So, you’ve decided that you want to make your organization – and the planet – a better place, but where do you start? Environmental sustainability doesn’t happen overnight. It takes a lot of planning, preparation, implementation, and a comprehensive understanding of globally scaled problems in the face of today and tomorrow’s markets.

As enterprises continue to realize the impact of day-to-day business practice on the broader community, they’re prioritizing ESG program management as a part of their cross-organizational strategy. This includes comprehensive monitoring of their environmental and social impact, reporting on and reducing emissions, becoming thought-leaders in the space, contributing to the creation of environmental regulations, and implementing holistic diversity, ethics, and inclusion training throughout all levels of the business.

Download the eBook: Ultimate guide to ESG Management 

ESG defined: What is ESG?

Environmental, social, and governance, otherwise known as ESG, is a program to identify and measure the impact of an organization’s policies and procedures related to environmental sustainability and social standards. Additionally, ESG governance assesses the corporate structures and processes that are designed to ensure accountability, transparency, responsiveness, empowerment, and broad-based participation at the company.  At its core, ESG management is the silo of a brand focused on providing visibility on both the environmental and social impact of a brand on the broader community and the control of data gathered on the topic.

What does ESG stand for?

ESG stands for environmental, social, and governance. Each component of ESG is as follows:

The environmental component:

The environmental component of ESG handles all things just that: environment. Many environmental expectations stem from EU regulations like the Corporate Sustainability Reporting Directive (CSRD), which provides disclosure requirements in relation to non-financial information and requires large companies to submit an assessment of their business model, policies, and key performance indicators on environmental matters.

Likewise, the EU Taxonomy Regulation aims to establish a framework to facilitate sustainable investment. The Taxonomy Regulation entered into force on July 12, 2020, and sets out conditions that economic activity must meet to qualify as environmentally sustainable.

How can your business be environmentally sustainable?

• Climate change mitigation
• Climate change adaptation
• The sustainable use and protection of water and marine resources
• The transition to a circular economy
• Pollution prevention and control
• The protection and restoration of biodiversity and ecosystems

Additionally, the EU is looking to implement renewed frameworks for reporting environmental issues and adopt solutions for and advocate laws that enforce corporate due diligence and accountability. It’s expected that the Commission will present its proposal later in 2021.

The social component:

The social component of ESG addresses the way in which organizations manage their relationships and foster their reputation when dealing with employees, vendors and suppliers, customers, and the broader communities where they operate. Although many organizations focus heavily on the environmental impacts, the issues around the social component are equally as important. In the last year, many organizations have moved to include these metrics in their reporting as well. The social criteria within ESG consider the way organizations manage:

• Labor relations
• Diversity and inclusion issues
• Health and safety conditions
• Human rights and labor standards when dealing with their own employees, as well as with third-party suppliers, customers, and the community at large

The EU is establishing new environmental goals and is looking to implement frameworks for reporting and laws that enforce corporate due diligence and accountability around social topics as well. While there are already laws that exist regarding social responsibility and treatment of employees, respect for human rights, anti-corruption and bribery, and diversity on company boards, it is widely believed that laws need to be expanded upon and enforced universally.

The governance component:

The governance component of ESG addresses the internal system of practices, controls, and procedures organizations adopt to govern themselves, make effective decisions, comply with laws, and meet the needs of external stakeholders. The governance criteria within ESG considers the way in which organizations manage topics such as:

• Tax avoidance
• Executive pay
• Corruption
• Director nomination
• Cybersecurity
• Company leadership
• Executive pay
• Audits
• Internal controls
• Shareholder rights
   

ESG factors

ESG factors and ESG criteria can be broken out into each of the three categories.

Steps to developing a sustainability program:

• Understand sustainability needs in the market: The need for sustainability in the market is steadily increasing. In order to address sustainability and leverage it as a business differentiator for your organization, it’s important to understand that sustainability addresses a range of subject matter, stemming from, climate change to deforestation, and waste to water needs.
• Identify investor impact: Sustainability affects your organization’s overall brand image, valuation, and revenues based on ESG metrics and reporting practices. It’s important to stand-up a holistic ESG solution to ensure accurate reporting and communication of metrics to key stakeholders and investors as your business continues to grow. 
• Identify employee and consumer interests: According to a study by Deloitte 1 in 5 customers are making considerable lifestyle changes to consider sustainability. Given the research, it can be assumed that key stakeholder groups, employees, and customers will consider sustainability as a key buying factor in the future. Identify what areas these groups prioritize will give your team an advantage when tailoring programs for customer satisfaction. 
• Define key areas to address: In addition to identifying key areas of interest for investors and other key stakeholders, it’s important to identify what areas are critical for your brand to take a stance on. When defining what areas your business should address, take into consideration topics like community needs and local interests.
• Further education on critical areas: Once a sustainability plan is implemented throughout your organization, it’s important to continue education and foster the growth of your subject matter experts (SMEs) in the areas of ESG and sustainability. This will ensure that your program evolves with the ever-growing needs of the space.

Download the eBook: Ultimate guide to ESG Management 

History of ESG

ESG is an emerging, yet crucial concept in the corporate and investment worlds. The modern ESG model was created as a way for investors to better target their investments to environmentally sound areas but has now expanded to something much more, piquing the interest of stakeholders, the public, and global regulatory authorities. ESG derived from both Corporate Social Responsibility (CSR) and the Environmental, Health and Safety (EHS) Sustainability Reporting methodology, and is categorized under “sustainability” in the investment industry. There is some overlap with EHS around Environmental issues.

• CSR is private business self-regulation that aims to contribute to societal goals of a philanthropic, activist, or charitable nature by engaging in ethically oriented practices. CSR drove regulations like ISO 26000 and EU Taxonomy.
• EHS is a methodology that studies and implements practical aspects of the protection of the environment, health, and safety at occupation.
   

Why is ESG Important?

As outlined, ESG is an important part of investment decisions, brand image, and fostering the relationship of trust between stakeholders, the public, and a business. The following areas are where ESG’s impact is most notable:

Aligning with the consumers & stakeholders

It’s becoming increasingly important to consumers that the companies they support align with their own ethical commitments. In order to make sure that your brand has the support that it needs, you need to support the same initiatives that your key audience members do.

A brand without people behind it and the support of consumers is just that: a brand. Environmental sustainability is important for both community and the planet, but it’s also important to the people that make your organization what it is. According to a global (US, Canada, France, UK, Italy) Forrester study on CSR in global consumers*, the top areas of importance universally are:

• Commitment to information confidentiality and data privacy
• Environmental protections/position on climate change
• Animal rights and protection
• Giving back to the local community
• Gender equality

Additionally, Forrester reports that“…55% of consumers strongly agree (92% in total “agree”) that brands have a responsibility to step up and play an important role in society during the COVID-19 crisis”.**  Prioritizing ESG governance, maintaining ESG insights, and implementing strong ESG management practices is crucial to delivering the aspects of a brand consumers want to see, and building a holistic brand image.

*Consumers’ Corporate Social Responsibility Concerns Vary Globally, Forrester Research, Inc., Aug 17, 2020.

** American Consumers Want More Environmental Protection — Companies Should Make It Happen, Forrester Research, Inc., July 23, 2020.

Building & maintaining a strong company reputation

Having a strong ESG program will improve your brand image, reduce risk, positively impact revenue and company valuation, and enhance overall market perception—in addition to supporting good practices. But it also requires transparency. Publishing ESG reports is becoming more important to the communities you reach who want to know what your impact is in these areas. So, how do you do it? There are four main imperatives to consider when publishing ESG data:

Download the eBook: Ultimate guide to ESG Management

ESG by industry & position

CEO, CMO & Investor Relations Specialists

As the CEO, your main task is to identify internal risks that may harm overall brand image, valuation, or revenues of the company based on ESG metrics and reporting practices.  Understanding your company’s ESG data will enable you to educate your marketing and sales teams so that they can speak to external stakeholders in a way that aligns with the position you want your brand to hold in the market. Additionally, being ahead of the curve on ESG messaging and transparency will set you and your brand apart as thought leaders in the space, increase attractiveness in the market, and open the door to new funding opportunities.

Tip: Evaluate and compare the position of your ESG efforts to be able to explain them to customers, employees, board members, and investors. Start by comparing your ESG rating to other companies of your size, industry, geographical location, etc. This will give you a good idea of where your risks lie and what best practices your company should be following to prioritize ESG in these areas.

CFO & Procurement & Supply Managers 

Understanding downstream issues that could impact your organization is crucial to all things financial, procurement, and supply chain related. Identifying any risks that come from third-party partners, vendors, and suppliers now goes beyond the traditional scope of cybersecurity, privacy, and data protection – it now impacts your company’s ESG compliance. ESG should be considered in the following areas:

• Identifying and managing third-party risk
• Vetting third parties for risks
• Identifying potential issues that could impact the valuation of your company
• Managing the finances for investor value
   

COO & CSO (Chief Sustainability Officer)

Your main task is to enable yourself and your team to gather and report on pertinent ESG data from across the company and external data sources. Operationalizing your team to do this in a concise and effective manner empowers the entire company to take clear, actionable steps to comply with ESG regulation and speak knowledgeably about issues that arise in these relevant areas.

Tip: Focus on evaluating your cross-organizational data gathering and reporting processes and focus on identifying key areas where you can reduce the time and effort it takes to gather metrics from different departments of the business.

Ethics & Compliance Managers

As ESG regulations become more enforced from both a national and global standpoint, it’s important to include in your supply chain risk analysis. Ensuring that your company is in compliance with relevant regulations, performing effective audits, and assessing control systems will become increasingly important. Getting a head start on implementing ESG into your continual risk assessments will not only help you reduce vulnerabilities that are often overlooked but will ensure continuity in your teams’ processes when regulations officially come into effect.

Learn how to implement fully compliant ESG reporting and management for your financial investment portfolio with the OneTrust ESG & Sustainability Cloud: ESG Portfolio Management for Investors.

How do I implement ESG management?

Large companies across many verticals want to use a framework or methodology to measure their impact and reporting on ESG is standard and compliant. Good news: you’re one step closer to implementing stellar ESG management practices just by reading this guide. To further act on understanding and implementing ESG practices, check out the resources below:

Current ESG Compliance:

• EU: EBA launches consultation on standards for Pillar 3 disclosures of ESG risks
• USA: SEC publishes Acting Director’s statement on ESG disclosure systems
• Companies Act 2006 & Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 
• Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 
• UK’s Modern Slavery Act 2015
• ISO 26000
• EU Taxonomy
   

Key ESG Frameworks:

• GRI Standards
• CDP
• Task Force on Climate-Related Financial Disclosures
• Sustainability Accounting Standards Board
   

How can OneTrust help with ESG Compliance? 

The OneTrust ESG & Sustainability Cloud leverages our expertise in Vendor Risk Management, Privacy, GRC, and Ethics to deliver an immersive ESG management experience. The ESG Cloud enables you to use templates and workflows to reduce the complexity of interfacing with many parts of a large organization by providing standard and customized ESG reporting formats.

Request a demo to learn more about how the ESG Cloud can help you leverage ESG within your organization.