Covid-19 and the climate crisis has pushed the environment, sustainability, and governance (ESG) agenda forward in investors and stakeholders’ minds. As a result, they are increasingly interested in evaluating organisational impact on a range of social and environmental factors, such as equality and climate change.
Backed up by increasing regulation and market perceptions of enterprise value, ESG is an area that needs to be addressed company wide. Rather than being left to the preserve of a sustainability department, or only factored in risk management, ESG is integral to future business success and supporting ethical operations. So how can organisations drive the ESG agenda, creating long-term value for investors and stakeholders alike?
- Develop and maintain ESG strategies
With a raft of new regulations coming in, such as the EU Green Deal that has a bloc-wide goal of zero carbon emissions by 2050, it will affect statutory reporting obligations. This means that ESG considerations need to be at the heart of all strategy decisions, working across the entire organisation – and not just be an add on. With proof being required around an organisations carbon footprint, for example – how it is being actively managed, monitored and reduced – the entire supply chain also needs to be considered in the process.
That’s why ESG is being embedded across entire organisations and no longer siloed. Given such major changes ahead, some organisations are bringing in support to help manage significant transformations in how business is conducted and regulated as a result. Simply buying carbon credits to meet targets won’t suffice forever. There is also a clamp down on “greenwashing”, a practice of making an investment sound more sustainable than it is actually is. So, a more robust and ethical strategy to address environmental targets across an entire company is likely to be needed.
With COP26 taking place in November, businesses also need to be on the front foot in preparation for anticipated tax hikes to meet carbon neutrality targets – something that is expected to be covered at length in the Autumn budget.
- Invest in assurance reporting
As non-financial reporting, there are yet to be standardised ESG metrics in company reporting. Whilst different countries and groups try to grapple with creating a unified approach to ESG reporting, it’s important that quality data is disclosed, transactions detailed are correct, and information to markets and investors is valid.
This is where assurance reporting comes in, helping organisations to achieve greater transparency in their ESG targets and achievements, highlighting areas for improvement. It’s something that Dow Jones has been monitoring since 1999, with the world’s first “Sustainability Index”, and there are now over 37,000 indices available – highlighting how momentum is gaining pace.
- Build on talent and culture practices
Businesses need to ensure that they have the right talent on board to drive ESG cultural changes across the business. Remuneration needs to be aligned with achieving environmental targets and culture aligned with diversity and inclusion (D&I) practices to ensure talent is drawn from a wide range of candidates. Ensuring the board has the relevant skills to oversee ESG risks and opportunities is also key, and with such a significant task ahead, neurodiverse leadership teams are the ones that will make great strides.
Leading companies view ESG issues as a business imperative. They understand the need to act now, create value, manage risks, capitalise on opportunities, and set up for future success by sharing their story and vision for the future. By developing an ESG strategy, continually monitoring for its effectiveness, using assurance reports to highlight achievements and challenges, shows transparency and accountability for the organisation.
Having the right talent on board, that is genuinely diverse to encourage equal opportunities and challenge business norms, helps to ensure that organisations keep pushing the envelope with ESG practices. By taking a holistic approach, recognising the need to identify, measure and embed ESG factors right across the organisation, businesses can improve access to capital and generate greater long-term value for all stakeholders.