Why your board needs an ESG strategy
Stephen Conmy sat down with Shaheer Hafeez, an associate director of ESG strategy with KPMG, to discuss environmental, social and governance and the emerging trends in the area.
Why is it essential that boards have an ESG strategy?
In today’s business climate, it’s clear that having a definite purpose and positive impact on the planet and its people are crucial. Everything is under the spotlight, from how your business treats your employees to its supply chain, how its data is used and managed, to its environmental credentials. ESG isn’t something specific for a business; it’s everything you do and how you do it. And therefore, boards must have an ESG strategy that is ideally integrated into your organisation’s overall narrative and purpose.
What sort of interest and demand are you seeing from clients when it comes to ESG? What do they want to know?
There’s a spectrum of issues that clients are facing from an ESG perspective. At a topline level, firms want an ESG strategy to embed it into their overall business strategy. More granularly, clients seek help on specific parts of ESG, such as the roadmap of their net-zero journeys or ensuring their supply chains adhere to ESG principles. There is also compliance with legislation, such as the TCFD disclosures.
What ESG trends are emerging?
Historically, sustainability was more about CSR – fundraising for environmental and social initiatives, but there’s been a dramatic shift, and we’ve seen the emergence of sustainability 2.0 in the form of ESG.
A new generation of customers expects ESG to be at the core of a company’s purpose. Along with the customer-driven trends towards ESG, regulators are showing a greater interest, and there are stricter reporting requirements. Investors and lenders are also recognising their stewardship responsibilities and actively using their rights to influence corporate activities.
The fact is, the cost of inaction could hurt a business. We see a more natural shift towards ‘doing things better because more and more stakeholders are interested in how businesses impact the planet and its people.
On the face of it, ESG appears to be a good thing. However, are there any weaknesses in the area? (greenwashing, for example)
Greenwashing is a challenge. In today’s climate, you are likely to get caught out. For example, it’s no longer sufficient to release a statement saying ‘we’ll be net-zero by 2030’. It would help if you showed you are addressing the risks and challenges.
It is essential to have a clear plan made public and one that people will buy into – because they see real progress.
As businesses get to grips with the expectations from customers, investors, and other stakeholders, the focus should increase on real tangible action.
Another challenge from an ESG perspective is the data and infrastructure. Businesses have to disclose ESG information for regulatory reasons and have rating agencies and external stakeholders analyse the information.
As a business, you have to ensure you have the correct data and are set up to monitor and report the data in a consistent manner.
What opportunities does ESG bring for firms that embrace it in a genuine way?
ESG needs to be embedded in your overall business strategy, and it shouldn’t be a stand-alone issue. Linking ESG into your products and services is critical. Demonstrating good ESG practice could give you access to potential new markets or segments.
New generations are emerging keen to buy from businesses with more sustainable offerings and are likely to pay a premium. This dramatic shift in consumer behaviour will feed into how businesses address their ESG strategies.
What does the future hold when it comes to ESG? What can boards and their directors expect?
ESG is critical, and something your board needs to embrace, and the key is to embrace it authentically and transparently. If you’re on a board, you should focus on the material risks. It’s essential to have an authentic ESG strategy.
You should set goals, ask what you want to achieve. It’s crucial the board knows where the business is strong and understand where it’s vulnerable. It’s essential to have a good strategy and show stakeholders how you will address the risks.
Use the strengths of your board but also encourage people within the organisation to speak up and provide a challenge.
Having policies is good, but if you don’t have the right culture, your strategy can get lost. Having a boardroom culture where people can stand up and feel comfortable challenging the way the business does things is essential.
To read more about the work KPMG does relating to ESG, go here.
You can watch the full interview below.
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