The year 2022 is upon us, and for many businesses, that means making a start on things that simply fell to the wayside or were postponed back in 2021. One thing that some companies will be looking to address is their sustainability performance, hoping to show shareholders that they do not hold profits above all other considerations.
Perhaps implementing an ESG strategy for 2022 is the best way of improving organizational sustainability, though that will depend. Environmental, Social, and Governance, to give ESG its full name, is a demonstration and evaluation of these factors, scored based on numerous relevant metrics.
Here are some quick questions and answers, followed by the steps required to get started.
Quickfire FAQ for ESG Beginners
What does ESG stand for?
Environmental, Social, and Governance.
On what factors is ‘Environmental’ measured?
Pollution, energy, waste, resource efficiency and exploitation, and carbon emissions.
Can ‘Social’ really be measured with data?
Yes. Social looks at company culture, human relations, ethical decisions, employee treatment, equal pay, discrimination, supply chain management, social justice, and more. Some factors are subjective, others can be quantified.
What does ‘Governance’ really mean?
How is the company structured, who is accountable, and are they following any regulations and compliance laws?
Are ESG and Sustainability the same thing?
No. ESG goes further than sustainability and dives into social responsibility and business governance. As consumers and customers begin to analyze their spending decisions, this casts a more powerful lens on businesses and their actions. Sustainability is more of a vague, overall term, whereas ESG looks at precise aspects of operating a business.
What is an ESG Framework or Strategy?
An ESG framework gives businesses a standardized way to report their performance. A strategy, however, is a way of using a framework to improve and exceed the objectives. You might see ‘strategy’ used interchangeably with ‘roadmap’.
What is ESG reporting?
The collected data on environmental, social, and governance, is then applied to the framework and scored to show how well ESG practices are performing against their predefined goals.
Why bother with ESG?
The reporting gives consumers and investors a clear way to compare businesses on their commitment to progress, sustainability, ethical behavior, company culture, and more.
Now, let’s guide you through the process and what you should be thinking about…
Step One: Set Your Goals
All good ESG goals are:
- Clear
- Measurable
- Trackable
- Relevant to all levels of the organization
- Drivers of success
- Achievable
- Value creators
- Considerate of people, planet, and profit
The goals must also take into consideration:
- The wants, needs, goals, and values of stakeholders
- How the goals will be communicated internally and externally (if at all)
- What success looks like for the project
- Whether the business wants to innovate new ideas or implement existing ones
- Timelines for different goals
- How ESG can be integrated alongside other challenges and changes
The Big Question
Is the overall long-term objective of an ESG strategy worth the effort and resources?
Step Two: Create a Budget
For those creating the budget, they might begin by looking at financial ROIs, but it’s important that they do not remain too short-sighted in this regard. Some initiatives and innovations may take more time and offer smaller financial rewards, but do greater good in the overall picture.
Budget-makers must also consider that many ESG policies will be money-saving, something that must be reflected in the budget. This could be achieved by positive capital improvements, energy audits, or resource efficiency.
Another consideration is how much time your employees will be putting into ESG strategy and how much that is costing as a reflection of salaries and wages. Alternatively, bring in a consultant to handle the process for you - it’s their expertise at the end of the day.
The Big Question
How much are you willing to spend to get the desired outcome?
Step Three: Find the Opportunities
Collecting, managing, and understanding data can be very time-consuming. There are certain tricks, tools, and experts you can use to help you validate and quantify the data to help find opportunities. Finding the low-hanging fruit at the start will help the project find its legs.
This point might seem vague from a distance, mainly due to the fact that there is no uniform approach to opportunity-finding and data collection since all businesses and industries differ. One company might find opportunities through energy reduction on their premises, another through an improved fleet, and another by embracing on-site anaerobic digestion.
The Big Question
How much data is enough data?
Step Four: Building the ESG Framework
Steps one to three have got you ready. You know your goals, your budget, and the prime opportunities. With those three things at hand, you’re ready to build your ESG framework.
Pick your reporting framework
There are many different ones, often suited to different industries, including:
- Sustainable Development Goals (SDGs)
- Global Reporting Initiative (GRI)
- International Standards Organisation (ISO)
- Task Force on Climate-related Financial Disclosures (TCFD)
- Global Real Estate Sustainability Benchmark (GRESB)
We recommend the first two, SDGs and GRI, for their non-specific nature. Be aware of which parts of the framework are mandatory and optional.
Obligatory Framework Aspects
- Complying with regulations
- Acting in a legal manner
- Meeting certain benchmarking requirements
- Reporting accurately
- Addressing Governance
Voluntary Framework Aspects
- Achieving third-party sustainability certifications (like Energy Star)
- Making social and environmental promises
- Publishing reviews publically
The Big Question
How can you monitor and reach your goals effectively and compliantly?
Step Five: Building the team
You may want to hire from within, but finding an expert or consultant to come and start implementing an ESG strategy is typically advised.
A good balance could be well-suited to your ESG strategy, giving a consultant the opportunity to work with your staff for the best outcome.
We suggest you comprise a team that contains:
- A consultant
- In-house sustainability professionals
- One member of staff from each department (an able communicator is ideal)
The Big Question
Who is going to push the strategy forward, and who will hold it back?
Step Six: Ongoing Monitoring
Constant monitoring is important, but even more important is that the monitoring is kept relevant. This means monitoring the goals from step one, and the obligations from step four.
You should also consider:
- Monitoring across the whole business, as well as breaking the data down into departments, sites, or premises
- Accepting recommendations and advice from those at all levels about what can be done with the data collected from monitoring, as well as giving them live access
- Deciding or assigning accountability to certain individuals or departments can help them to drive the commitment and performance on whatever is being implemented and monitored
- Using comparisons with other organizations or between sites, premises, departments, or even historical information, to gain context, benchmarking data, and actionable information
The Big Question
What software will you use to track your goals, progress, benchmarks, and more?
Step Seven: Sharing the good news
With all of your efforts should hopefully come success and the desire to share the positive outcomes of your ESG journey.
The question is…
- How do you share the results?
- Are the results public or private?
- Will you promote the results to the public or internally?
- Will the results go in the annual or quarterly reports?
- Who needs to know about the results and how do you reach them?
- Is internal reporting done continually or only at the end of the project?
- Will you hire an expert to confirm the results are accurate?
- If some metrics are public and some are private, which and why?
7 Ways to Present the Data in Your Reports:
- Consistent and systemic metric presentation
- Try to make things interesting and engaging
- Offer comparative figures to previous years or quarters, or to other rivals
- Publish with consistent frequency
- Provide context where possible
- Show how management and operations relate to the ESG goals and performance
- Talk about the actual implementation work that went on, with human stories and interviews
The Big Question
Which metrics will you communicate, and how?
What to do with all this knowledge?
Simply get started. There’s no time like the present, and with the fresh motivation of a new year to provide external motivation, we think you should start making moves right now.
To help your leaders acquire the necessary skills to successfully implement ESG strategies, contact us for a free consultation today.