3 Essentials for Developing an ESG Strategy

Dec 15, 2021
IT Governance

Ready to get started with developing and implementing an effective ESG plan? Here are three considerations to keep in mind.

Credit: Getty

A quick Google search for “ESG” yields 349 million results in under a second. Specify the search term to “environmental, social and governance – ESG,” and you’ll find yourself with over 29 million websites to browse through.

But the prevalence of ESG on the web is no fluke; it’s quickly become one of the hottest trends in the corporate world today, emerging as an imperative that no business can ignore. In fact, in the first 11 months of 2020, more than $288 billion was invested in sustainable assets. This represents a 96% increase from 2019, putting into perspective the sheer growth of ESG, according to Blackrock.

BlackRock also provides a direct definition of ESG: “ESG integration is the practice of incorporating ESG information into investment decisions to help enhance risk-adjusted returns, regardless of whether a strategy has a sustainable mandate.”

Simply put, an ESG score is a numerical measure of how an organisation is performing in the environmental, social, and governance space.

Let’s set the stage – not only has ESG become well-known within the risk management industry, but it’s evolved to be one of the major considerations for investors and stakeholders, including employees, partners, and potential customers. Most organisations also realize that good governance, as it relates to one’s environmental and social impact, fosters trust and transparency. Because of this, investors and asset managers alike are looking for businesses with sound ESG management programs that result in clear metrics. For example, the CEO of Goldman Sachs says the bank will only take a company public if it has at least one diverse board member.

Organizations that have implemented an ESG-enabled GRC platform have already taken a major step forward in being able to measure and report their ESG scores. The good news is the data gathering framework is already there. It is just a matter of aggregating the ESG data into insights and intelligence from an existing GRC platform and measuring it against industry standards.

If you are ready to get started with developing and implementing an effective ESG plan – and you should be – here are three things you should consider:

1. Impact of Your Employees

GRESB, which “provides financial markets with actionable insights, ESG data, and benchmarks,” points out that in the wake of the COVD-19 pandemic, certain social factors became more important than ever before. These include “evolving societal expectations associated with the growing inequality between wealth and poverty, access to affordable housing, connection to nature, the gender and diversity gap, and an increase in mental illness.”

These social factors correlate directly to improved employee satisfaction, and in turn, better relations between board members and those that work at the company. At the end of the day, any company with happier, more productive workers will perform better on all levels.

2. Your Board Will Reward You

Although corporations have long been interested in how culture drives a measurable change, ESG wave is now truly taking over boardroom discussions. A recent article published in Corporate Secretary revealed that “companies without any ESG expertise at the board level tend to underperform on sustainability compared with those that do have ESG.”

The change is two-sided, though. While organisations have become more intrigued by ESG factors, climate and social responsibility regulations have come to the forefront after being mostly unaddressed until the 21st century. According to the KPMG Survey of Sustainability Reporting 2020, a mere 12% of companies published sustainability reports in 1993. At the time of this survey in 2020, that number had drastically increased; today, over 80% of companies publish a sustainability report.

This shift toward climate sustainability reporting has even been evident within the past several years for the financial industry.  This industry saw a 5% uptick in such reporting, from 2017 to 2020, according to that same KPMG report.

As the data shows, ESG is moving from simply an option to a necessity for all businesses. Amongst boards, ESG has made its presence known as well. Corporations have recently begun tying executive compensation to an organisation’s ESG metrics. Put simply, execs that discuss ESG in the boardroom will see a pay raise if they can capitalize on their organisation’s ESG strategy.

3. Preexisting Data Points

To get started, you should look for a solution that allows you to manage the ESG data you already have. Also, align structured and unstructured data across multiple parts of your organisation. A great example of this is within the “environmental” category, which encompasses company energy use, carbon emissions, and electric-saving practices, among other measures. While measuring an organisation’s carbon footprint may seem relatively straightforward, it requires examining various areas where carbon is used. This can include energy consumption in buildings, manufacturing costs and methods, and the costs and methods of commuting.

The numbers are there, and the data tells a story that has become far too compelling to ignore: ESG is here to stay. Now, it’s up to businesses to take these raw numbers and translate them into an effective plan that allows those businesses to soar; in turn, they will have the right toolset to manage, embrace, and ultimately thrive.

To learn more, visit MetricStream