPIs change depending on the plan and company goals and objectives too. However, some best practices will help along the way:
Identify clear and measurable outcomes that you can use to communicate what success looks like for the company (i.e.,’ zero emissions by 2025’).
Use centralised management systems to track metrics and performance.
Communicate regularly with key players (or monitor them) so you’re evaluating goals and comparing best practices.
Beyond this, ESG oversight is important as it’ll ensure progress is actually happening.
Step Seven: Progress Reports
Lastly is issuing progress reports. Communicating to key players is crucial but that should be a small number. For the general public, progress reports are a way to tell a story and show the company is actively working.
This report should be a combination of the following:
Communicating your ESG strategy while showing this strategy aligns with business objectives.
Highlight policies and programs already in place.
Evaluate the progress and engagement in key areas.
Sharing goals and metrics.
As with all things ESG, clarity, transparency, and consistency is the key to these reports. As such, these reports should be readily available. A good spot would be on the company website. Users could download it as a PDF at any time. A step further could be to elevate employee education and opt for ESG certification programmes to develop expertise within your company. Beyond that, company-wide ESG ratings are a long-term, permanent commitment to progress that also involves public visibility into your efforts.
With these seven steps in mind, a company can be more ESG-friendly. And when it’s done well, these initiatives can create a lot of value through reduced costs, more productivity, and becoming more attractive to sustainable investment. Having this strategy in place can show that focussing on ESG is good for everyone involved - especially the planet.