ESG: What does it mean and what should your company do if it does not have an ESG Strategy

ESG stands for Environmental, Social & Governance and lately it is the "it" word in the business community. But how does one go about developing an ESG strategy?

ESG framework is a set of standards used by investors to evaluate companies, usually for investments. But it is also a way for companies to communicate with the non-finance community on their environmental stewardship, their relationship with employees, suppliers, customers and communities in which they have operations and the governance structures they have put into place to ensure accountability, transparency and integrity. Depending on your company’s industry, operating model and geographic location, the factors within the E, the S and the G will vary.  

Environmental: Environmental factors include how a company mitigates its greenhouse gas emissions, whether the products the company creates are sustainable, if it uses natural resources efficiently, how it deals with recycling and waste and the end-of-life options for its products.  

Social: The social component includes factors both inside and outside the company. Does the business support the communities in which it operates? Does it carefully consider diversity and equal employment opportunity in its hiring? Does the company prioritize human rights everywhere it does business?

Governance: Governance refers to the company’s leadership and board, including whether executive pay is reasonable, if the company’s board of directors is diverse and whether it’s responsive to shareholders.  

ESG is much broader than corporate philanthropy or corporate social responsibility. It is not enough for companies to make donations to foundations or host an employee service day. Investors, employees, customers, and communities want companies to be good corporate citizens across a variety of factors and the ESG framework helps guide companies to do just that.

Companies are at different stages of evolution to the ESG framework. Some have established a strategy and are executing against it and communicating to the world. Others are not even sure what ESG is or how it is different than CSR.  

If you are looking to help your company develop an ESG strategy here are a few ideas to get you started.

1. Educate the senior team on what is ESG and why it is important for the business. The why will be influenced by the industry, whether or not a public company and the expectations are for the company by its various stakeholders. Identify topic areas within the E, the S and the G that are most relevant for your organization. Ultimately, the senior team needs to be the champion for the ESG strategy and has to believe in its value.    
2. Learn what your competitors are doing with respect to ESG so you have some ideas to get you started. As you start to understand your organization’s baseline you will be able to determine where you might want to outperform your competitors or understand what is a minimum standard that you must achieve. Remember that you can’t do everything at once. You will need to make a list and prioritize what is most important for your organization as well as the cost and ease of achieving your goals to determine your sequencing plan.  
3. In addition, take a look at the UN Sustainable Development Goals (SDGs) – it has identified 17 areas of focus for companies to take action to address the E & the S. Many companies indicate on their ESG programs which SDG’s they are working towards. This is a great list to peruse and help establish impact areas.
4. Gather data to understand what your organization is doing today – this could potentially be a heavy lift but don’t get discouraged. Start with gathering what is easily available. This will require working across the organization to identify and collect the data. You might want to assemble a team (depending on how big your organization is to help you collect the data, find a member from each key department/group) Here are some of the types of data you might be collecting (this is not exhaustive but simply to give you some ideas on how to start). When you have the data, try to categorize it by the E, S & G so that you can understand the baseline for each of the 3 areas. Determine if you are missing key pieces of data (and can you get them or not easily).

• HR: employee policies, employee composition (i.e., gender by level, race by level), labor laws
• Philanthropy: issues supported and programs in place; role in communities, impact on communities
• Product: supply chain impacts, material inputs / raw material information, packaging, end of life options
• Facilities: waste operations, energy & water usage, zero waste
• Greenhouse gas emissions from operations
• Governance: board structure and governance practice, shareholder rights, audit processes
• External data: industry standards, competitor strategies, customer input, etc.

6. Share the data with the senior team and engage them in a conversation on what should be the aspiration for each of the 3 areas. Include the external data you collected as well to help the team understand what a potential goal could be. Ultimately you want to set some concrete, but aspirational, goals to help guide the work. Your organization will have to determine what they do want to focus on and what perhaps they won’t focus on, especially in the near term, depending on what is urgent to address.

Don’t forget that once goals are set, you will also need to have a plan for tracking and reporting on progress.   

7. Once the goals are set, you will need to determine the key initiatives to undertake and then develop the project plan. To really embed this work into the organization, you want to make sure that you are working with team members across the organization. As you do the work, communicate progress and course correct when necessary. Celebrate success and capture your data! You will want to see what you are doing right and what needs to change. And you will need to evolve your strategies as you learn and as your industry evolves.