We know what ESG is – but why is everyone suddenly talking about it and where do we start?
I've recently had a number of questions like this from business leaders trying to better understand their responsibilities and how to build a sensible and measurable ESG plan.
Establishing a realistic environmental and social governance program is important and not as complex as you may think.
With record-breaking weather events and the dramatic changes in oil and energy prices this summer, sustainability and ESG programs have been center-stage of many government and corporate agendas lately. Climate change, energy security, and supply chain safeguards are paramount for running countries and major corporations, as well as local businesses, to better manage operations and forestall unexpected changes in critical resources.
The time for seeing an ESG plan as a nice-to-have is quickly evolving into something more. Virtually every business – small and large – is being impacted by energy shortfalls, supply chain disruption, and availability of personnel. The fall-out is a hit to a business’s bottom line or worse.
And with the UN Climate Change Conference COP27 around the corner, government mandated GHG compliance metrics and reporting disclosures are expected to come into play in all corners of the globe as soon as governments can enable the corresponding legislation. True that requirements for carbon reporting have already started with the energy providers, refineries and big corporations, but that's just the beginning, and now many countries can expect disclosure mandates for smaller companies, some with just a few hundred employees, to take effect anytime from early next year and rolling out over the next 24 months.
But the motivation to implement an ESG plan shouldn’t be driven simply by the need to satisfy a filing mandate but rather to achieve a more holistic solution for creating true, measurable value in a company and in its community. Additionally, companies with an active ESG plan can expect to see:
- Faster growth and 10-20% higher valuations (McKinsey 2021)
- Higher NPS ratings and better employee performance
- Double-digit improvement on operating margins
The most successful plans are sponsored by the company CEO and underwritten by their board of directors. Here are five steps to get your company ESG plan moving:
1. Start with what's in front of you.
Don't be daunted by the task, just stay focused on what’s in front of you. Equally, don’t try to establish an ESG plan fit for the likes of GM, British Airlines, etc.
Your plan needs to be size-appropriate, relevant and above all – measurable. Familiarize yourself with commonly defined greenhouse gas emitters and start by inventorying the different products or services creating emissions in your business, catalogue the related suppliers, and then prioritise based on highest emissions using the table below. Keep it small and targeted. If you don't know, don't guess, and definitely don't publish anything that you can't verify. Just record it as 'under assessment' and re-visit it when you have verifiable information from the supplier.
Heard of Greenwashing? It's a term used when a company provides misleading information about the environmental impact of its products or operations, which many countries are looking to make punishable by law. So the best way to avoid that is by making your ESG program measurable. Keep it simple, don’t try to boil the ocean, and it will pay you back.
Greenhouse gas emissions are categorised into three scopes. For most companies, Scope 3 emissions will make up the bulk of their carbon footprint. So start here, coordinate with your procurement and facilities teams to complete early assessment of:
how much is measurable
to what degree suppliers are providing standardized reporting of related emissions
are there any hotspots
can energy efficiencies be made
are employees engaged in the company goals related to these services
2. Establish your Governance Structure and Set Realistic Goals
This is equally important and will set you up for success: appoint a board (it can be an existing board or a purpose built ESG board of three people, for example, don’t let size worry you), align your definition of ESG with your company values, measure your current Scope 1-3 GHG footprint as above and set ongoing targets to reduce them or keep them net neutral.
Once you have board support and executive sponsorship, make sure you have the right talent onboard to help you. So too, says Gartner, successful organizations invest in an ESG Officer. This can be a dedicated role (if you have a large organization), but for many of you that isn’t fiscally practical, so it can form part of an existing role.
The role of the ESG officer will be to shepherd data collection, establish meaningful reporting, and drive company-wide governance. This will require input from a few different teams, and your suppliers, and it will need persistent, ongoing oversight.
3. Tighten Your Supply Chain
As stated above, for most companies, Scope 3 greenhouse gases make up the lion-share of their emissions. Think purchased goods, IT capital, business travel, company commuting, facilities services, re-sold goods etc.
Once you’ve classified your top tier suppliers, engage with them formally to ensure the existence of adequate commitments and carbon consumption reporting is baked into your contracts and that these expressly include efforts to move toward green energy, sustainable supply, and fair labor (anti-slavery) practices. It doesn’t stop there, though. Make sure you hold your suppliers accountable via annual performance and scorecard reviews for any contraventions.
4. Engage and Promote
So you’ve done the necessary to get the governance in place, you’ve measured your current footprint and established your targets, you’ve appointed an ESG Officer. Now what?
It takes a village as the saying goes. It’s the same here:
Engage your employees: mandate basic but relevant training on ESG, make it fun and interactive, attach compliance to annual performance, reward volunteer days.
Engage your suppliers: communicate your ESG plan as mentioned above, consider an annual supplier summit, reward suppliers who go the extra mile to beat your targets.
Promote to investors: keep them informed of your progress, check what other investments are doing for them (if linked to sustainability funds), venture if you could be a case study in exchange for more investment.
Promote to your customers: this is the most important part, tell your prospects and customers what you’ve done. Your customers are people at the end of the day, and studies show that 70% of consumers will spend more on goods and services that are good for the planet or that use fair labor practices And remember, many of those same consumers chair the venture capital firm funding your next investment round.
5. Hire an Expert to Fast-Track Your Plan
When you're a busy start-up or mid-sized corporation, it's not always possible to just shift into a new discipline. Sometimes you need to leverage your team with outside support. This may include specialist ESG data harvesters (look for a good, UNPRI-listed, cloud-based ESG software company) and a plan implementation consultant.
And if you want to have your ESG governance program in place for the new year, now is the perfect time to build your plan. Get started now, and you can have an ESG plan in place before December. What a headline for your January sales kick off! If not, make sure you set aside annual funding for your ESG program hereafter.
Need help? At Spring CPO, we run systematic, proven ESG Sprints to get you there (done in 90-days). We are fast, more affordable than you think, and we deliver results. Don’t wait – get in touch today!
Kelli Wilks is a Management Consultant at Spring CPO where she advises clients on ESG priorities, procurement transformation, negotiation strategies, and supplier performance.