4 tips for a sound ESG strategy
To remain relevant and competitive, all companies must understand and act on the environmental, social and governance (ESG) issues that really matter. Companies that are committed to integrating sustainable value creation into their core strategy will achieve a competitive advantage and a real and measurable increase in shareholder value while contributing positively to society and protecting our planet.
Here are 4 tips for a sound ESG strategy:
1. Seeing and creating value differently
In essence, ESG is about seeing and creating value differently. In general, companies focus on recognizing and managing economic capital. This is a good start, but it misses some fundamental and important assets.
Successful sustainable businesses expand their understanding of value to five capitals (*). The five capital model considers the following factors: natural, human, social, manufactured and financial capital. The goal is then to ensure that all of these capitals are well managed so that they improve over time and the business can be successful and profitable.
2. Balancing materiality and strategic importance
The analysis part, which paves the way for a strategy, nowadays usually starts with an analysis of materiality. The concept of materiality is critical to advancing ESG issues, as it helps companies focus on the areas of greatest impact, both positive and negative.
The counterpart to materiality for most companies is strategic importance. What areas and efforts within your company are of greatest strategic importance in driving the business toward its goals? if we are to move towards a fully sustainable future, defining a few material topics as strategic “must win battles” will help to align materiality with strategic imperatives.
3. Maintaining a differentiation strategy
Even if, to date, there is no single, universally accepted standard against which a company can measure and evaluate its ESG practices, it is important to be aware of and align with one or more key standards (GRI, SASB) to ensure transparency and to be able to benchmark yourself against other companies. However, standards should not drive your ESG strategy. Excessive alignment with benchmarks is not conducive to differentiation.
How sustainable business objectives are pursued is often as individual as the company itself. In fact, the way of integrating ESG into your core strategy and how you solve problems and create value can be your differentiation process.
4. The narrative is yours
ESG reporting is an exponentially growing business. Driven by the investment industry, a multitude of aggregators and specialists are collecting, collating and publishing data, often in the form of their own dashboards. While the result of these efforts is positive and useful, in any business, the story that emerges from the raw data can be painfully inadequate and misleading.
Instead of trying to respond to an endless stream of data requests, you need to develop a strong, sustainable vision for the future that is closely tied to your organization's core purpose. And you need to own your sustainability narrative by transparently communicating your progress to the stakeholders who matter most to you.
Your stakeholders have increasingly high expectations and are looking for reasons to believe in you, trust you and follow you. A sound ESG strategy show them that you understand this new era of sustainable and responsible business and that you have a plan to get your company there.
(*) The five capitals model has been developed by an organization known as the Forum for the Future (www.forumforthefuture.org/the-five-capitals).