The broader aims of the ESG agenda are not only to underline the governance practices in place within an entity but to demonstrate how it goes about its business in modern circumstances. For some, the whole concept of governance has always incorporated aspects of ethics, culture, accountability and sustainability. The ESG has made it more explicit that environmental and social factors are integral to good governance. This may be an agenda borne out of institutional investor interests but it has been embraced by a broad range of stakeholders with an interest in the ongoing viability of exponential economic growth and its impact on people, the planet and profits.
With a broad coalition of interests coalescing around the ESG banner, there are many reasons to support boards in developing their ESG understanding and decisions to improve relevant ESG-related activities.
To fully integrate ESG-related initiatives into an organisation’s existing governance, risk, strategic and reporting activities, the board, executive team, staff and volunteers all need to be included. Research into stakeholders, including institutional and individual investors, concerns should be given due consideration and are likely to help identify those areas that the entity should prioritise and those that can be addressed later.
An ESG change delivery plan should consider concerns and incorporate:
- Long-term issues;
- Multi-generational desires and concerns;
- Analysis of the benefits (and potential risks) with aligned marketing and communications messaging or strategy;
- Wider support for future strategic, financial or operating plans, business models and forecasts.
In developing an effective ESG plan, the organisation will need to address several aspects at every level of the organisation’s operations and activities, seeking input from both internal and external parties and weighing the potential impact against regulatory and legal frameworks. Key questions to cover include (some of which have been discussed in other resources – insert links):
- What are the opportunities available to the organisation in pursuing an ESG agenda, monitoring and reporting strategy? What are the risks, and how can they be managed or mitigated?
- What is the scope of the organisation’s ESG ambitions? Does it intend to cover those issues directly relevant to its organisational purposes, or is there a strong case to be broader in its approach and potential activities?
- Are there strong financial incentives to adopt an ESG monitoring and reporting approach? What are they? Can they be quantified and included in budget planning?
- What is the value proposition for the organisation, investors, shareholders, customers/clients, staff and volunteers, suppliers and other stakeholders of adopting ESG targets and reporting?
- What is the strategic difference the organisation will derive: sustainable advantage; organisational capability; improved ability to recruit and retain talent; more effective achievement of organisational purposes; stronger public trust and confidence in the organisation; increased investment or sales?
- What are the key milestones for each ESG initiative or activity, and what is the likely impact on the business? What information does the board currently have to inform metrics and monitoring?
The following table provides examples of how an organisation can navigate the ESG debate with suggestions, actions and activities.
Suggested actions and activities
Place ESG on the board's agenda
- Identify which environmental, social, and governance factors directly impact the ability to deliver the organisation’s purposes. Incorporate them into board papers and discussions.
- Review risk management approaches from an ESG angle.
- Undertake relevant awareness training in relation to ESG and its ability to impact the ongoing sustainability and success of the organisation.
- Use scenario planning to develop thinking on how different ESG issues could impact the organisation and its activities; for instance
- adverse/extreme weather events in an area of operation;
- media scrutiny of the employment practices of a supplier or contractor;
- spread of infectious diseases;
- impact on investors, shareholders, customers/clients, and stakeholders of examples of poor environmental practices;
- stakeholder campaigning on operational activities that harm oceans and sea life (use of microplastics or harmful detergents), etc.
EDI and remuneration
- impacts of inclusive and equitable recruitment and retention practices for talent at all levels of the organisation;
- health and wellbeing policies and practices to create a welcoming environment and improve staff satisfaction;
- measures to promote relevant, appropriate and attractive organisational culture(s);
- testing commitments to preventing human trafficking and modern slavery at every stage in the supply line;
- media scrutiny of third-party providers’ practices and your approach to eliminating harmful practices;
- auditing cultural issues to ensure anti-money laundering or other financial crimes are not tolerated
- Use existing shareholder and stakeholder engagement plans to assess the level of interest in various ESG matters.
- Assess the base level impact of relevant ESG factors on the organisation’s ability to deliver strategic aims.
Establish the need for the organisation to change
- Establish a committee or working groups to discuss the benefits of addressing relevant ESG initiatives, monitoring and reporting for the organisation, investors, shareholders, customers/clients, staff and volunteers, suppliers, stakeholders and the general public. Recommendations reported to the board.
- Link specific ESG activities to the achievement of the strategic plan.
- Identify the opportunities and challenges for adopting an appropriate and proportionate ESG framework.
- Articulate the risks associated with not adopting ESG activities and targets.
Define the 'change' programme
- Establish the vision the organisation seeks to achieve by incorporating addressing different ESG issues into its activities.
- Assess and evaluate the data already collected as to its suitability to support ESG activities.
- Discuss and agree on the metrics required to assess performance.
- Publicly disclose the metrics and timeframes chosen.
- Establish internal messaging and posters to support the programme and highlight individual actions that can contribute to it.
Embed and sustain the 'change' programme
- Make agreed ESG factors a key aspect of the new/revised strategic plan (and supporting documents and activities, such as risk management, resilience plans, budgeting and operational actions).
- Incorporate ESG aims into board reports.
- Align policies and procedures with ESG targets.
- Include ESG targets into departmental and individual goals and performance reviews.
- Provide training and development opportunities for staff and volunteers.
- Work with third parties/suppliers/contractors to embed delivery targets into their activities for the organisation.
- Ensure internal and external communications reinforce ESG goals and the agreed vision.
- Review the metrics and analyse what the data tells you about the organisation’s performance.
- Identify trends and anticipate future opportunities and challenges.
- Review and revise investment and purchasing criteria.
Monitor and improve ESG activities and performance
- Audit the organisation’s activities against the stated aims of its ESG programme. Report candidly on success and failure.
- Assess whether the data collected is sufficiently robust. Seek independent external validation or support.
- Benchmark performance against other organisations, industries or sectors and publicly disclose.
- Amend the targets to reflect the changes in the organisation and wider society.
- Collaborate with others to deliver a bigger ESG impact, such as local authorities on travel reduction, biodiversity campaigns, EDI movements and NHS and charities on mental health issues.
Shareholders and stakeholders
It is likely that any organisation will have a range of stakeholders with competing interests and demands as to how an organisation should fulfil its stated aims and undertake its activities. Stakeholder engagement can be a source of innovation, identifying future opportunities and potential new partnerships. The same will be true for specific ESG considerations, most notably climate change concerns. If not already undertaken, an organisation wanting to report on specific and relevant ESG matters in a meaningful manner for its shareholders and stakeholders will need to know:
- Who its ‘top’ investors/shareholders/stakeholders are, possibly for each specific ESG activity or issue
- What type of investors/shareholders/stakeholders the organisation would like to attract (more of)
- How the organisation has previously engaged with key stakeholders to ascertain what their interests are
- How effective that engagement has been
- If the organisation’s reporting of relevant ESG factors reflects the needs of its stakeholders (frequency, format, messaging, etc.).
Publicly reporting an organisation’s ESG metrics (such as reporting on CO2 emissions, use of virgin resources and renewable energy, recruitment and talent management approaches, stance on modern slavery in supply lines, etc.) can help inform and strengthen internal reporting systems, along with articulating the stance the organisation takes on a range of ESG activities and factors. With clear links between strategic goals, business models, risks, resilience, opportunities, operational indicators and financial performance, the board can identify and manage risk and evaluate and measure success. An ESG report can also identify future challenges and opportunities.
An externally assured audit or report for all or parts of the organisation’s ESG activities, is even more likely to generate trust, credibility and recognition for the organisation compared to one that is internally validated. However, there will be a cost attached to an external audit exercise which may not be proportionate to the work, resources and reputational assets of the organisation.
ESG reporting should take a format that shareholders and/or stakeholders want to see, not necessarily what is most convenient for the board or the executive team to produce. That may mean delivering key messages in different formats, via multiple channels for various audiences. For example, the report could be a standalone document, a standard financial report with additional information about material environmental, social or governance factors, an integrated report, or an impact report. Regardless of the final format chosen, there are important principles that should be applied:=
- Ensure various reports cover the same time frames (as much as possible) so it is easier for readers to judge the different types of impact the organisation is making
- Where appropriate, cross-reference information to other relevant documents
- Ensure there is a consistency of messaging and terminology across external reports
- Aim for ease of use
- Make the best use of digital platforms
- Ensure information is clear, relevant and jargon-free (where possible).
Ultimately, any publicly available ESG report should be an honest view of the organisation’s progress in the chosen ESG areas to be addressed. This should treat success and failure openly to produce a ‘warts and all’ account. An honest report will generate more supportive discussion and rapport, which may, in the future, guard against more negative interactions with key shareholders and stakeholders.
To help you find resources on ESG, we have put together a webpage with links to our content, including blogs, papers and relevant courses. Take a look at our ESG resource hub.
Join us for our upcoming ESG Summit, on Thursday 27 April 2023. Find out more and book your place today.