January 22, 2024
A Beginners Guide to Developing ESG Strategy

ESG stands for Environment, Social and Governance and is often used interchangeably with sustainability. Diving into the specifics, ESG comprises three non-financial performance indicators that describe a company's long-term stability and performance. ESG encompasses a company's sustainability efforts, community impact, business ethic and financial behaviour, among many other key attributes and operational requirements. It is also used as a tool to predict future performance in these areas and can be especially useful for socially-conscious investors and consumers interested in a certain company.

Diving deeper into the three aspects individually: the environmental component considers how a company protects the environment while conducting business. This can include how sustainable their resource consumption is, the amount of waste produced as a result of their business activities, their greenhouse gas emissions and their impacts (positive and negative) on climate change. The social component is a reflection of how the company manages relations with its employees, investors, suppliers, and consumers. It also considers their overall community impact. Lastly, the governance component examines internal corporate policies on rights, leadership, corruption, board composition, etc. Together, these three factors can create a holistic picture of what the company is like.

So how does all of this work?

A company that is adopting an ESG strategy should have the following considerations:

1. Environmental Pillar

The goal should be to become responsible stewards of the environment. Evaluate the active corporate climate policies within your institution. Do they consider your company's resource consumption, waste production, greenhouse gas emissions, or your efforts to conserve natural resources? Are you enforcing appropriate policies that are compliant with environmental regulations and help limit your negative environmental impact? Anticipating and managing your environmental risk is the first step to a successful ESG strategy with defined ESG goals.

2. Social Pillar

Reflect on relationships with stakeholders, both internal and external. Are working conditions safe for your employees? Does your company have policies against child labour and slavery? High regard for worker health and safety regulations is a must to ensure a productive and safe work environment. This is especially important in the context of compliance. Additionally, diversity in the workplace is a key component within the social pillar to increase opportunity and access. In terms of external stakeholders, a company with this agenda will hold its suppliers to the same standards. They will also be transparent with consumers and the surrounding community, ensuring to contribute to projects that serve disadvantaged populations. The primary themes surrounding this pillar are inclusion and diversity, community impact, social justice, and ethics.

3. Governance Pillar

This pillar ensures integrity and accountability within the institution based on how the company is run, and how it monitors itself. Is your company diverse and fair in structuring leadership? Is there transparency among employees and the board? A company that has a successful ESG strategy upholds not only these values but also engages in legal business activities, avoids/appropriately resolves conflict, and can be held accountable by stakeholders.

Why should a company take all the extra effort to develop an ESG strategy?

There are many benefits to adopting an ESG strategy. It all comes down to making the company attractive to investors and consumers, as well as avoiding environmental and financial risk. Presently, investors have shown an increasing interest in companies which have ESG principles that align with their own. Alongside adding value to shareholders, ESG data also provides an objective way to represent your company's performance, as well as a method to successfully increase your market share. Investors often use this to measure progress and value. It shows them that they are putting their money into the right business.

This goes for attracting consumers, as well. People are more likely to purchase goods or services from sustainable companies that are transparent about their activities, and making a positive impact on the world. Another advantage is the ability to outperform competitors. An effective ESG strategy can help improve the public perception of your company and help stay competitive, relevant, and compliant in the industry. Especially due to the advent of sustainability-related legislation in recent years. Other benefits include lower costs over time, increased productivity and efficiency, and reduced risk.

How can you begin developing your own ESG Strategy?

1. Conduct a Materiality Assessment

Conducting a materiality assessment will highlight the areas of focus for your company. At this step, the key components that the plan must cater to will be identified. Prioritising the right actions for your business to take, given your aim, will help meet goals efficiently. If your aim is to attract investors, then what are the topics that are relevant to them? This step engages stakeholders and involves them in the decision-making process. Identifying the who? of your plan during your materiality assessment can guide your strategy and efforts. Next, the company must define their current position on ESG, given their business activities. What are the areas of importance, what does your current data reflect, and where can you offset impact? Additionally, peer-benchmarking can assist in defining your company's current positioning. Outcomes of this assessment should be to define target stakeholders, prioritise important ESG issues according to them, gather insight into current position, and highlight ESG actions.

2. Establish a Chosen ESG Framework

Determining ESG regulations and standards can be incredibly helpful to your plan. There are many frameworks which can be adopted in developing your ESG strategy. Some examples as the Business Responsibility and Sustainability Reporting (BRSR), Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI) standards, the UN Sustainable Development Goals (SDGs), and the Task Force on Climate-related Financial Disclosures (TCFD), to name a few. These frameworks provide guidelines by which companies can establish and maintain their ESG requirements. They also provide reporting formats to appropriately and accurately disclose ESG information, especially in terms of which ESG metrics to track and report on, what tools to utilise in your strategy, and what the requirements are as per the framework. Overall, they standardize the process of ESG reporting and can greatly help in structuring your strategy.

3. Set Attainable ESG Goals

Now that the framework is in place, it is time to set specific ESG goals. These can be categorised by the criteria. Environmental goals can involve publishing an ESG or carbon report, lowering emissions and waste production, and shifting to renewable energy, among others. The social aspect can include, improving working conditions for employees, implementing fair and liveable wages, ethical sourcing of materials, eliminating wage gaps, or increasing community efforts. Lastly, governance efforts can consist of diversity in leadership and management, involved decision-making, data security, financial transparency, and practising good business ethics

4. Create a Roadmap

Once ESG goals are set, the next step is to create an achievable roadmap for ESG growth. Outline your company's goals, initiatives, and milestones. What requires immediate attention? How long will it take to address each goal? What is a realistic one/five/ten-year plan? This provides stakeholders with an idea of your objectives and gives them something to ensure accountability. If made public, your roadmap can also increase stakeholder attraction by establishing targets and rationales for each goal.

With a successful ESG strategy in place, it is time to gather the appropriate data and meet your goals. Achieving sustainability benchmarks will highlight areas of growth for your company. Reassess strategies over time, evaluating what works and does not work. Making necessary adjustments along the way will avoid wasting resources and increase efficiency.

At Oren, we offer ESG services specifically catered to building your ESG strategy and aligning your company with your industry's best practices. No matter what stage your company is at, we have simplified the process for you to easily employ your personalised ESG strategy, and guide you through the process. Our platform, Oren's Sustainability Hub is awarded the Best ESG Tech Platform.

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