Strong Environmental, Social and Governance (ESG) practices are becoming fundamental to strategies of businesses across industries. Investors, customers, and other stakeholders are increasingly concerned with how companies operate in relation to the world around them. A robust ESG strategy represents long-term stability and sustainability in the eyes of investors. Customers are prioritizing brands that align with their own values.
While companies need to tackle day-to-day challenges, it’s vital to keep sight of the big picture. Companies of all sizes must establish an ESG program framework that can withstand the test of time, cultural shifts, and investor demands. Being proactive in ESG allows time to build more programmatic strategies instead of one-off reactions to current events. While an ESG framework is necessary to remain competitive in today’s global marketplace, implementing a strategy is not always straightforward. There may be roadblocks along the way, including stakeholder alignment and financial and legal considerations. Here are three potential challenges and the strategies you can use to overcome them on your way to ESG excellence.
Ensuring you have the right team in place
How can you know that you’re on the right track when prioritizing ESG objectives for your company? There are many stakeholders to serve, and it is impossible to make everyone happy all the time. You’ll need to assess the needs and wants of your stakeholders against your business strategy, the vision for your company, and industry competitors.
Building an ESG program can be overwhelming when you consider all the potential topics that make up “E,” “S,” and “G.” The reality is that ESG covers every functional area of a company. To that end, companies should first focus on assembling a team of cross-functional stakeholders who are fit to identify and evaluate ESG risks, opportunities, and performance.
This team should include a variety of internal perspectives, from the board of directors down to regular employees. And because building an ESG program will involve significant financial and legal decisions, finance, legal and procurement leadership should be heavily involved in the ESG planning process. Having varied perspectives will ensure alignment across the business and that the company is making impactful, responsible, and sustainable decisions that will advance core business objectives.
Understanding the power of stakeholders
You will need to consider more than your internal stakeholders when building out your ESG strategy. The reality is this: not all stakeholders are created equal. You’ll need to identify which stakeholders have the most power over your business. Depending on your company’s mission and business objectives, you’ll also need to assess what changes your business can realistically make to satisfy their expectations and requirements.
For example, an oil and gas company that is fracking could measure water and waste management and impacts on scarce natural resources. If your business is centered around service personnel, training on racial sensitivity and anti-harassment will make consumers feel welcome and strengthen the brand. Companies focused on property management, like hotel chains, would need to focus on environmental impacts of the properties they own and look to renewable resources. Each of these initiatives could be communicated differently to various stakeholders.
Outside of your company, stakeholders include several groups. This can include suppliers, your customers, the media, government agencies, the communities where you operate and more. You can use a power-interest grid to map the level of interest a stakeholder has in the business against the power they have to influence it.
The key lies in understanding how different stakeholders feel about the company, and the inherent risks and opportunities each stakeholder presents. Once that is determined, your company can start proactively building engagement plans for each stakeholder to mitigate those risks and build upon those opportunities.
Balancing the needs of today with a successful future
Making significant investments into ESG practices all at once is not tenable for most businesses. It’s important to have a long-term ESG roadmap that focuses on incremental change. To achieve this, you can conduct a materiality assessment to determine which ESG issues are most significant to your company and industry.
The purpose is to zero in on the key issues and opportunities that are most likely to affect your company’s business performance as well as your stakeholders. Ultimately, all ESG topics are important, but they cannot all have the same priority. By engaging your internal team and external stakeholders, you can prioritize ESG initiatives and build out your roadmap. In doing this, you are balancing your company’s current financial needs and business objectives with long-term sustainability and social good.
Overcoming the three challenges covered in this article are the first steps in building a robust, effective ESG strategy for your company. Once you have your strategy and roadmap in place, there are critical functions within your business that will help drive your company to ESG excellence, including legal, procurement and finance. Ensuring these functions are aligned is critical to advancing the strategy and moving along your roadmap.
This article is the first in a series that will explore how each business function plays a role in ESG success. Stay tuned for the next blogs in the series in which we’ll discuss how legal, procurement and finance leadership can help embed ESG practices across your company.