10 Steps for Creating ESG Strategy for your Business

Businesses that extend interests towards more holistic accomplishments are able to build trust with both customers and stakeholders. These holistic accomplishments and priorities extend beyond revenue and profit generation but work towards creating an environment of ethical and sustainable practices that benefit both the organization and surrounding entities. In order to establish the best possible practices, businesses use ESG factors. 

 

ESG criteria consist of three key elements; 

 

  • Environmental factors including use of renewable resources and curbing unnecessary waste creation. Environmental factors ensure business activities do not hurt the ecosystem the organization operates in. 

 

  • Social factors cover how a business interacts with internal and external stakeholders. This includes guidelines and protective measures in place to ensure a safe and hospitable work environment for employees and actions that consider the surrounding community.  

 

  • Government factors ensure an organization maintains compliance with rules and regulations provided by law and decision makers. Compliance minimizes the possibility of fines and legal action taken against the business at a later time and also encourages the government to offer grants, tax exemptions and other perks to organizations that work with the governing agencies.  

 

For businesses looking to begin their journey into the incorporation of ESG factors, here are ten steps to creating the most practical strategy; 

 

  1. Introduce the Best Possible Strategy 

 

The first step must be identifying that every business has unique needs. When crafting an ESG plan, the organization must look at businesses that work similarly but leave room for customizations as what works best for one business may not work for another.  

 

As every organization has different stakeholders in both internal and external capacities, supply chains, locations, budgets and goals; an effective ESG strategy will stem from its ability to incorporate the individual needs of an organization. 

 

  1. Move From the Big Picture to the Little  

 

Understanding goals from a birds eye view helps maintain the practicality of the strategy and ensures only the measures needed are executed. This allows top line executives to tackle time sensitive or critical goals. Firms may conduct an audit to conduct a materiality analysis.  

  1. Conduct A Materiality Analysis 

 

Businesses need to prioritize and identify resource expenditure. This must be done considering two factors; external and internal stakeholders. The organization is able to conduct a materiality analysis acquiring data sets from both stakeholders and inputting this information into a graph.  

 

This graph or the materiality matrix visually depicts points of concern for both stakeholders. Businesses can then focus on this to craft a meaningful ESG strategy.  

 

  1. Third Party Objectivity 

 

The data gathered for the materiality analysis must be provided by an unbiased and legitimate third party. ESG consultants are able to conduct the same for their clients.  

 

  1. Interact with ALL stakeholders 

 

In order for the materiality analysis to be comprehensive, all stakeholders must be considered. Both a  bottom up and top down approach are recommended to ensure all employees and stakeholders are included in the decision making process.  

 

This helps businesses identify possible issues and the appropriate corporate culture. Additionally external stakeholder collaboration must not be neglected. 

  1. Asset Costs 

 

The Materiality Analysis offers a practical approach to business targets and strategies. The next step involves budgeting. Businesses must understand the costs and risks associated with introducing new methods and approaches. 

 

The initial investment costs may seem intimidating but the objective is to create long term savings. Seeking expert advice is strongly recommended. 

 

  1. Introduce an ESG team 

 

Creating an inhouse team responsible for ESG matters not only tells stakeholders a business is serious about their ESG strategy but helps minimize the need for outsourcing and higher costs. The team is also responsible for ensuring the strategy is maintained. 

 

  1. Third Party Verification 

 

Acquiring third party validation through certifications or accreditation helps stakeholders including the government understand efforts are validated and can assist with perks such as green bond financing and other value adding green finance tools. 

 

  1. Assess The Supply Chain 

 

Introducing sustainability into the supply chain is critical to a strong ESG strategy. Addressing concerns at a procurement level helps a business showcase their values and commitment to environmentally friendly practices. 

 

Businesses can do this by conducting due diligence with existing suppliers. 

 

  1. The Process is Dynamic 

 

The strategy will inevitably evolve with the organization. Reassessing ESG goals and the strategy to achieve  the same every three years is a strong benchmark while assessing annual progress.  

 

Introducing professional ESG advisory services would be in the best interest of any organization to create a strong and practical ESG strategy.