Over the recent past, demand for transparent corporate sustainability and socially responsible business practices has been increasing. Consumers and investors alike are seeking to do business with companies that demonstrate a commitment to environmental and social responsibility.
This has given rise to the importance ESG – Environmental, Social, and Governance analysis and reporting – the disclosure of data covering an organization’s operations in these areas to help investors and customers identify companies that are transparent about the risks and opportunities it faces.
Companies around the world are being impacted by the financial community’s embrace of ESG disclosure standards. Access to loans, insurance and investors is being filtered through the lens of ESG, making it difficult for companies to operate without carefully considered disclosure.
At Frostbyte Consulting, we bring over 20 years of experience helping companies understand current ESG pressures, assess relevant risks and opportunities in their specific businesses, and implement effective management plans, processes and best in class systems like the VelocityEHS Accelerate® Platform.
For those companies exploring ESG for the first time or revisiting the topic due to internal or external demands, we invite you to take a look at this thought-leadership piece provided to our readers by VelocityEHS and their team of ESG & EHS experts.
A growing number of EHS professionals and global business leaders are recognizing that a focus on environmental, social and governance (ESG) is no longer simply an aspirational goal for sustainability-minded companies, but increasingly fundamental to the long-term viability and growth of organizations of all sizes, across almost all industries. It’s a trend that is accelerating, driven by demands from stakeholders across the board—from investors to customers, and everyone in-between.
So, if you’re looking at developing and implementing an ESG program for your organization, you’re taking a big step in the right direction. However, it’s important to recognize that ESG is a broad discipline that will ultimately bear on virtually every aspect of your business, and the success of your ESG program requires both careful planning and a measured approach.
Let’s take a look at some best practices for getting your ESG program off the ground.
ESG means different things to different organizations, depending on your unique operations, goals, risks and other factors. It’d be great to be able tell you there’s a concrete process to developing your ESG program, but unfortunately, there’s no single “right” way to follow along your ESG journey. Fortunately, there are some widely applicable strategies that all businesses can use as they structure their own approach to ESG.
The starting point on your ESG journey is to determine what goals your business intends to achieve through your ESG program. Again, these goals will be unique to your business. For instance, a business that doesn’t produce much waste won’t find waste reduction and management to be as big of a material challenge as a large manufacturing company that may produce many tons of many different waste streams. As another example, a business with a workforce that is primarily located in an office setting will likely face fewer challenges in protecting worker health and safety compared to higher-risk operations such as manufacturing. So, your ESG program should (at least initially) be focused on the areas of performance that will have the greatest impact.
However, to assess this materiality we do need to have at least some metrics and measurements to establish a baseline for our initial assessment. Hopefully, you already have some data regarding your performance in your areas of focus. Once you’ve benchmarked your current performance, you can then revise your assessment as you collect more metrics (which we’ll discuss shortly).
“Risk” and “opportunity” are inherently subjective terms, and like ESG itself, mean different things to different organizations. Here, we’ll rely on the definitions of “risks” and “opportunities” given in ISO 45001, the global standard for occupational health and safety (OHS) management systems.
“Risks” basically represent a potential for something bad to happen, combined with the severity of the outcome if it happens. “Opportunities” are ways we can further improve our performance. We need to maintain a broad scope when identifying operational risks to consider not only safety and environmental risks but also financial, societal, and reputational risks as well. Simultaneously, we should also be proactive in pursuit of opportunities for improvement.
While risks and opportunities can often seem subjective, we need to establish objective methods and systems to document, quantify and prioritize those risks and opportunities so we can determine where to focus ESG program resources, as well as communicate risks and opportunities to stakeholders and demonstrate the specific actions you’re taking to address them.
Here’s where we do an honest assessment of where we are today in terms of ESG performance, and where we still want to go. For example, if your goal is to reduce GHG emissions or energy consumption, you need to set your baseline based on historic data (mentioned previously). From there, you can set your objectives and targets for reductions.
Look to benchmarking data from government agencies, academic literature or 3rd party ESG reporting resources to help guide your target setting, which will be largely influenced by your specific operations, industry, company size, program maturity and ESG priorities. You’ll also need to think about what additional resources, including software, are necessary to track your performance and evaluate progress.
This is something you may need to do to persuade stakeholders to follow an ESG approach in general, as well as to build support for individual ESG-related projects, such as an energy reduction project. There is a growing volume of data showing that ESG approaches pay off — quite literally. For example, a Harvard Law School study found that businesses with higher ESG maturity not only are more profitable but have less volatility in economic performance.
Recognizing this reality, ESG performance is an increasingly vital consideration for the investor community, with investment trends shifting dramatically toward businesses with robust ESG programs with participation in ESG reporting frameworks. By November 2021, investment in ESG-focused funds grew to a record $649 billion worldwide, up from $542 billion in 2020 and $285 billion in 2019. ESG-focused investment funds now account for 10% of worldwide fund assets.
In addition to attracting investment, one of the hallmarks of today’s workforce (especially among the rising proportion of Millennial and Gen Z workers) is an increasing desire to work for organizations that are responsible corporate citizens. A well-established ESG program can be an invaluable asset for attracting and maintaining the highest talent and nurturing the value of your human capital.
There are many metrics you can measure, but it’s important to choose the metrics you need to measure to evaluate progress against your ESG goals. This means that your choice in metrics should be directly linked to your assessment of the issues that matter most to your business, and on your ESG objectives.
As a result, there is no finite set of metrics you should be tracking. However, your metrics should include a balanced mix of both lagging and leading metrics. Such a mix will provide clear picture of past performance, while also offering predictive insights into the accomplishment of individual targets. The idea here is that in addition to tracking our goal, we’re tracking the activities and behaviors that lead to us achieving the goal.
Of course, the purpose of metrics is to give you the information you need to improve ESG performance. At the same time, companies need to externally report their ESG data via reporting frameworks such as Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB), whether as a requirement for compliance with applicable standards, or as the primary means of communicating performance to external stakeholders.
Ideally, your methods and systems of recording and tracking your ESG metrics should also provide capability to analyze, generate and easily submit ESG performance data to these reporting frameworks. At an even higher level, your reporting systems should simplify the sharing of performance data to promote one of the most important values of ESG itself—transparency.
Governance is one of the three pillars of ESG, and an essential aspect of governance is securing sufficient buy-in from all stakeholders, whether it’s your corporate leadership, your board of directors or your workers. This buy-in is a key determinant of what is possible for you to do with your ESG program. The key takeaway here is that even the most detailed, well-conceived ESG program planning won’t bring sustainable progress on ESG unless you have the right culture. ESG programs are about doing the right thing, but good culture is about doing the right thing, every time.
Of course, at each point along your ESG journey, you also have to ensure you’re keeping up with your EHS regulatory requirements and basic environmental and safety management tasks. EHS performance is one of the baseline indicators of your overall ESG program. If you fall behind on the basics, you’re not going to be able to sustain your focus on ESG.
ESG program success is heavily dependent on the accuracy, clarity and communication of your program data. Frostbyte Consulting can help your organization enhance the management and visibility of your ESG performance, in one place, with the help of the VelocityEHS Accelerate® Platform. To learn more about VelocityEHS and its award-winning solutions, click here.