How to Get Started With ESG
All businesses have deeply intertwined environmental, social, and governance (ESG) concerns—including yours. It should be no surprise that a strong ESG proposition addressing those challenges will create value. Today, your company needs to demonstrate that you’re more than just profit-driven.
Let's back up, though. You know you need to focus on ESG to create value and satisfy rising expectations from investors, consumers, and stakeholders, but how do you get started?
Expectations
In the past, companies had to choose between profit and ESG, but that’s no longer the case since ESG leads to improved long-term financial performance. The expectation now is that businesses are actively striving to contribute positively to the environment, pursue social advancement, and conduct themselves responsibly.
To get started with ESG and begin building a framework, we must revisit those expectations. What do your stakeholders want from you? What do your employees want? Clients? Communities? Every good ESG process starts with a thorough analysis, benchmarking what your industry is doing, and what topics you should be focusing on.
Following the analysis, you can see which priorities start to intersect—those are the ones that you’ll really want to highlight. The breadth of ESG topics is enormous, so for organizations just starting or reassessing the effectiveness of their framework, it’s best to hone in on the ones that you’ve found overlap as key priorities.
With dozens of E, S, and G topics to consider, a detailed desktop study and report will help identify 3–5 of those key priorities you should be reporting on right now. That desktop study will outline topics such as what your industry, clients, and supply chains are reporting on and what your employees and community bodies are looking for. It will inform a very important part of the ESG process: assessment of materiality.
Materiality
It would be challenging to discuss getting started with ESG without mentioning materiality. In its simplest terms, ESG materiality refers to whether or not a piece of information is relevant and important to a company’s ESG reporting. If an item is material, company resources should be allocated to developing strategies around opportunities and risks, and it should be included in the company’s sustainability report.
For example, many people equate ESG as exclusively climate change or disclosing greenhouse gas (GHG) emissions. There are many targeted GHG resources like the SIMSA Carbon Calculator that dial in on that specialized area. The problem with this intense focus is that although climate change is part of ESG, it’s not the entire subject, and there may be other ESG topics beyond GHG that are important for companies to build strategies and report on. In addition, when addressing GHG emissions within a company, there may be significant social and governance impacts—such as potential job loss and shareholder concerns—which must also be addressed.
Materiality in ESG varies from industry to industry and depends on what kinds of risks and opportunities each sector has. When your company is new to ESG reporting, materiality helps to hone in on what’s important to you and your stakeholders, which brings us full circle as to why you’ve started ESG in the first place.
Reporting
Once material ESG matters are determined, your company will want to report on its ESG activities and metrics. When it comes to reporting, it’s important to start with being honest about your organization’s current state. The desktop study will show you the commonly used standards and frameworks and topics by your industry, and it will also inform your progress and plan.
ESG strategies should report on two things:
Reporting strategy: the study that includes what you’re reporting on, how your organization plans to evolve over the years, and the initial metrics; and
Tactics strategy: the set of goals for how you’ll improve the metrics and hit your priorities.
To reach your desired ESG state, transparency about your current state will help you see where any gaps are and create the strategy for how you plan to meet those goals.
It’s important to note that reporting is an ongoing process—not one and done! Your reporting will build on your strategies year over year. ESG is a long-term process, with the strategies requiring years, and sometimes decades, to see your ESG objectives achieved. Reporting will incorporate short-term metrics (leading indicators), which will drive toward the achievement of long-term goals.
Capacity
Going from ESG expectations to materiality assessment to reporting on goals and objectives can feel overwhelming, and that’s okay. Start with a realistic plan: consider what aligns with your organization and goals, look for the overlapping priorities, pick the low-hanging fruit, and onward and upward from there—the strategy all builds on itself.
Right now, industries don't have regulations yet on required ESG reporting, so it’s a great time to get started and get comfortable with ESG before regulations do start. You’re not behind! Recognize that you’re probably doing a lot of this work already—you just haven’t written it down in an ESG context yet.
Whether you’re just getting started with ESG or reassessing your framework, you'll find value in bringing in an expert. Rather than bringing in multiple specialists or someone who might be fixated on one area such as the “E” and climate change, having a consultant well-versed in all aspects of ESG, who can help you assess the ESG matters material for your company and determine appropriate reporting frameworks, is the key to success and building a strong proposition. Once this foundation is set, you can consider engaging specialists that can help with specific topics and accurate calculations.
So, back to the title: how do you get started with ESG?
Hire a consultant that looks at overall ESG strategy, weighs expectations from every angle, and helps you make a realistic plan. Karri Howlett Consulting can guide you through this uncharted territory and recommend approaches that best apply to your goals—no matter how big or small your company is. Let’s get started!