There are all different types of business plans and strategies that are essential to the success of your business. Founders create plans that define the business and marketers craft marketing plans to promote the brand. Many plans are data-driven and heavily researched, resulting in clear action items and goals.
An ESG strategy is no different, just something you may not have considered or created for your business…yet.
What Is ESG?
ESG stands for “Environmental, Social, and Governance” and is used to evaluate non-financial areas of a business that can impact its integrity and financial performance. Having an ESG strategy allows a business to demonstrate that they care about how they impact the world and the people around them.
The environmental aspect of an ESG strategy focuses on how a business uses resources and how those resources affect the environment. Carbon footprint is taken into account, as well as a company’s energy footprint, water usage, waste streams, and other factors.
The social area of ESG focuses on employees and local communities. Stakeholders increasingly expect organizations to consider the impact of social matters on their business models and operations, and across their value chains. Additionally, regulators and governments across the globe are looking at integrating social matters into policymaking and disclosure rules. The scope of social matters is broad and includes human rights, health and safety, employee engagement and satisfaction, diversity, equity, and inclusion.
When it comes to the governance portion, the ESG strategy is integrated into existing organizational structures, functions, and processes to ensure company policies (such as bribery and corruption, taxes, and political lobbying) are being followed and transparent. For instance, aligning the stakeholders with your overall ESG strategy to determine how to take on oversight responsibilities, create an ESG-aware culture, and create structures that incentivize and reward these mindsets.
Altogether, an ESG strategy helps a business function responsibly and within the confines of the law. It maintains compliance, keeps employees feeling valued and cared for, and allows the company to keep an eye on its environmental impact. The strategy will ultimately have an impact on the bottom line of a business, whether directly or indirectly.
Why Do You Need an ESG Strategy?
Even though formulating an ESG strategy is a relatively new idea, crafting one now sets you up for success ahead of inevitable government regulations. Climate change will touch every business at some point, and being prepared will help your brand stand out from the competition by addressing key areas we instinctively know will only grow in importance.
You can become a proactive participant in environmental consciousness for consumers, gain appeal with investors, and increase employee loyalty. A growing majority of consumers, especially younger generations, want to associate with companies that care about the planet, and an ESG strategy will identify how effectively you’re doing that.
How Do You Show the Impact of an ESG Strategy?
A successful ESG strategy will leave you with concise metrics you can share. These metrics may include growth, impact, positive change, or areas of improvement. It’s information that key stakeholders can consume and consumers can easily understand.
Brand reputation has always been a major factor in a company’s success. Demonstrating your data-driven commitment to the environment and your employee’s satisfaction will strengthen your brand identity.
How Do You Align Your Strategy to Larger Climate Goals?
To harness your ESG data most effectively, it’s best to position yourself against larger goals set by regulatory organizations. This will also allow you to meet multiple objectives of your strategy at once.
The recently proposed rule from the Securities and Exchange Commission (SEC) is one such area to target. If the rule passes, the SEC would require any business registering with them to provide four pieces of climate-related information. This information would be required upon registering, but the SEC would retain the right to follow up and ask for periodic reports.
The four areas of disclosure this rule would require include:
- How you’re governing climate-related risks
- How climate-related risks are impacting, or may impact, the financials of your business
- How climate-related risks are impacting, or may impact, your business model and goals
- How, financially speaking, a naturally occurring, climate-related event could impact you
Businesses will also be asked to report on their greenhouse gas emissions.
Aligning your ESG strategy with mandates that are already in place enables you to show compliance, remain transparent, and make timely strides toward reducing your environmental impact.
Is There an Operational Benefit to an ESG Strategy?
Brand building aside, formulating an ESG strategy can help improve your bottom line. Integrating environmental practices into your operational plan can create sustainable and cost-effective strategies. For example, reducing your company’s energy usage and water consumption lowers your carbon footprint, but also saves you money.
Keeping an eye on internal metrics—including employee satisfaction and safety—can also save you money in the long run. Less turnover means fewer expenses toward training and onboarding, and fewer workplace accidents means lower injury costs and increased productivity.
Complying with regulations, whether they’re required or recommended, can also reduce your expenses. There’s less risk of citations or fines when you’re already operating well within existing parameters.
How Do You Develop Your Own ESG Strategy?
The most important component to any ESG strategy is that it produces a tangible impact. Set realistic goals and track the data that substantiates how you achieved those goals. Your goals should also align with the mission of your business and meet stakeholder requirements.
It may be worthwhile to bring in an ESG expert or partner with an organization that helps you draft and manage your strategy. Key areas to highlight in your ESG strategy and report on include:
- Greenhouse gas emissions: Reporting should be accurate and inclusive of your entire production process
- Environmental footprint of your product: Calculations should cover the entire lifecycle of your product(s)
- Regulatory compliance data: Measure and evaluate where your business is currently and where you need to be to stay within compliance
It often helps to target ESG initiatives that will help grow your business. Partner with certified projects that align with your mission and help you reach your goals. Don’t vaguely state that you plan to reduce your emissions by 2024. Instead, develop a tangible and specific goal such as reducing emissions by three percent over the next five years. Don’t promise to merely review employee diversity complaints. Instead, commit to hiring an additional HR employee tasked with improving diversity by 2024.
No matter what goals you set, remember that it’s up to leadership to drive progress. Without the commitment of a proactive leadership team, the success of your ESG strategy could be put in jeopardy. Leadership also has the best vantage point to understand the overarching impact of ESG goals in both the long and short term.
Don’t Forget to Talk about Your Plan
Creating and executing your ESG strategy is hard work, and you shouldn’t keep this accomplishment to yourself. Share your results with not only the public, but also your employees and key stakeholders.
Craft a message that is thorough and transparent without being full of jargon. Social media is always a good way to reach consumers, and press releases often speak directly to those within your professional circle. It’s also important to create a channel in which to receive feedback and maintain open communication between your business and your stakeholders.
The Time for ESG Is Now
Adapting to changing compliance mandates and government regulations is not a new action for most businesses. What’s changing is how environmental and social requirements play into the picture. In order for businesses to stay relevant and maintain a positive reputation in the eyes of consumers, ESG plans are increasingly necessary.
Although it may seem like a hefty task, creating an ESG strategy offers a wide range of benefits, from streamlining production to raising profits, attracting high-quality employees, and creating loyal customers. You can gain all of this in addition to reducing your carbon footprint and creating a brand that’s compliant with key environmental mandates. An ESG strategy covers it all.
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