The time has passed for organizations to take a passive approach to Environmental, Social, and Governance (ESG) planning. Now more than ever, investors, employees, and customers are shining a bright light on companies’ ESG strategies, practices, and performance when deciding where and with whom to partner with or invest in. The increasing adoption of ESG investing poses a threat to organizations that have not developed an ESG strategy.
ESG disclosures are also being tallied more now than ever – with stakeholders searching for company commitments to ESG through public disclosure of information on a website, sustainability reports, annual reports, or via common rating publications. The COVID-19 pandemic of 2020, the racial justice movement in the United States, and changing administration priorities under President Biden have amplified the need for attention to ESG, making it clear that doing nothing is no longer an option.
While companies find ways to tackle day-to-day challenges, it’s important to keep sight of the big-picture and establish a strong ESG program framework that can withstand the test of time, investor demands, and cultural shifts. Being proactive in ESG allows time to build more programmatic strategies versus one-off reactions to current events. Here are seven steps to develop and implement an ESG strategy that highlights how Antea Group helps companies take a methodical approach to building scalable and efficient ESG programs and processes. While we focus on ESG as a whole, the process can be applied to select aspects of ESG as relevant to your industry and business.
7 Steps to Develop and Implement an ESG Strategy
- Perform an Impact Screening
- Conduct a Materiality Assessment
- Assess Current State Baseline
- Define Visions and Goals
- Develop a Strategic ESG Roadmap
- Implementation of Action Plans
- Report Your Progress
For more on ESG, download our ESG eBook.
Before You Get Started
Building an ESG program can be overwhelming when you consider all the potential topics that make up “E,” “S,” and “G” and the reality that ESG covers all functional areas of a company. For a quick refresher on what that is, take a look at our intro blog on ESG. We recommend first focusing on assembling a team of cross-functional stakeholders who are fit to identify and evaluate ESG risks, opportunities, and performance in your company from all necessary perspectives to ensure your program will have the internal support to succeed.
1. Perform an Impact Screening
At Antea Group, we believe that developing a meaningful ESG strategy starts with identifying the impacts of your business and value chain on people and the planet. The goal is to pinpoint the areas of your business’s operations and value chain that have the most likely and severe risks of impacts on people and the planet.
We recommend breaking risks into three categories: environment, communities, and workers. Each pillar should consist of indicators based on datasets that assess the geographic, industry, and raw material risk. A combination of quantitative and qualitative data from publicly available datasets can be used to assign a score to each risk.
This information is then used to determine the likelihood and severity of each risk to provide an overall score. Present this information visually through a heat map to easily demonstrate areas of concern.
2. Conduct a Materiality Assessment
A materiality assessment engages your internal and external stakeholders to determine the importance and relevance of ESG topics from their perspectives. It is important to include both internal and external stakeholder voices during the materiality assessment to ensure that an ESG topic is not overlooked nor biased.
The materiality assessment provides a summarized view of ESG topics from your stakeholders’ perspective. Without a proper assessment, companies often have ad-hoc efforts or lack sustained focus on consensus priorities. Many ESG topics may be relative to your business stakeholders, and it can be hard to prioritize where to get started. Reaching out to your stakeholders to gather their perspectives provides a way to prioritize your actions. Materiality assessments have evolved to consider more than just business impact - taking into account issues from a financial materiality perspective (“impacts inward” - impacts on the business) and environmental and social materiality perspective (“impacts outwards” – the company’s impacts on the economy, environment, and people) – a concept known as double materiality. To include both, we recommend combining the results of the impact screening with the materiality assessment to hone in on the key ESG issues and opportunities that are most likely to affect your business performance and stakeholders.
Materiality assessments can be scaled to provide the right level of insight to jump-start your planning – noting that the importance of ESG topics varies by industry, company, and stakeholders.
A materiality assessment should yield the following core outputs:
- A methodical way to prioritize ESG topics.
- An understanding of the relative importance of each topic to your stakeholders.
- A process that includes the impacts of your business’s operations and value chain on people and the planet.
- Guidance on how to emphasize topics in annual reports and disclosures.
- Provides validity to ESG priorities for communication and/or strategic action.
3. Assess Current State Baseline
Once you know which ESG topics to prioritize, it’s important to assess existing programs, policies, metrics, and engagements within your company.
You can do this by working directly with cross-functional stakeholders within your organization that have expertise in each priority ESG topic. We recommend gathering information from reports, policies, and data systems first, supplemented by interviews with internal stakeholders to follow up on specifics and collect more detailed insights. This assessment allows you to take stock of your company’s current state and gauge the relative maturity of ESG across the organization.
You may find silos of ESG activity within your organization that have not been included in your corporate strategy or communications. By getting a pulse on ESG within your organization, you can better gauge the level of ambition and fitness for ESG goals.
Integrating peer benchmarking into the assessment is a good way to gather intel on the ESG maturity of competitors and analyze industry challenges, opportunities, and leading ESG practices that you can compare to your company’s current state.
4. Define Visions and Goals
Now that you know your ESG baseline, you are ready to start setting your sights on how you will focus efforts moving forward. We recommend topic-focused working sessions with key stakeholders to define a vision for your ESG performance and goals that focus on:
What are you already doing well that just needs to be maintained or communicated? This may be something like ‘complying with applicable product safety regulations’ – something that is considered ‘table stakes’ and material for the business to maintain. These may be ESG elements for which you do not plan prioritize resources in the short-term; nor do you consider them as an opportunity to provide significant ESG value. However, keeping them on track is important, so you decide to maintain current efforts to ensure compliance.
What areas can you make incremental improvements to better align with peers, meet stakeholder expectations, or demonstrate commitment to ESG? For example, you may have inclusion and diversity programs internally, but little communication to external audiences about how and why these are important to the company. Your strategic objective may be to externally report key inclusion and diversity metrics and set a goal for improvement.
Where can you really sharpen your existing efforts to move toward industry leadership in ESG? We recommend selecting one to three topics to prioritize your effort and seek industry leadership status. Perhaps you have already calculated and communicated your operational carbon footprint and set site-level greenhouse gas emissions targets, so your strategic objective may be to complete a company-wide decarbonization plan and set a science-based target.
A natural next step to deciding on objectives is to set goals. Goals are a great way to measure the impact of your activities, improve company performance in key areas, position your company well among peers and further integrate ESG practices into the business. Public goals also help inform stakeholders and demonstrate a commitment to your ambitions.
There are certain things you should consider when setting goals, such as:
- What context is needed for your proposed goals?
- How can performance and achievement of your goal be assessed?
- How ambitious do you want to be with target dates?
- What levers need to be pulled directly or indirectly?
ESG goals are not one-size-fits-all – they should be tailored to your specific business and impact. We often recommend setting a broad and aspirational goal with supporting targets or “sub-goals” that are measurable, more digestible, and often meant to be completed in shorter time spans. It is also important to consider what your goal drivers are when deciding how and when to communicate goals externally.
At this stage, we recommend presenting your draft goals to your leadership team, Board of Directors, and sustainability councils. By engaging these stakeholders early in the process, you gain consensus around your direction and garner support that may be needed to build resource teams or programs.
5. Develop a Strategic ESG Roadmap
An ESG program won’t hold up unless it has a framework that clearly outlines where your organization’s vision and purpose meet your ESG priorities. A strategic roadmap provides a compelling ESG framework that gives stakeholders a clear picture of your strengths, goals, and direction. Developing a roadmap should outline initiatives, actions, and resources, and ensures accountability for key actions.
To get started, we recommend conducting a gap analysis between your current state and your vision and goals to identify what may be missing so you can strategize and plan accordingly for the future. Depending on where you are on the fitness scale, gaps may be as minor as only needing to collect one more metric, or as large as needing to set up a sustainability council to make key decisions moving forward. Understanding your gaps between your current state and your five-year target will help define the initiatives, actions, and resources for your roadmap.
This is a time to be reminded of the level of ambition you previously identified during your vision and goals session and to set in place a reasonable approach that you know you can commit to, often through a phased plan with measured steps along the way.
When building a framework, it’s important to consider how it applies across your organization (by operation type, function, region, etc.) and how you will monitor progress to achieve goals.
6. Implementation of Action Plans
To effectively implement an ESG program, requires the integration of ESG into business practices and processes. You need to outline programs to stay in shape all year long, so you are prepared when the ESG spotlight shines on your company. Here are a few best practices to ensure successful implementation:
- Identify clear and measurable outcomes that define what success looks like for you.
- Utilize centralized management systems or data software to more easily track and trend key metrics and performance.
- Set a regular cadence of communication and updates for key stakeholders to continuously evaluate goals, update data, and compare best practices. By constantly monitoring your plans, you can stay apprised of adjustments that might be needed to stay on track toward your goals.
While it is valuable to have oversight of ESG at a corporate level, it is important to remember that real progress happens on the ground. Your facilities teams will likely need detailed recommendations and guidance to achieve tangible results as you drive accountability from team members responsible for implementing actions.
7. Report Your Progress
Similar to goal setting, there is not a “one-size- fits-all” approach to ESG reporting. Regardless of the standards, frameworks, or guidance used to tell your story, the most important component of reporting is communicating your information externally in a concise and clear manner. To develop your report, you first need to decide what you want your report to accomplish. It should ideally be a combination of:
- Communicating ESG strategy to stakeholders while demonstrating alignment to business objectives.
- Highlighting ESG policies and programs already in place.
- Sharing ESG goals and metrics.
- Evaluating your progress and engagements in priority ESG areas.
It is good to start by identifying your key audiences and determining what they want to know. In addition to deciding what to report, you also need to consider how you want to disclose information in a direct and efficient way, ensuring you report on topics most material to your company. It is important for stakeholders to be able to access your ESG information easily. We recommend having a PDF report available on your website and/or organizing a dedicated ESG landing page to signal your commitments and provide clear and timely communications. As you mature and progress, you may integrate key information into broader company reporting, such as proxy or annual reports, investor presentations, or customer communications.
In addition to external communication, it is good to provide regular internal updates to reinforce the importance of ESG to the organization and acknowledge contributions employees have made toward achieving goals.
Finally – review and update your ESG strategy regularly to ensure your company stays aligned with stakeholder and business expectations. This is not a one-time assessment but a living and breathing strategy that you need to continue to nurture and grow.
Download your own copy of our 7-Step ESG Strategy to help get started.
We have given you the steps but can also help you start building scalable and efficient ESG programs and processes. Check out our ESG Advisory Services and contact us for more information.ESG Advisory Services
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