Implementing an ESG Program: CEO ESG Checklist

Frostbyte Consulting recently partnered with VelocityEHS on the topic of Environmental, Social and Governance (ESG), an area of deep expertise for both companies, to support their customers on their own journeys as ESG becomes increasingly important to their business.

As part of this effort, VelocityEHS experts have offered tips to help business leaders start or grow their ESG programs, including a helpful CEO Checklist for ESG. Whether you’re new to ESG or looking for new ways to implement ESG initiatives at your workplace, we hope you’ll find the below information valuable.

Be Better, Get More

If you didn’t already know it – it really does pay to be good. Several studies, including one detailed in a 2020 Harvard Law School Forum on Corporate Governance report, have found that companies with higher levels of ESG performance see a higher return on investment than companies with lower ESG maturity. For example, a 12-month return of 14.6% for the most mature ESG companies vs. only 0.3% for the least mature.

Another study from McKinsey completed in 2019 demonstrates how customer demand is also driving businesses to adopt ESG programs. Consumers, especially those in B2B supply chains, increasingly prefer to purchase goods from companies they perceive to be responsible corporate citizens. The study showed that upward of 70% of consumers surveyed on purchases in multiple industries, including the automotive, building, electronics, and packaging categories, said they would pay an additional 5% for a “green” product if it met the same performance standards as a “non-green” alternative.

This trend is also seen in a major global 2021 study, which surveyed 10,000 people across 17 countries. 85% of the participants in this study stated that they had shifted their purchasing behavior toward products from more sustainable companies in the last five years.

The People Behind the Prioritization

We can point to at least four main groups driving increased prioritization of ESG.

As noted, consumers are increasingly seeking out companies they perceive to be responsible corporate stewards, and that actively promote responsible environmental and social behaviors. A Harvard Business Review article states that “companies who are serious about becoming more sustainable, inclusive, and socially responsible should consider putting their purpose into their charter and becoming benefit corporations. This new breed of companies is explicitly balancing profit with a stated public benefit, such as improving its customers’ health, creating good jobs, or restoring ecosystems.”

The article notes that “there are more than 3,500 Certified B Corps, including consumer brands like Patagonia and Seventh Generation, along with many smaller companies funded by social impact investors. In the summer of 2019, shareholders at the French food giant Danone voted to convert into the French equivalent — an “enterprise à mission” [or a purpose driven company] — with the stated purpose to ‘bring health through food to as many people as possible.’” Actions like these continue to play a role in the purchasing decisions of customers.

These consumers are also members of the workforce, bringing us to a second group behind the growing emphasis on ESG – workers. Workers are increasingly interested in being employed by companies that share in their passions and interests for ESG – and that are in some way plugged into contributing to the greater good. Workers want to feel like they are part of an organization that makes a difference.

VelocityEHS VP of Human Resources Rachel Kaiser and her team have witnessed this first-hand. It’s become a focus for attracting and retaining top talent, especially within the increasing proportion of Millennial and Gen Z workers. Frostbyte CEO Steven Andersen developed the Frostbyte Sustainability Foundation to address expectations of staff and customers. This type of consistent expression of sustainability values has been critical to Frostbyte’s corporate success.

Next are supply-chain partners. Even companies that are not feeling the pressure directly from consumers or employees may find expectations are growing on sustainability and ESG reporting from supply chain partners whose collective activity rolls up into ESG Scope 3 reporting for the largest public companies on the front and back end of the supply chain. The bar to even compete for opportunities to supply goods and services to other companies is now higher, and a promise to focus on sustainability or to do better in the future is not enough. The companies that are ready now are the ones being invited to the dance.

Last, but certainly not least, a fourth group influencing the focus on ESG is the investor community. Investment trends are heavily favoring companies that have ESG programs and at least some basic ESG reporting frameworks in place. Leading investment houses have analyzed the numbers and identified that ESG performance directly correlates to a bigger bottom line. Additionally, ESG ratings are being applied by the largest investors in the world, such as BlackRock, to determine whether to invest in leading organizations or divest low scoring companies.

Getting Started: The CEO ESG Checklist

To provide even more guidance on ESG, VelocityEHS has also outlined a series of simple steps and best practices that business leaders should follow to help form the foundation for a successful ESG program. We’ll briefly summarize each of them below with insights from VelocityEHS experts.

Define: Determine Exactly what “ESG” Means to Your Business

“The process for building your ESG program will be unique to your organization. It will reflect, in part, the maturity and size of your organization, where you’re at with addressing different facets of ESG already, how your competitors are performing around ESG, what resources you have available to do more or make pivots, and more. It’s important to think about how ESG relates to the specific interests of your workers, management, customers, investors, and other stakeholders—and be able to articulate this information to them. As needed, you’ll want to circle back to this "Define” stage following your deeper dive into the some of the other stages, since your work there may influence how you define ESG for your organization and what you plan to measure.”

– Phil Molé, EHS & Sustainability Expert, VelocityEHS

Educate: Expand Your Knowledge and Deliver the Information

”Understanding ESG, what it means for your business and how to implement your program doesn’t stop at simply defining it. You’ll need to research and expand your knowledge to ensure you can speak to the specifics, and then communicate what you have learned to company leadership to make sure everyone on the c-suite is on the same page – keeping in mind various stakeholders’ current level of experience and knowledge. Then, you’ll need to educate the workforce. Think about how you might use technology to support the process. For example, do you already rely on a learning management system (LMS) or other web-based training tool for sharing educational content? Do you want to deliver it via live, in-person training sessions, or do you want to do a combination of both? When it comes to sending a single, unified policy around ESG and doing it in the most engaging way possible, eLearning via an LMS is an effective and efficient option.

You’ll also want to think about where to start the conversation, which may require defining ESG broadly to establish a baseline understanding of terms and concepts before you cover what it means to your business specifically. When describing what it means to your organization, consider covering the things like the impacts of ESG to your business, the evolving risks and opportunities that exist in your industry sector and how it aligns with your larger corporate mission, vision and values.”

– David Staples, Senior Solution Strategist, VelocityEHS

Strategy: Prioritize and Then Expand

“After you have defined what ESG means for your businesses and educated key stakeholder groups about it, it’s time to develop a formal strategy for rolling out your program. It can seem overwhelming, so it helps to focus on a few priority ESG risks and opportunities that pertain to your business and sector. Prioritization is important. Think about the aspects of your plan that can be accomplished right away, work on rolling those out successfully, and then build upon that success.”

– Blake McGowan, Director of Ergonomics Research, VelocityEHS

Goals, Targets & Measurement: Flesh Out the Metrics

“In the Define stage, you’re focused on what to measure and in this stage, you’re going to want to dig deeper. While it’s important to develop and consider your long-term ESG goals, you must also think about your short-term targets. Determining the right metrics is an ongoing process, but remember, don’t lose sight of what’s in front of you and keep working toward your goals.

Some simple examples include metrics regarding your company’s carbon footprint, energy efficiency and greenhouse gas (GHG) emissions, as well as worker health and safety stats, product safety and stewardship, and diversity, equity and inclusion (DEI) performance. As your ESG program matures and your data needs become more sophisticated, your list of tracked ESG metrics will surely grow. Again, don’t worry about tracking all the right metrics off-the-bat. It’s an iterative process that requires checking and re-checking to make sure you’re looking at the right ones.

For example, a company may find that since it’s a large quantity generator of hazardous waste, volume of hazardous waste generated is a material consideration for them. It would, therefore, choose the specific goal of reducing hazardous waste generation, with a goal of 10% reduction in volume generated relative to a specific baseline, and would track a metric such as tons of hazardous waste generated, in order to assess its progress.

Better tracking and reduction of GHG emissions is likely to be a common goal of many organizations, because it is so central to key reporting frameworks such as CDP (formerly Carbon Disclosure Project) and Global Reporting Initiative (GRI). Sustainability Accounting Standards Board (SASB) is a great source for industry-specific standards that can help you identify the issues material to your business and plan your ESG projects.”

– Brad Micheel, Senior Solution Strategist, VelocityEHS

Awareness: Keep Up with the Trends

“Educating your stakeholders about your ESG program is key, but it’s also critical to make sure you’re looking ahead. Take the time to stay up-to-speed on any emerging trends and new or changing regulations and think about the impact they might have on your business. An example of this is the growing trend of ESG leaders placing more and more emphasis on the social aspects of ESG – a shift from previously focusing mainly on the environmental aspect. Will this impact how you go forward with your own ESG initiatives, and to what extent? Remember, when considering questions like this and tailoring your program accordingly, it’s okay to start small and then expand as you go.”

– Julian Moffatt, Principal Solution Strategist, VelocityEHS

Governance & Transparency: Nurture communication

“To be successful in ESG, it requires your organization to commit to ensuring there is two-way communication so that you’re not just delivering performance and planning updates, but also listening to and considering the questions, ideas and interests of your stakeholders. Determine how you plan to capture and share information to satisfy this need for two–way communication. Think about holding meetings, the frequency of your meetings, the metrics you want to share in those meetings, and the tools and reports you might need at your disposal to communicate the information effectively. Consider how easy it is for stakeholders to access this information, since transparency is critical to a successful ESG program. You can look to align with known ESG standards and reporting frameworks such as SASB, TCFD and SBTi for guidance on how to communicate ESG performance in a format that is comparable to peers in your industry sector.

As far as specific governance metrics, a good example is provided by S&P Dow Jones Indices and asset management firm RobecoSAM, which has created a composite governance metric it calls the economic dimension score (EDS). The EDS looks at eight aspects of performance including corporate governance, ethics and codes of conduct, risk and crisis management, supply chain management, tax and regulatory strategy, materiality, policy influence, and social impact.

Remember, you’ll need to take care assessing the aspects of ESG most material to your business. Specific metrics that may merit consideration include total water consumed, total energy used (possibly further broken out by sources, such as electricity and natural gas), total tons of GHGs and specific air contaminants (e.g., hazardous air pollutants) emitted, along with various leading and lagging safety indicators.”

– Greg Duncan, EHS & Sustainability Expert, VelocityEHS

Guiding Principles

Here are some additional Guiding Principles to consider as you work to implement items from the above checklist.

• Simple > Complex
  • Achieving your ESG goals doesn’t imply you have to overhaul your entire organization. There are smaller, more immediate actions you can take to move the needle, rather than making sweeping changes that could fail to take hold.
• Focus > Generalization
  • Make sure your ESG performance targets are clear, and make sure the scope of your initiatives isn’t too broad. With limited resources, you need to prioritize where you will focus your efforts first.
• Action > Inaction
  • Avoid “analysis paralysis” and if you feel overwhelmed or like your progress towards your EHS goals is beginning to slow to a halt, take the time to re-group with your stakeholders and figure out the next step forward.
• Progress > Perfection
  • As the saying goes, “Rome wasn’t built in a day.” Start small and don’t overwhelm yourself right out of the gate. Make small steps and set goals that are achievable. This will help you keep your momentum going and you can eventually expand the scope of your ESG efforts to a broader set of goals.
• Judgement + Scoring
  • ESG has both a qualitative and quantitative side. You can always use your instincts to help you set forth ESG goals and steer your efforts, but also rely on the data to confirm that you’re moving in the right direction.
• Walk the Talk
  • Be aware of “greenwashing” and make sure that you follow through on the ESG goals you say you will achieve. Lots of companies over-promise what they plan to do, and this can be just as damaging as taking no action at all.

Looking for Help?

The VelocityEHS Accelerate® Platform includes an ESG solution featuring tools that help you gain quick visibility into core ESG data while strategically aligning stakeholders across your company. Backed by the largest global software community of EHS experts and thought leaders, VelocityEHS software provides expert-designed capabilities that deliver outstanding results. See how easy ESG can be, contact VelocityEHS or Frostbyte Consulting today.