Despite the benefits of prioritizing ESG, company leaders often find it challenging to start an ESG program and generate meaningful buy-in. Further complications come from the myriad areas leaders can prioritize and the organizational hurdles they may need to overcome to sustain the program.
To provide guidance on ways to build a foundation for ESG at your company or take your efforts to the next level, RGP’s Janis Parthun, VP of advisory and project consulting services, joined the Institute of Management Accountants (IMA) to discuss how to take ESG from theory to practice. Below, we explore some of the key takeaways of the podcast conversation and expand the discussion to empower you to build momentum behind your ESG initiatives.
What Are Company ESG Commitments?
For those unfamiliar with the concept, ESG programs aim to shift company operations and optimize outputs across the following three areas:
- Environmental: Examines the company’s impact on the environment, which can include a focus on climate policies, pollution, the conservation of natural resources, energy use, and the treatment of animals.
- Social: Assesses how the company interacts with its internal and external stakeholders. This involves examining how companies invest in their local communities and how the company supports its workers and their health and safety.
- Governance: Looks at how the company runs, the integrity of its team, and how transparent it is in disclosing financial information. Governance often includes policies and frameworks to ensure accountability, avoid conflicts of interest, and create oversight.
Companies commonly publish sustainability reports to detail their ESG commitments and progress, and 96% of S&P 500 companies already publish ESG reports voluntarily. Given growing regulatory pressures, consumer demand, and investor interest, companies are increasingly exploring ways to embed ESG within their strategy.
Proactive planning for a strong ESG reporting roadmap is needed to provide the high-quality and consistent information that stakeholders expect — and to realize the potential financial benefits.
How to Establish a Corporate ESG Program
To start an ESG program, your organization must first determine materiality, evaluating which issues can significantly impact the company’s value. This will vary depending on the nature of your business.
Companies that produce consumer goods, for example, could increase customer interest by redesigning packaging to be more eco-friendly. In contrast, a software company could focus on transitioning to renewable energy resources to power its facilities.
Determining materiality requires stakeholder and market input, and it is often helpful to partner with a consultancy to provide an unbiased assessment of which opportunities would lead to the most significant impact.
Once priority areas have been identified, leaders will set goals and targets to track and report on their progress.
For example, if climate change is an ESG program focus, a shipping company could set a goal to reduce emissions by 25% by 2030. To do so, the company could implement strategies like transitioning its fleet to electric vehicles as one way to support the goal.
Creating oversight and a process that ensures accountability in all ESG activities and reporting is essential. An ESG committee can often help monitor progress and govern the goals set, tracked and adjusted as the strategy matures.
How Regulations Impact ESG Efforts
Regulatory bodies are increasingly scrutinizing how companies present information related to their ESG activities. There is also growing pressure for companies to reduce their environmental impact given concerns about climate change and global warming.
The European Commission found that 53% of green claims give vague, misleading, or unfounded information, and 40% have no supporting evidence. Understandably, a brand’s reputation — and likely its bottom line — is significantly damaged if the company shares incorrect ESG information.
U.S. public companies (and private companies wishing to uphold a high standard) must follow SEC guidelines for ESG disclosures. Remember that these guidelines are ever-evolving, so it’s critical to keep up-to-date with the newest recommendations and requirements.
Companies based in European countries must follow the EU Commission’s Corporate Sustainability Reporting Directive, which spans 12 standards with 10 specific ESG topics. Any company with a presence in the EU must follow these guidelines, even if the company headquarters is in the U.S.
4 Strategies for Increasing ESG Success
It’s OK if your ESG program has few immediate and significant results to share as you get started. What’s important is having a clear strategy to achieve your goals and being able to demonstrate progress in doing so.
To help you overcome the common challenges of running an ESG program, we recommend employing the following four strategies:
- Automate data collection and reporting systems: ESG data collection and reporting can require considerable time if left to manual, error-prone methods. Explore ESG reporting tools that can automate collection and validate your findings.
- Connect executive compensation to ESG goals: It’s easier to gain genuine executive buy-in on ESG if you tie their compensation to progress toward the ESG goals. Companies like Chipotle link their ESG goals to bonus compensation for the CEO, and you can consider using a similar strategy for other company leaders.
- Align to voluntary standards and frameworks: Standards exist to guide companies in implementing consistent and responsible reporting. The Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the Taskforce for Climate-Related Financial Disclosures (TCFD) are just a few valuable resources. IMA also issued a publication, Achieving Effective Internal Control over Sustainability Reporting, which is extremely helpful.
- Involve cross-departmental stakeholders: Every department within a company can play a role in advancing ESG priorities. Ensure all departments understand your ESG commitments and embed them in your strategy. Finance teams, for example, are often familiar with new reporting requirements and can provide significant value and contributions to the ESG program.
Gradually Build on the Success of Your ESG Strategy
No matter where you start with ESG, setting a clear strategy and establishing frameworks to guide your program and monitor your success will lead to gradual improvements. Continually assess your progress and adjust your strategy based on new opportunities that may arise.
As more of your company leaders and employees understand your ESG goals, they can identify ways to advance your mission, creating genuine excitement around your program.
Need help putting ESG theory into practice? Let’s talk.