Deciphering ESG is like trying to get the right frequency on a vintage radio - it’s all about finding clarity in a sea of static.
With the European Union pushing sustainability standards at record speeds and companies scrambling to present themselves as the green organizations everyone wants them to be, it’s easy to lose sight of where to start.
Understanding how Environmental, Social and Governance (ESG) metrics fit into all of this can be a daunting task, even for the most seasoned specialists. Fear not - this guide helps you get started.
Are you responsible for bringing sustainability to your organization, or want to better understand how ESG can be a catalyst for change? This six-step guide will help you get there:
With an increasing number of companies recognizing that sustainability is more than smart marketing, there's an ever-growing need for skilled individuals to take the lead.
This is where you should start too. Kick off with the following questions: do you hire in-house, and how big should the team be?
There are many things to consider when choosing members for your sustainability team. We summarize the trade-offs in the table below:
Ultimately, the decision on who should lead your sustainability initiative largely depends on your company's existing personnel. The perfect candidate might already be a decade-long employee, or they could be an external talent eagerly awaiting your job opening.
The decision on team size and the scope of in-house work depends on the size of your company and your preference for internal handling of tasks.
Your team must possess a solid grasp of ESG principles and their relevance to your business as their role encompasses launching, managing, and advancing all ESG-focused initiatives.
Given the dynamic and challenging nature of the ESG landscape, forming a well-structured team is essential. As a general guideline, we suggest the following team sizes:
These proposed team sizes are based on the assumption that sustainability teams will be supported by the right tooling and software to collect, analyze and report ESG data.
Compare it to an accountant working with accounting software or a designer using design programs - the job would be insurmountable without these tools.
The creation of this team establishes a central point for all ESG reporting within the company, covering both internal and external aspects. Their dedicated focus on ESG matters will ensure that these important issues are effectively communicated and managed.
This initiative not only reinforces the importance of ESG in our company culture but also demonstrates your commitment to responsible business practices.
After setting up a team for your ESG strategies, the next step is to review relevant ESG-linked policies that your company is obliged to report on.
Engage in discussions with industry peers and conduct online research for comprehensive understanding. Here are some key policies and frameworks, each with a brief explanation:
Corporate Sustainability Reporting Directive (CSRD): The CSRD is a European Union directive requiring large companies to disclose information on the way they operate and manage ESG challenges.
Corporate Sustainability Due Diligence Directive (CSDD): This EU directive mandates companies to identify, prevent, mitigate, and account for adverse impacts of their operations on human rights and the environment.
Work-Related Mobility (WPM): A policy focusing on reducing the environmental impact of work-related travel and commuting.
Within ESG, it's key to differentiate between legally mandated policies and (voluntary) frameworks. Policies are mandatory standards that companies must adhere to, often set by governmental or regulatory bodies.
On the other hand, frameworks are widely recognized guidelines that help organizations in structuring and disclosing their sustainability efforts in a more comprehensive and standardized way.
Global Reporting Initiative (GRI): The GRI is an international independent standards organization that helps businesses, governments, and other organizations understand and communicate their impacts on issues such as climate change, human rights, and corruption.
Sustainability Accounting Standards Board (SASB): A non-profit organization that sets standards to guide the disclosure of financially material sustainability information by companies to their investors.
Environmental Sustainability Reporting Standards (ESRS): Mandatory for companies reporting under CSRD. The ESRS are standards that provide guidance on reporting environmental sustainability information, including impacts, risks, and management activities.
Sustainable Development Goals (SDGs): A collection of 17 interlinked global goals designed to be a "blueprint to achieve a better and more sustainable future for all" set in 2015 by the United Nations General Assembly.
By understanding and aligning with these policies and frameworks, your company can effectively measure and report on ESG factors, showcasing commitment to sustainability and responsible governance.
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Once your ESG team is familiar with the relevant policies and frameworks, the next step is to begin data collection across various facets of your company.
This stage is fundamental in accurately assessing your company's current ESG performance and setting a baseline for future improvements. Here’s how you do it:
Identify key data points: Start by identifying which data points are relevant to the ESG topics outlined in the policies and frameworks. This could range from energy usage and carbon emissions to employee diversity and supply chain practices.
Interdepartmental collaboration: Work closely with different departments within your company to gather comprehensive data. For instance, HR can provide information on social aspects like workforce diversity and labor practices, while the operations team can contribute data on environmental impacts.
Use technology: Implementing the right technology is critical for efficient data collection and management. Consider ESG reporting software or carbon accounting tools that can help in tracking, storing, and analyzing ESG data.
Establish reporting routines: Develop a routine or schedule for regular data collection. For most standards and frameworks, this should be done annually. This ensures that data is up-to-date and reflects ongoing changes and improvements in your ESG practices.
Data verification: Ensure the accuracy and reliability of the data collected. This might involve internal audits or third-party verification, especially for data that will be reported externally or used in compliance reports.
Gathering comprehensive and accurate data across your company is vital for a meaningful ESG assessment.
This data forms the backbone of your ESG reporting and improvement strategies, helping to align your company's operations with sustainable practices and demonstrating your commitment to responsible corporate governance.
This is where it all comes together: Once you have your ESG data, it’s time to write your annual report.
This will form the basis of the way your company communicates its strategies and alignments with existing frameworks to internal and external stakeholders. The following steps help you get started:
Examine trends and patterns: The first step of writing is to delve deeply into the data you've gathered and examine trends and patterns.
This analysis is more than just number crunching; it's about uncovering the story your data tells about how your company's actions align with ESG goals and objectives. Some forms of analysis include:
Longitudinal analysis: Look at data over time to understand how your ESG performance has evolved. This could reveal trends such as a steady reduction in carbon emissions or improvements in workforce diversity.
Cross-sectional comparison: Compare different areas of your company, like departments or locations, to identify best practices and areas needing more attention.
Correlation analysis: Investigate how different ESG aspects relate to business performance. For example, explore if sustainable practices have impacted employee satisfaction, customer loyalty, or financial performance.
Benchmarking against goals: Measure your data against the specific ESG targets set by your company. Are you on track to meet these goals, or do certain areas require more focus?
External benchmarking: Compare your findings with industry averages or competitors. This context can help assess your company's relative performance and identify competitive advantages or areas for improvement.
Examples of excellent sustainability reports include those by the following companies:
Analyzing and reporting is one thing, developing a long-term ESG strategy is another. Your strategy should be informed by the insights gathered from your data analysis and should outline clear, actionable steps to improve ESG performance.
The strategy should be integrated with your overall business strategy, ensuring that ESG considerations are part of every business decision.
The ESG strategy should also include setting targets for improvement, outlining initiatives and programs to achieve these targets, and assigning clear responsibilities within the organization.
It’s important to ensure that the strategy is dynamic and flexible, allowing for adjustments as new information and opportunities arise. Effective communication of this strategy internally is vital for gaining buy-in and ensuring everyone in the organization understands their role in achieving the ESG goals.
ESG is an ongoing process that requires continuous attention and improvement. Each year, you should revisit the steps of a policy review, data collection, data analysis, and strategy formulation.
This iterative process allows you to stay ahead of changing stakeholder expectations, regulatory landscapes, and industry best practices.
By repeating these steps, you can measure your progress against your KPIs, identify new challenges and opportunities, and refine your strategy accordingly.
Continuous improvement in your ESG performance is not just about meeting external expectations but also about creating long-term value and resilience for your company.
Happy reporting!
Check out our 6-step plan to better ESG performance.
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Check out our 6-step plan to better ESG performance.
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