ESG Matters
ESG Matters
In this article we examine the case for adopting ESG. Outline a simplified approach to embedding it within the organisation and look at how it may evolve in the future along with the expertise required.
The case for ESG
Having an Environmental, Social, and Governance (ESG) strategy provides companies with a methodology for assessing the regulatory risks that arise from their exposure to negative external influences. There are now many studies that show that embedding ESG isn’t just a vain expense; it can increase growth and profitability. We reported on the compelling case behind its growing profile in a previous article that you can read here. There are now specific reporting frameworks for almost all industries with a majority of large corporations voluntarily reporting their data to their stakeholders and investors.
Indicators also show that companies that emphasise sustainability have better employee engagement and lower turnover rates. Research by PwC[1] suggests that 76 per cent of consumers are willing to stop buying the products of companies that are unsustainable, mistreat their workers, or harm their communities.
It has also become a requirement for many public stock exchanges, with asset managers and investors giving it a laser focus. A study by Morgan Stanley[2] showed that 95 per cent of asset owners have, or plan to integrate sustainable investments into their portfolios and more than half envision a time when they will only invest in companies with a formal approach to ESG. Overall, the data suggests ESG will continue to grow in importance; S&P 500 companies including ESG metrics in compensation plans rose to 70 per cent in 2022, up from 57 per cent just a year earlier, with measurements of carbon footprint and diversity and inclusion growing the fastest.
Steps towards implementing ESG
There is no longer any tolerance for misinformation and greenwashing about ESG initiatives and progress among investors, index providers, and regulators. Inaccurate ESG reports will have real consequences for companies. Instead of simply offsetting the unintended damage companies can do to the environment and communities, companies need to invest in change. This investment must be tangible, well-managed, and properly reported. We covered a roadmap to ESG in more detail in a previous article which you can read here, but in brief - how can organisations achieve this?
1. Set Targets & Measurements
Identify KPIs that meet the needs of stakeholders. Evaluate readiness and set targets. Identify any risk associated with creating and running the programme.
2. Create a Governance Structure
Establish a cross-departmental ESG committee to keep track of progress and report to the board.
3. Implement Data Collection
Decide which internal and external ESG data will be disclosed and whether the process will be driven internally or through an advisory service. Implement data collection protocols that are auditable, repeatable, and reportable.
4. Communicate Progress
Communicate your progress with internal and external stakeholders by comparing your latest data to the KPIs that were initially identified.
“The idea that executive remuneration should be linked to ESG KPIs is gaining in popularity and as a result, many boards are scrambling to find the right people to advance their ESG initiatives. ”
ESG Expertise
In 2022, not only did regulators continue to up the ante, but the war in Ukraine, the disrupted energy markets and soaring inflation caused renewed geopolitical uncertainty. Add-in a spate of climate induced disasters and it is little wonder that last year saw a seismic shift in the ESG landscape and the stakeholder expectations associated with it. In response, the C-suite is under pressure to evolve.
In the face of a push for more impactful ESG practices, many organisations are reaching to appoint a Chief ESG Officer (CESGO). The idea that executive remuneration should be linked to ESG KPIs is gaining in popularity and as a result, many boards are scrambling to find the right people to advance their ESG initiatives.
ESG is a relatively immature skillset within the executive networks and there remains a shortage of people who are capable of demonstrating the application of their knowledge to the real-world flux. Executive ESG candidates must be capable of developing and implementing ESG strategies aligned with the company’s goals, understanding how ESG indicators can be used to measure progress, and effectively communicating the benefits of ESG to stakeholders. In order to be considered for the position, candidates should demonstrate a track record of successfully implementing, reporting, and engaging the public about ESG issues. That said, possessing the ability to drive measurable change and engage the entire company’s culture whilst being accountable is arguably the most important transferrable expertise in the broader executive community.
Alumni
We have over 30 years’ experience in supporting organisational HR. We have international presence and global reach paired with local knowledge and networks. We can help you find specialist ESG expertise or work with you to develop awareness in your leadership and their teams. We are especially proud of our commitment to EDI throughout all stages of our recruitment and leadership development processes. Whatever your requirements we will partner with you to gain a thorough understanding of your unique situation and work hard to advance your particular ESG journey.
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