What is an ESG strategy?
Eighteen years ago, environmental, social, and corporate governance (ESG) was a new idea – merely an initiative proposal in a UN report. Now, it’s a different picture entirely.
ESG-related assets and initiatives are expected to climb beyond $41 trillion in 2022, according to figures released by Bloomberg – a further signal of the ever-intensifying worldwide belief that companies should expand their focus towards the people and environments around them, not just revenue.
Because of this, it is essential that every company knows the concept of ESG, understands what it means, and realises the responsibilities that come alongside it. This journey begins with the right strategy.
What does an ESG strategy offer?
In short: a blueprint for navigating an extremely broad area of governance.
ESG is rarely about profit, but it is about almost everything else; the way a company runs, the way it treats its workers, the way it interacts with the market, and the impact it has on society. It can be a lot to process without a structured approach, fuelled by experience and good research.
An ESG strategy will provide guidance around three core pillars: environmental protection, embracing social issues, and ensuring the company is run in the right way. It will offer your organisation clarity for fulfilling climate obligations, operating sustainably, safeguarding employee welfare, and managing the integrity of internal systems and processes.
It will also offer insights on the right diversity policies within your organisation, human rights, animal welfare, and consumer protection.
In short, an ESG strategy – if done correctly – will offer one of the most important roadmaps that your company will depend on.
What makes a great ESG strategy?
One that understands the challenges and praises success
- No two businesses are the same, and ESG is a broad field.
- The first basic conclusion that you should draw from this is your organisation has its own unique set of challenges, and an ESG strategy should reflect that. Not only will it provide a tailored way forward, but it will also help identify the most pressing shortcomings that need attention.
- At the other end of the journey, it is also important to report succinctly on the successes and remaining challenges attached to an ESG strategy.
- Tackling ESG is an important piece of work, so its results must be recognised.
- In addition, the company must be able to convey those results to investors, and to the public.
- Communications must be easy to grasp, they must clearly highlight achievements, and set out new tactics should previous challenges persist.
One that quantifies the concept
- ESG often involves a daunting level of sub-tasks and concerns that need to be addressed.
- By their nature, some of them may seem centred on qualitative monitoring rather than quantitative, but quantified analysis is everything.
- Within a great strategy, there are targets and performance evaluation metrics that will not only benefit you, but that will matter for both public relations and reporting back to investors.
- Some of these areas are easier to quantify, such as carbon footprints and the amount invested in health and safety training, as well as insurance.
- Some are harder though, such as gauging the impact of your organisation’s corporate culture, specifically whether it’s embraced among employees and fosters a good working relationship.
One that combines expertise and vision
- Divergence at the management level is the enemy of an ESG strategy.
- If rifts form between senior staff and boards over their idea of what’s important, the strategy stands to make less of an impact.
- For that reason, and with due regard to a healthy level of debate – a good ESG strategy will have the full backing of the company’s board and senior management.
- All should be in broad agreement about the most urgent matters, how they will be addressed, and how progress will be measured.
- In addition, they will work on the strategy together as far as possible.
- Being as broad as it is, ESG may encourage some management to break into sub-teams that focus on more specific issues.
- This reduces the level of fresh, experienced input; and given the rapidly increasing importance of ESG, fresh, experienced input is more vital now than ever.
One that creates value – yes, this is possible
- ESG is a concept so closely ingrained in day-to-day business, and given Bloomberg’s figures, we know that it is likely to command investment beyond the $41 trillion mark in the coming years.
- Like any other business goal, ESG needs to bring value to the organisation.
- On the surface, this may not seem possible, but think deeper, and think long-term, because here lies the true value of a good ESG strategy.
- For example, when it comes to environmental protection, a good strategy will combine the drive for greener policies with the need to easily demonstrate those policies to the public.
- If the policies can’t be demonstrated – or, in some cases, don’t even exist – then the organisation will stand to lose public trust. This can easily decrease customer levels and have a knock-on impact on the company’s long-term value.
- An organisation’s ESG strategy can make huge inroads in areas like internal governance and HR; in other words, the ‘social and corporate’ side.
- If an oversight body or government suspects foul play in these areas, investigations and legal disputes can unfold, swallowing large chunks of funding in a short space of time.
- A good ESG strategy can reduce the chance of these disputes and investigations happening at all, safeguarding and organisation’s budget in the process.