ESG involves much more than checking a box. To be effective, credible, and transparent, your efforts must be guided by a well-crafted ESG strategy that will create new value for businesses and stakeholders, while also mitigating risks.
And that means going beyond bare-minimum reporting. You must commit to identifying, measuring, and holding your business accountable for ESG performance across your enterprise in a way that aligns with your overall business strategy. Then you must ensure that you have the proper technology, tools, and techniques in place to track and manage complex ESG metrics on a timely and consistent basis.
Here are 7 decisions to help define your ESG strategy – and put it into action.
Decide why you need an ESG strategy.
What’s driving your ESG program? How you answer this question will dictate your ESG strategy.
Companies decide to embark on an ESG program for a variety of reasons. Doing the right thing is part of some organizations’ cultures and sharing that message is important. Some organizations want to influence stakeholders by showing that their ESG strategy drives value. Others want to do just enough to satisfy stakeholder expectations and mandatory reporting requirements.
However, there is little tolerance for efforts that are no more than lip service. ESG strategy must be aligned with other corporate initiatives and commitments and ingrained in the culture of the organization.
Decide who are your priority stakeholders.
You can’t be all things to all people. Start by listing all of your stakeholders, then focus your efforts by asking:
- Who are our most important stakeholders?
- What are their needs and expectations?
- How do we deliver on those expectations?
Prioritizing your stakeholders helps ensure that your ESG strategy addresses what is most important. Defining your priorities also can be your north star to keep your efforts on track when, say, your commitment to address climate change conflicts with your commitment to social equity.
Decide what information to disclose.
What mandatory requirements do you need to meet? What metrics are the public, employees, investors, and customers demanding?
Resist the temptation to limit your disclosures to what’s easiest to report. Your ESG metrics should closely align with your organization’s values and strategy. Also consider what your stakeholders are looking for and what industry peers are providing to help stakeholders easily compare performance and make informed decisions. No matter what, though, make sure the information you disclose can withstand fact-checking scrutiny.
Keep in mind, too, that to be truly effective, your ESG strategy should extend beyond the organization itself to your suppliers, vendors, and other trading partners. Indeed, Germany recently addressed this issue with its Supply Chain Due Diligence Act that obligates companies to establish due diligence procedures in global supply chains to safeguard human rights and the environment, effective January 1, 2023.
Decide on ESG frameworks.
While there are dozens of ESG frameworks available, there currently is no universal framework that covers all facets of ESG reporting. As a result, many companies opt to piece together multiple frameworks to best align with their own ESG strategy and the data they wish to disclose.
Three of the most commonly used ESG frameworks are:
- Global Reporting Initiative (GRI): ESG metrics are designed as a modular set, adding flexibility for organizations to deliver on a wide array of material impacts. GRI recently added new ESG metrics on human rights and environmental due diligence and has released sector-specific standards for 40 sectors.
- Value Reporting Foundation (VRF): The Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC) recently merged to create the VRF for the purpose of helping companies connect financial, human, and sustainability data.
- The Task Force on Climate-Related Financial Disclosures (TCFD): This framework is focused on climate-related disclosures for the financial sector. The TCFD aligns these disclosures to governance, strategy, risk management, metrics, and targets.
The International Organization for Standardization is also in the process of mapping ISO standards to the above frameworks.
Decide on a consistent ESG reporting process.
Standardized policies, procedures, controls, and governance are essential for effectively carrying out your ESG strategy. Establish a clear process, accountability, and board oversight to guide your strategy over the long haul. Consider:
- How do you want to manage ESG reporting on an ongoing basis?
- How can you maintain ESG reporting consistency?
- How frequently do you want to report on ESG metrics?
After you determine what information to report, how often you will report it, and who is responsible, you’ll need to consider how you’ll get that done.
Can your existing tools accurately and efficiently collect, analyze, and report on your chosen ESG metrics? Do you have technology that can easily pull existing data from wherever it resides in your organization, seamlessly collect missing information, and align with your frameworks?
Given the breadth of ESG data and the market’s desire for investor-grade data, integrated technology that can automate data collection and easily adapt to changing requirements is essential. Spreadsheets may be a common starting point, but they have a hard time keeping up with the amount of real-time data needed to properly manage ESG.
Decide how to communicate ESG strategy.
The last piece of your ESG strategy is to share it with stakeholders.
Explain the drivers behind your ESG strategy to help stakeholders understand why your metrics were chosen and how those align with your broader mission. Transparency is of utmost importance to stakeholders and sharing the reasoning behind your disclosures will help build trust and credibility inside and outside your organization.
With a well-defined ESG strategy, you are sending a signal to stakeholders that ESG issues are a priority, you’ve dedicated the necessary resources, and that you are committed for long-term progress toward creating value.