To develop an effective ESG (Environmental, Social, and Governance) strategy, it is essential to follow a well-structured plan that not only meets current standards and expectations, but is also flexible enough to adapt to future developments.
Additionally, it is important that objectives are ambitious yet achievable and realistic. In this blog, we offer five tips for setting up a feasible and organisation-specific ESG approach.
Before setting goals, it is important to know which ESG topics are relevant to your specific industry and organisation. By conducting a double materiality assessment, the company looks beyond just the financial aspects of the organisation; this holistic perspective helps evaluate activities based on social and environmental impacts.
This involves examining the most significant impact of the company on its surroundings (impact materiality), as well as the impact of the environment on the company (financial materiality). This approach ensures that the organisation addresses relevant ESG topics where the greatest impact or reduction can be achieved, and takes the first step towards communicating with stakeholders.
Start with a stakeholder analysis to understand who the potential and important stakeholders are, such as customers, employees, suppliers, affected communities, or workers in the value chain. After identifying the stakeholders, try to investigate their specific interests and concerns to determine which ESG themes are important for the organisation.
Then use these insights to develop a materiality matrix, in which the priority of various ESG issues is displayed from the perspective of the organisation and its stakeholders.
Although the double materiality assessment identifies the most important sustainability impacts, risks, and opportunities for an organisation, there is still insufficient dialogue to explore effective solutions.
To create a truly good sustainability strategy, organisations need to do more than just implement the most obvious solutions. It is important to listen to what affected stakeholders think of the solution, whether they actually need it, and whether the solution works in the long term to deliver a lasting contribution.
Furthermore, a sustainability strategy is not just about the company itself, but also affects the entire value chain in which the organisation operates. Therefore, it is important to collaborate effectively and make clear agreements with suppliers and partners. This helps everyone work together on sustainability.
Also important, and sometimes overlooked, are the employees themselves as stakeholders; talking to everyone who plays a role in the company is important for reducing the sustainability impact within the organisation itself. For example, a warehouse employee has a better view of the amount of “unnecessary” waste or packaging material.
By being open and talking with stakeholders, people better understand what the goal is and how they can help achieve these goals. This makes everything clearer and ensures that people are more engaged and aware of sustainability.
After identifying and discussing the relevant ESG topics, it is important to set up a draft version of the strategy. This can be done by establishing clear, measurable key performance indicators (KPIs).
These KPIs should closely align with the business strategy and materiality assessment, and include both quantitative and qualitative targets. A useful way to determine KPIs is by using sustainability reporting standards, such as the European Sustainability Reporting Standards (ESRS) or the Global Reporting Initiative (GRI).
Common KPIs include, for example, CO2 reduction targets, diversity percentages within the company, or financial contributions to community engagement. Other examples are biodiversity percentage, a zero-tolerance target for corruption and bribery, and the number of suppliers that have signed the sustainability declaration.
When establishing KPIs, it is crucial not to immediately consider them definitive and publish them. The goal is not to proclaim unrealistic and unachievable objectives, but to promote the realisation of attainable successes.
Since the ESG landscape will likely be new to the organisation, awareness and contribution will change over time. Moreover, the pace at which different industries and organisations ramp up their sustainability efforts will vary. Therefore, we advise against adopting objectives from other companies.
It is better to formulate your own ESG strategy and objectives and review them regularly, so they remain up to date and match the pace of your organisation. A semi-annual to annual update ensures that your strategy stays current and can adapt to new insights or external changes.
The last, but certainly not least important step in setting up an effective ESG strategy is integrating sustainability into the corporate culture. This means that sustainability is not a semi-annual recurring agenda item or project, but becomes a core component of all business processes and decision-making. Creating a culture in which every team member is aware of and contributes to sustainability goals significantly increases the chance of success. Examples of culture integration include:
Developing an effective ESG strategy requires a thoughtful approach that takes into account both the impact of the company on the world and the influence of external factors on the company. By following these five tips, companies can establish a robust strategy that not only contributes to a more sustainable world but also creates long-term value for the organisation and its stakeholders.
Want to learn more? Contact Kroll SR.
