How To Implement an ESG Strategy
ESG standards are a way to reflect companies’ sincerity towards environmental sustainability. It keeps a check on the companies to know how efficiently they are using the resources and reduces the waste. Some of the followings are ESG outlines that companies need to report:
Reduction of greenhouse emission gases
Use of renewable energy
Implementation of waste management policies.
Increase in recycling and reusing.
Efficient use of water.
Working with suppliers who are conscious regarding the environment.
Support initiatives taken regarding climate change, environmental laws, etc.
Three Levels of Ambitions for ESG
There are three levels of ambitions for the companies to accomplish their ESG strategies. These are:
Minimum Practice: At this level, companies focus on risk-mitigation and take ‘do-no-harm’ measures. This includes reacting to the latest trends in the market, paying attention to external vulnerabilities, donation of resources, reporting minimum standards and taking oath to meet minimum commitment levels.
Common Practice: In this level, companies focus on outside their core business and makes substantive efforts. This includes tracking major trends in the market that can affect the business, using strengths to increase value according to the predefined ESG goals, complying with voluntary industrial standards and give above-average performance. It also includes creation of an inclusive sustainable policy, implementation of HR policies, carrying out of highly impactful philanthropic programmes and increase in engagement with stakeholders to understand the necessities.
Next Level Practice: In this level, companies work to fulfil ESG strategies and bring them into operations in a full-fledge. This includes moving leveraged superpowers into standardized sectors, increasing social impacts through innovation and customer choices, viewing ESG as a differentiator, embedding ESG goals into capital and resource distributions. This also includes application of ESG into employee incentives, improvement of both internal and external sustainability outcomes and ensuring that ESG disclosures are being covered in the operations of the company.
ESG as a Process
It is important to remember that ESG is not an outcome but a process. This process contains 4 steps which are as follows:
Mapping: Mapping includes considering the stake of stakeholders, identification of strengths, weaknesses, superpowers and vulnerabilities and benchmarking regularly and according to the judiciary.
Defining: Defining includes consideration of high and long jumps, being well thought about ESG trade-offs and regular measurements and assessments.
Embedding: Embedding includes syncing of operations according to ESG, making initiative to guarantee the impact and having clear judgements about the ESG goals.
Engaging: Engaging includes increase in engagement of ESG to make strong strategies and presentation of business proposition to investors.
Approaches of ESG Implementation
Following are the approaches to implement ESG strategies into your businesses:
Syncing your operations with ESG goals: It is important for companies to clarify their purpose first, then create ESG goals in accordance with these purposes. But this process is difficult for large and established firms who have an array of priorities and limitations. Thus, there are various opportunities for the companies to think inclusively about how to sync their core strategic plans with major ESG goals. These opportunities can be summarized into 5Ps which are:
Portfolio and Products: The main focus of the company should be to serve best to the customers.
People and Culture: Talented employees should be hired and team management should be done in an efficient way.
Processes and Systems: The operational process should meet ESG-related targets.
Performance: A target metrics should be formed to analyse the needs of the company, its performance and their relations with ESG goals.
Positions and Engagement: External positions and affiliations should be aligned with the ESG priorities.
Following-up on the Initiatives to Guarantee Impacts: Alignment of ESG goals with the company’s strategies help in getting support from both the internal and external stakeholders. One way to follow-up on the initiatives is through monetary incentives. Another way is nudging. This may sound incorrect but nudging encourages saving of energy, reduction in waste, etc. This can be done by promoting inclusive behaviours with the employees and encouraging them to recycle. It is highly profitable to update employees and stakeholders about progress of the organization so that they can make ESG initiatives a part of their daily operations. Companies should also celebrate the achievement of ESG goals with the responsible team to boost enthusiasm of the employees.
Having a Clear Judgment about the ESG Goals: A company should focus on the refinement and longer use of these ESG goals. They should keep a track of essential ESG rating agencies or score providers. International Financial Reporting Standards (IFRS) has founded a new body called International Sustainability Standards Board (ISSB) to rate the companies on the basis of their ESG reports. Sustainability Accounting Standards Board (SASB) and Integrated Reporting Framework are the two houses of ISSB. Thus, it is mandatory for the companies to protect their investors and market.
Businesses that Need to Follow ESG Regulations
Legal criteria of ESG are applicable to certain types of businesses only. Companies registered in the SEC needs to report ESG policies under the proposed rule. However, companies that don’t belong to this category and still want to invest in implementation of ESG strategies should meet the future requirements of the private or government sector.
Take Away
This is the brief explanation about the approaches and implementation of ESG strategies. It also includes which businesses should follow the ESG regulation. Please let us know through your valuable feedback and the suggestion in the drop box.
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