The downfall for many of today’s businesses who are recognizing the need to take environmental, social and governance (ESG) seriously is that they’re falling victim to the same fallacy. Setting a fanciful goal, like for example cutting down to net-zero greenhouse gas emissions by 2040, isn’t all that meaningful if you aren’t establishing a concrete framework to achieve it.
With this in mind, let’s explore the ways in which today’s organizations can get serious about the ESG imperative and take a strategic approach designed to deliver results.
Setting an ESG Strategy Means Analyzing the Big Picture
At all times, it’s important to think about your sustainability and ESG initiatives through the scope of your business as a whole. Why do these matter to the organization, its people, and its future? How can ESG strategy be implemented in a way that complements, rather than distracting from, your company’s many other goals and needs?
Through this lens, treat ESG like any other business strategy. That means mapping out steps and incorporating tangible methods of benchmarking, planning, and measurement.
A thorough ESG strategy should include the following steps at a minimum:
- Conduct a materiality assessment to get a handle on your current state
- Set objectives and goals: where can you maintain, improve, and optimize?
- Analyze gaps and roadblocks to achieving your desired future state
- Develop a strategic ESG roadmap and framework (and document it!)
- Set action plans and KPIs
- Report, evaluate, and communicate progress
Of course, with any business strategy, budget is critical. If something isn’t financially viable it simply isn’t going to happen, which is why it’s important to keep money at the center of these strategic underpinnings.
Understanding the Financial Implications of ESG
Too often, the financial implications of ESG are treated as an afterthought. Many organizations have seen their efforts stall out because they approached this undertaking backwards, first setting goals and laying out lofty plans while opting to figure out later how the dollars and cents work out.
To be successful, accounting for finances up front is essential.
One prevalent issue is that many businesses are looking at ESG and sustainability in the same way as marketing was often viewed in the past: a cost center with vague long-term benefits. In actuality, much like marketing, ESG is essential to business development, reputation, and customer relationships.
From a financial perspective, we organize the impact of ESG into three buckets: risk reduction, efficiency, and growth.
- Risk Reduction: Accounting for both physical and transition risks. Thinking proactively about what’s coming down the line (e.g., increasing tax and regulatory pressures tied to emissions, or climate-related events) and putting your business in the best possible position to minimize financial risk.
- Efficiency: Evaluating how your company operates, from core facilities to the greater supply chain, and where efficiencies can be added that positively affect not only your environmental footprint but also your bottom line.
- Growth: Turning your organization into a champion of sustainability and equitability, with responsible practices and a reputation for spearheading the battle against climate change, can help your company capture greater market share, appeal more to consumers and investors, and move ahead of the curve when it comes to meeting the needs of your audience.
The greatest value is typically seen in the third bucket. Organizations that are viewing ESG as less of a burdensome obligation and more of a high-upside growth vehicle are truly tapping the advantages of a sustainability-infused business strategy.
These organizations are not just setting audacious targets and goals for a future date; they’re making demonstrable progress. They’re not delegating ESG accountability to one discrete business unit; they’re ingraining these priorities into the organizational culture. They’re not taking shortcuts; they’re making material investments now and recognizing the future value of doing so.
The question is not, “Can we afford to tackle ESG head-on, right now, with so many other changes and objectives afloat?” The question is, “Can we afford not to?” And in a vast majority of cases, the answer is no.
ESG Strategy: Walk Before You Run
The big day has come. Six months ago you challenged yourself to run 13 miles, which at the time felt borderline impossible. But you slowly built up your endurance and stamina over those months, reconfigured your diet, and adopted techniques that led to continual progress. You didn’t skip steps, and recognized the investments and sacrifices required to ultimately reach your goal. Now you’re ready to bring it all together.
