1. Spend Time to Conduct a Comprehensive ESG Audit and Materiality Assessment. Assess your organization’s current impact on the environment, society, and governance structure, as well as which of these ESG issues are material to or influence your financial bottom…Read full post
ESG Strategy: Steps to Accelerate & Improve
As environmental, social, and governance (ESG) considerations gain more influence in the corporate world, the importance of a solid ESG strategy cannot be overstated. Here we delve into detailed technical steps for businesses aiming to accelerate and improve their ESG strategies.
Where are companies lacking:
In order to get a clear view of where to start with ESG, it is important to understand the key areas where companies are most often lacking in their overall sustainability and ESG corporate strategies. If any of the following apply to your company, solving these issues is the best place to start in improving ESG progress.
- Many companies are still without an existing materiality assessment
- Still accounting for GHG emissions in homespun spreadsheets or not yet accounting for them at all
- Not engaging in third-party verification or attestation of ESG disclosures
- Inexperience with Task Force on Climate-related Financial Disclosures reporting
- Lacking budget for a consultant or a data platform.
Accelerating Your ESG Strategy
1. Understand Your Current ESG Status
Conducting a comprehensive ESG audit and materiality assessment is the first step. This involves assessing your organization’s current impact on the environment, society, and governance structure, as well as which of these ESG issues are material to or influence your financial bottom line. For a more in-depth evaluation, engage a third-party audit firm specializing in ESG assessments. Utilize industry-standard ESG reporting frameworks, such as the Global Reporting Initiative (GRI) or Sustainability Accounting Standards Board (SASB) metrics, to systematically measure your current ESG performance.
The key to good ESG reporting is to be a pragmatist and understand that ESG is not a silver bullet. Always begin by reporting on the risks that your relevant stakeholders consider material, whether or not they are climate-related. In considering the need to dispel inaccurate ESG opinions and politically charged narratives, ESG should be understood at its simplest definition: “material risk factors that matter for enterprise value creation”.
2. Set Clear, Realistic, and Measurable Goals
With the audit results in hand, craft specific, measurable, attainable, relevant, and time-bound goals. For example, if your business is in manufacturing, an environmental goal could be reducing CO2 emissions by 20% over the next five years. Use recognized standards, like the Science-Based Targets initiative (SBTi), to ensure your goals align with climate science. Goals stated towards emissions reductions, waste, water use improvements, and more should align with science-based methodologies and reasonable expectations based on base year emissions inventories. Firms that commit to unreasonable goals and do not regularly demonstrate or report on progress towards those goals will be at increased risk of litigation for greenwashing and false investor information.
3.Develop a Strong Action Plan
Create a detailed action plan outlining how you will achieve your goals. This includes:
- Assigning Responsibility: Allocate specific tasks to teams or individuals.
- Creating a Timeline: Detail when each task should be completed.
- Budget Allocation: Dedicate financial resources to ESG initiatives.
- Setting KPIs: These will help measure your progress towards achieving the set goals.
4. Communicate Your Strategy Effectively
Use various communication channels to articulate your ESG strategy. This should be done both internally (staff, management) and externally (investors, customers, public). Highlight the importance of ESG considerations and the role everyone plays. You might consider developing an ESG-centric communication campaign or integrating ESG messages into existing communications.
5. Measure and Monitor Progress Regularly
Access to high-quality, reliable environmental, social, and governance (ESG) data enables businesses to achieve their ESG ambitions. Consistent tracking and reporting over time are crucial. Identify metrics that reflect your ESG goals and use them to measure progress. Employ ESG-specific software for streamlined tracking and reporting. ESG software and tools can help companies collect, manage, and analyze ESG data more efficiently and effectively. Auditing data upon pre and post-ingestion, real-time analytics, instant reporting, accurate calculations, and more are all part of the immeasurable benefits of using cloud-based software for sustainability data management.
Conduct regular reviews (quarterly or bi-annually) and adjust the strategy as needed. Check out our blog post on the importance of ESG reporting data quality to get a clearer view of the data side of ESG.
6. Understand the interconnected nature of ESG
Many companies are still failing to view sustainability as a hugely complex and interconnected issue. Climate and emissions, biodiversity and supply chain, social and DEI are all approached in isolation with different teams reporting on their specific areas despite them being inextricably linked. A sustainability strategy is much more than incremental targets and offsetting. It is about securing long-term business resilience alongside creating profit which generates wider value for society and the planet.
Realizing that even best-practice sustainability strategies can still be at odds with environmental goals if the organization’s business model is not aligned is important to acknowledge. This disconnect between sustainability targets and business models may well explain why terms like greenwashing, greenwishing and greenhushing have taken hold. For even the most well-intentioned business, living up to your green claims is tough if your business model could actually be working against them.
Improving Your ESG Strategy
1. Regular Review and Update of ESG Goals
As your business and external environment evolve, so should your ESG goals. Set regular intervals (annually, bi-annually) to review and recalibrate your goals. This ensures your ESG strategy stays relevant and robust.
2. Incorporate Stakeholder Feedback
Stakeholder engagement is integral to any ESG strategy. Regularly solicit feedback from employees, investors, customers, and the community. Surveys, town halls, and one-on-one meetings are effective ways of gathering this feedback. Utilize this input to identify strengths and weaknesses in your ESG strategy and make necessary improvements.
3. Enhance Transparency and Reporting
Transparent reporting bolsters credibility with stakeholders. Develop an annual sustainability report following recognized frameworks like GRI, SASB, or TCFD detailing your ESG initiatives, progress, and future plans. These frameworks are being used as foundations for consolidated ESG disclosure initiatives around the world, suggesting that disclosing to each of these frameworks now is also a way to help ensure your firm is prepared for future ESG requirements. Regular updates (monthly or quarterly) through newsletters or dedicated ESG web pages can also enhance transparency.
4. Invest in Sustainable Technology and Solutions
The most ESG-savvy firms will fully utilize the data collected in ESG reports to operationalize sustainability with energy, water, and waste efficiency measures, technology upgrades, and competitive differentiation in markets that favor low-carbon products/services. After all, good management of material ESG issues contributes to financial performance.
High-quality data can assist with decision-making, as it provides a clear and accurate picture of a company’s performance in areas related to the environment, society, and governance. Internally, regularly monitored environmental data may reveal inefficiencies when it comes to facility-level energy use and areas for improvement on sustainability metrics that can lead to cost savings.
Innovation drives improvement. Invest in technologies that can reduce your environmental impact, like energy-efficient machinery or renewable energy sources. Explore solutions for social impact, such as inclusive hiring software, or governance technologies like AI-powered compliance tools.
5. Continual Employee Education and Engagement
Make ESG part of your corporate culture. Provide regular training on ESG topics relevant to your industry. Create programs that allow employees to contribute to your ESG goals, like volunteering opportunities or green office initiatives.
6. Reducing Siloes in Inter-Departmental Sustainability Efforts
Misalignment between sustainability and other key business functions such as finance, legal, and risk is a key hindrance to meaningful ESG progress. All too often different departments – marketing, HR, finance, operations, legal – are working independently, with one blocking the progress of another rather than all working towards a shared vision. For example, there is often a lack of understanding of sustainability issues in the finance and legal teams which are centered around risk. This can lead to roadblocks or suppressing investment which ultimately shackles progress. It is vital for businesses to bring teams together so all departments move from being sustainability blockers to advocates and enablers.
Establishing a standardized approach to data collection can ensure consistency and accuracy across all departments and operations. This process should eliminate data silos across firm-wide departments and achieve efficient communication between teams.
Challenges & Solutions
Implementing ESG strategies isn’t always smooth sailing. You may encounter resistance to change, budget constraints, or complex regulations. To overcome these, prioritize ESG in your corporate strategy, allocate adequate resources, engage stakeholders, and stay updated on relevant regulations. Additionally, consider leveraging ESG consultants to guide you through the process.
Overcoming the Politicization of ESG
In navigating the politicized nature of ESG investing and reporting, remember to stick to facts regarding climate science and social risk, and rigorously vet ESG sources for political opinions and nuance. Also, keep in mind that individual reporting on ESG by nonfinancial industries is not going to be the main target of backlash going forward.
Additionally, try to separate the terms ESG and climate change from their associated politicized narratives when trying to operationalize ESG practice within your firm. ESG is no more than an elevated way of describing risk management and corporate social responsibility for issues proven to be material to businesses, but have not been historically treated as such (ie. environmental risks and externalities, social justice and equality concerns, and fair leadership practice). Climate change is a science, but firms can start by narrowing the scope of their understanding of this mythically inflated topic by tackling topics like energy security or the energy transition, employment and living standards, and resource depletion.
Some companies have responded to the political backlash against ESG, by turning to “greenhushing”. Greenhushing is when a company stops talking about sustainability, DEI, or ESG to stakeholders but continues its efforts, thereby taking itself out of the spotlight and avoiding PR risk. Downplaying ESG progress may be a strategic move for firms in the short run, but could hinder sustainability initiatives in the long run from the barriers to accessible and comparative sustainability data that hiding progress can cause. Companies must move past the headlines, remember that a material issue is just that, and continue to collaborate and transition. This means having a broader perception of these issues, clear language around their approach, collaboration with others, and consistency to address outrage materiality.
The Future of ESG Strategy
With the increasing influence of ESG factors, businesses can expect greater scrutiny from regulators, investors, and customers. ESG reporting may become a legal requirement, and investor decisions will increasingly hinge on a company’s ESG performance. Additionally, advancements in ESG-focused technology will help businesses monitor and report their ESG performance more accurately and efficiently.
In conclusion, successfully accelerating and improving ESG strategy involves a deep understanding of your current state, goal setting, careful planning, effective communication, regular tracking, and continuous improvement. With this approach, your business can stay ahead in the rapidly evolving ESG landscape.
How WatchWire Can Assist Your Company With Sustainability Reporting
WatchWire is an integrated energy and sustainability management platform that streamlines, automates, and standardizes your sustainability reporting process. WatchWire collects, audits, analyzes, and stores all your energy, water, waste, and emissions data in one place, providing a single source of truth for your organization. With multiple integrations to LEED Arc, GRESB, ENERGY STAR Portfolio Manager, TCFD, and more, standardizing your sustainability reporting process is possible. WatchWire also provides real-time data monitoring, so you can see how well your sustainability measures are working and provide the most recent energy and emissions data to your investors.
To discover more about WatchWire and its capabilities, you can visit our website, blog, or resource library, request a demo, or follow us on LinkedIn, Instagram, or Twitter to keep up-to-date on the latest energy and sustainability insights, news, and resources.
1. Generative AI is Driving Climate Action and Bridging the Sustainability Data Gap At the heart of the discussions on data and technology was the power of generative AI to analyze data needed for climate action and compliance. As technology…Read full post
Visualize your renewable offsets Analyze actual vs. guaranteed production Transparency into production issues With the rise in net zero emissions goals as well as national building performance standards, onsite renewable generation or RECs are becoming widespread. The issue, however, is…Read full post
Consult our experts on how WatchWire can help with your specific needs. Request a personalized demo today.Request a Demo