Step 1: Planning
Strategic ESG planning focuses on the company’s development based on three main pillars: E (Environmental) – environmental issues; S (Social) – social issues; and G (Governance) – corporate governance issues.
When developing the strategy, it’s essential to ensure its effectiveness, meaning it should align with the company's long-term business strategy. Businesses can refer to frameworks such as:
- Sustainable Development Goals (SDGs): 17 goals set by the United Nations to promote peace and prosperity worldwide.
- SASB Standards: Highlighting ESG challenges related to 77 different industries.
- UN Guiding Principles on Business and Human Rights.
Step 2: Impact Study
Developing an ESG strategy begins with evaluating the business’s impact on people and the planet. The goal is to identify operational areas with significant risks to people and the environment.
Risks are divided into three categories: environmental, community, and employee. Each group includes indicators based on risk assessment data by geography, industry, and commodity. Quantitative and qualitative data from public sources can be used to assess the severity and likelihood of each risk.
Step 3: Materiality Assessment
The Materiality Assessment helps businesses identify the most relevant ESG priorities. First, identify stakeholders such as investors, suppliers, and local communities. Then, select the specific ESG metrics that are most important to each group.
Understanding the ESG metrics relevant to each stakeholder helps businesses develop strategies and communicate effectively, while also meeting or exceeding expectations.
Step 4: Defining the Starting Point
Without knowing where you currently stand, it’s difficult to measure progress. Therefore, conducting an initial assessment to evaluate the company’s situation and assess ESG maturity is crucial. Additionally, gathering information on competitors' ESG activities provides a comprehensive overview.
Step 5: Setting ESG Goals
Goals may include maintaining good performance, improving weaknesses, and optimizing overall. ESG goals are not universal; they need to be customized based on the specific industry and the company’s environmental impact. For example:
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Environmental Goals:
- Reduce total carbon emissions, minimize waste, and optimize water use.
- Transition to sustainable energy and supply chain management.
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Social Goals:
- Contribute to closing wage gaps, improve employee benefits, and enhance working conditions.
- Support social initiatives and ethical sourcing.
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Governance Goals:
- Increase transparency in the board structure and diversity in decision-making.
- Manage data security, practice sound accounting, and uphold business ethics.
Step 6: Creating an ESG Plan
Develop a detailed ESG development plan with short- and long-term goals, such as one year, five years, or ten years. Break down major goals into smaller, achievable steps to increase feasibility.
Step 7: Implementation and Measurement
After identifying the current status and setting a detailed roadmap, the company should begin implementing its ESG goals. Set key performance indicators (KPIs) to assess progress.
Effective implementation requires identifying where data will be collected for reporting. Data exists at all organizational levels, as ESG encompasses issues from labor, governance, climate change, deforestation, water management, waste management, and supply chain. After data collection, the next step is ESG reporting.
Organizations like the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Task Force on Climate-related Financial Disclosures (TCFD), and International Integrated Reporting Framework (IRF) provide detailed ESG reporting frameworks that businesses can follow.
Step 8: Regular ESG Reporting
Plan for annual reporting to stakeholders based on external evaluation frameworks and tools. In the first report, outline existing policies and programs and assess progress.
The report should include specific indicators for each organization or industry and evaluate commitment and progress towards key sustainability metrics.
Businesses should use communication channels such as websites, press releases, and social media to ensure all stakeholders can easily access the report. After publishing, companies should hold meetings with stakeholders to evaluate gaps in the ESG strategy and report, identify areas for improvement, and establish future commitments.
