Consumers demand more insight into how companies make decisions, compensate their employees, and impact the communities in which they operate today. In fact, a majority — 76% to 80% of consumers surveyed by PwC — say they’re more likely to buy from companies committed to ESG improvement. Trust is key.
If you’re responsible for your organization keeping its commitments and acting as a steward of society and the environment, you may now also be charged with ESG compliance. It’s the right thing to do ethically; the U.S. government mandates it, and in 2024, the Canadian government will start phasing in ESG reporting requirements for federally regulated financial institutions. In fact, businesses believe that survival hinges on it: 92% of businesses agree that companies that show a long-term commitment to ESG policies will outlast those that don’t.
While many organizations have made commitments to limited ESG reporting, there’s currently no single standard. The SEC, International Sustainability Standards Body, and many others, including the Canadian Securities Administration, and Canada’s Office of the Superintendent of Financial Institutions, are developing standards and guidelines, whether mandatory or voluntary in nature, with drafts currently awaiting final approval and publication.
Now is the time to prioritize ESG and understand your role and responsibilities. To get ESG right, follow the following three-step process:
Step 1: Identify your stakeholders and their expectations.
Across industries, companies have learned the importance of being customer centric. “Know your customer,” is an art and a science. The same is true when designing a successful ESG program. You need to define objectives based on who has a vested interest in your success. Which of these eight stakeholder groups applies to your business?
- Shareholders, board of directors
- Broader community. This includes your local community, who is affected by your company’s water or air pollution, and nonprofits (or nongovernment organizations) and environmental activists who are increasingly using social media to push their goals and agendas.
- Industry organizations
- ESG reporting frameworks, collecting data on organizations
Next, determine the jurisdiction and industry of each group, as the expectations and compliance requirements will differ for each type of stakeholder.
Oil and gas companies may be striving toward net zero, reducing the amount of greenhouse gases produced.
Whereas for food producers, who hold environmental and fair labor practices in high regard, the destruction of natural habitats for planting cocoa to produce chocolate or coffee or ensuring no child or forced labor is used are top concerns.
Once you identify your stakeholders and their expectations, determine which of those stakeholder expectations are material to your organization’s growth and success. Determine which metrics are important to those stakeholders’ industries, and measure your performance against them to verify that you’re on the right track.
Step 2: Put your plan into action and measure its success
You’ve identified your stakeholders and determined your reporting framework. Now it’s time to implement your plan and track the data.
Prioritize elements in order of importance to track for stakeholder feedback. Consider aspects of your process, business, and operations.
Choose which metric you will measure against. For example, average water use per unit of production, like liters used for one ton of steel.
Set a target for improvement. Determine what will show progress toward your goal, such as 100,000 liters per vehicle. Look to your industry for insight and best practices. Make sure they align with what stakeholders want.
Create a strategy. Like planning a road trip, once you know where you want to go, plot the best way to get there. For example, if you’re tackling gender equity and the goal is to achieve 40% women representation in the company, include your environmental, health and safety (EHS) or human resources team to help with the process. If you don’t have an EHS or HR team, invest in a consultant. Along the way, ask what needs improvement.
Implement and track the data. Empower someone with the responsibility, authority, and resources to gather data and report progress. Use software or a digital tool designed for this use, or just a spreadsheet. Remember, unless someone is 100% dedicated to this effort, it will be difficult to monitor thoroughly.
Step 3: Report on your success
From a stakeholder’s perspective, there are only two ways to confirm you’re meeting their requirements: media reports (which could be positive, negative, or incorrect), and what you voluntarily report, where you control the narrative. (Note: Voluntary reporting requirements will soon change to required reporting on sustainability issues.)
One size does not fit all when it comes to ESG reporting. Research and choose the right method for you. Find out whether the industry has a preferred reporting standard or mandates you to report against an existing formal ESG framework. There are currently many global standards, including:
- Value Reporting Foundation
- GRI (Global Reporting Initiative)
- World Economic Forum
- Sustainable Development Goals
- TCFD (Task Form on Climate-Related Financial Disclosures)
- CDP (Formerly Carbon Disclosure Project)
If your organization is smaller, you’ll need to determine what works best for you. Consider the preferred framework for your industry, or take an in-depth look at all to see which areas are optimal for your business and create your own benchmark based on your business’ ESG goals and ability to track those goals.
Many companies are turning to a third-party partner to help implement a successful ESG program. Veriforce has helped hundreds organizations seamlessly integrate ESG capabilities into their existing risk and compliance management processes.