Environmental, social, and corporate governance (ESG) is now more important than ever before.
In fact, 76% of consumers say they’ll stop buying from companies that treat the environment, employees, or the community in which they operate poorly.
This is further pushed by the US Securities and Exchange Commission’s (SEC) plan for standardization across companies in the US.
In 2022, the SEC announced the upcoming enhancement of climate-related disclosures public companies must make for investors. After plenty of discussions, implementation might indeed start later this year.
For SEC-listed companies, this means the urgent need to disclose how ESG impacts their business, finances, operations, plus their direct and indirect gas emissions. When these regulations come into fruition, being able to adapt quickly is important.
This is likely just the beginning too. It’s thought governments worldwide will set more regulations in an attempt to save our planet, with private companies being expected to meet similar standards.
To get on top of the growing demands and become an industry leader, a strong ESG strategy is needed to set you up rather than leaving you non-compliant and dragging behind the competition. To be successful in your pursuit of ESG goals, there are some vital steps that can help you get ahead.
What is an ESG Strategy?
It’s a framework or set of principles governments and organizations adopt to address Environmental, Social, and Governance (ESG) considerations in business operations and decision-making processes.
It’s driven by the recognition that addressing ESG issues not only aligns with responsible and ethical business practices but can also lead to long-term financial sustainability and resilience, as it can attract socially conscious investors, customers, and partners.
ESG Strategy is a systematic approach employed by organizations, companies, and investors to integrate all three pillars into their decision-making processes and operations.
What are the three pillars of ESG?
For a holistic ESG strategy, elements from all three pillars must be included.
Environmental
This aspect is focused on our planet and the necessity to reduce waste and greenhouse gases. Some of the most common ESG environmental considerations include:
- Water and resource management
- Waste reduction and sustainable product design
- Biodiversity conservation
- Greener electricity
- Eco-friendly suppliers
- Climate change and greenhouse gas emissions
Social
The social pillar is all about how you support the people in your organization and other communities and society. Social steps could include:
- Ensuring equal pay across genders and ethnicities
- Considering employee relations and labor practices
- Developing a diverse workforce
- Hiring and upskilling the local community
- Human rights and supply chain responsibilities
- Customer satisfaction and safety
- Product Safety
Governance
This addresses the quality, effectiveness, and ethical decisions behind a business’s actions, structure, and common practices. This is all about ensuring transparency and accountability across all employees, while strengthening ethical conduct.
Some ways to improve governance include:
- Looking at board composition, independence, and diversity
- Distributing responsibilities amongst management and board members fairly
- Creating frameworks for ethical decision making
- Increasing corporate transparency
- Improving data hygiene
- Incorporate anti-corruption measures
- Look at shareholder rights
Benefits of Implementing an ESG Strategy
Increased ROI: Several studies have concluded that those who emphasize ESG and sustainability outperform their peers.
Demonstrates a push for sustainability: Customers and stakeholders are concerned about climate change and the effects it will have on our planet over the next few decades. In fact, 32% of customers consider the environment all or most of the time when making purchasing decisions.
Attractive to investors: Over 75% of investors feel that at least some thinking around sustainability is important when considering a potential investment. 61% have declined to make or recommend an investment due to ESG concerns.
Higher levels of accountability: An effective ESG strategy gives employees ownership, deadlines, and pre-scheduled reviews. If the strategy is public, customers and investors might also keep track.
Keeps everyone on the same page: With a clear ESG strategy, everybody knows what they are working towards, what’s their role, and which processes to follow at regular times and when challenges come up.
9 Steps to Introduce an ESG Strategy
An ESG strategy can bring a better future, but it needs to be done correctly to bring changes.
1. Assess current ESG performance
You should complete a comprehensive review across all three ESG pillars and throughout different departments. One of the best ways to do this is by including team leaders and members from every business area.
Collect as much data as possible, including financial reports, sustainability reports, HR records, and operational data.
Brainstorm solutions for these bottlenecks ahead of presenting your ESG strategy.
Key Considerations:
- How much water are you saving through recycling or reducing leaks?
- How diverse is your management team and workforce?
- What’s the current state of your data hygiene?
- Assess potential challenges like a lack of resources and inconsistent data tracking.
2. Communicate with internal and external stakeholders
Identify and categorize your internal and external stakeholders. Typically, this includes employees, investors, suppliers, regulators, local communities, non-governmental organizations, and even customers.
Having this as the second step in your ESG strategy builds trust and shows transparency to the people who matter most.
Communicate effectively with the relevant people to understand their needs, as this could provide a useful guiding path for the ESG framework.
Don’t just stop there either; update these people throughout the process and open up a two-way communication system so feedback can be fed in as well.
3. Assess priorities
With the input you’ve gotten, identify which goals are the most important across stakeholder categories, and which you can let go of.
For example, the famous Empire State Building sees more than 4 million visitors yearly and recently took the steps to become more sustainable.
The Empire State Realty Trust’s aimed to reduce the building’s environmental footprint. To achieve this, they deployed WINT Water Intelligence technology to reduce water consumption and the associated carbon emissions.
WINT systems were added to multiple locations in the building. With the advanced AI and machine learning technologies the business was able to monitor water flows and alert staff as soon as anomalies were detected.
As a result, the Empire State Building’s water consumption was reduced by 7.5 million gallons per year, saving over $100,000 each year. This prevented water damage and reduced carbon emissions by more than 300 tons every year.
Like the Empire State Realty Trust, prioritize the most critical goals, then expand to the next tier of importance as you make progress and optimize processes.
You should examine and review these priorities against industry-specific criteria or regulations so you’re leading with the most important aspects across the board.
Source: https://unsplash.com/
4. Set clear goals and KPIs
Now that you know your top priorities, define them as actionable, specific, and time-bound goals with clear KPIs.
Instead of saying ‘reduce carbon emissions,’ ensure each goal is precise, like ‘reduce carbon emissions by 15% by 2025.’ This way, everyone knows what they have to achieve and in what time frame. Otherwise, these goals could be put on the back burner, with little achieved until it’s crunch time.
But these should be realistic. Look at the data you currently have and decide on what will be possible with your current resources. Determine how you will measure this progress.
Some common KPIs for ESG strategies include:
- Employee turnover rate
- Percentage of renewable energy used
- Bills
- CO2 emissions per unit of production
5. Develop a clear ESG plan
To create an ESG plan that will actually be used, include the following…
- Which team members work on what, who’s in charge, and who they should report to.
- Initial division of goals into smaller goals – with submission and review deadlines, plus KPIs.
- The available resources, such as budget, tools, and access to stakeholders.
- Possible solution pathways for challenges, so waiting for the next review won’t be necessary.
6. Continue engagement with stakeholders and team members
Let stakeholders know how your ESG strategy execution is going, get their feedback, and adjust accordingly.
Whenever you can, customize messages, communication channels, and contact frequency based on each stakeholder category’s needs and preferences.
7. Start improving ESG
Demonstrate quick wins to create enthusiasm, and it’ll carry your involved stakeholders through the initial growing pains of your ESG strategy. Make small changes with a possibly big impact in the near future, such as:
- Replacing single-use cups and cutlery with reusable ones.
- Choose one transparency aspect and require reporting from management members.
- Incorporate a solution that helps solve ESG pain points. This could be an EMS system to track energy consumption, a communication tool for employees, or a water management and leak mitigation tool to reduce 20-25% of water waste and insurance bills.
8. Measure impact and ROI
Always track results because the data will tell you what is going well and needs improvement. Your stakeholders will appreciate the data as well. Measure impact and ROI together whenever possible. For example:
- If you’ve reduced water waste, how much have you reduced your footprint?
- How much have you saved in water bills and insurance bills?
- How many extra work days have machines had without water damage?
- How much do you estimate it saved or earned you?
- If you’re diversifying your management, how much more diverse is it now versus the past?
- How do management members feel about it?
- How much better is your company performing?
9. Adapt the plan where needed to meet needs
Review your ESG strategy regularly and remain agile. Business needs, stakeholder concerns, and regulatory mandates evolve as do regulations and world events which can leave a lasting impact on an organization. Being able to adapt when needed is important.
In addition, reviewing means you’ll catch challenges before they’ve escalated. Sometimes, you’ll find a solution. Other times, you’ll discover changing course is actually better.
Always stay open to changing your strategy if needed.
Utilize ESG Solutions
It’s easy to have everything written down on paper, but actioning these takes commitment and time.
To help speed up the process of being successful in your ESG goals, consider implementing technology that can help you lead with the right foot forward.
Everyone will have different focuses, but one that is right under your nose is water management. After all, water is said to be at the center of the climate crisis.
To save on waste,insurance bills and work towards a more sustainable future, consider incorporating WINT into your strategy. Our solution is a water management system that detects and stops leaks at the source using AI.
Our system uses real-time monitoring to identify the source of the leak, mitigate damage, and reduce consumption and carbon emissions – we’ve helped Google, a billion-dollar construction company and even the Empire State Building to do just that.
