By Natasha Stokes
Instituting an environmental, social and governance (ESG) program at your company isn’t something you do all at once. An effective ESG proposition grows over time, with each successive stage in its development grounded in the preceding one.
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For decision makers who are considering taking the ESG route with all its advantages, here’s a look at four stages in the maturity of an ESG journey.
Getting Started: Securing Leadership Buy-In And Analyzing Stakeholder Needs
A company in the ESG planning stage is likely to concentrate on establishing its objectives. It might already have an ESG-focused team of leaders from different departments in place that can spearhead ESG processes and data collection across the organization and help decision makers get on board.
“The first task is making the case to leadership about the importance of investing the time, effort and resources necessary to advance ESG,” says Drew DiSpirito, who works in technology and strategy at the accounting, consulting and technology services firm Crowe.
This cross-functional team can analyze what issues matter most to the organization’s stakeholders, including customers, business partners, employees and investors. This task involves setting priorities and taking a clear-eyed look at the nature of the company’s work and its associated ESG issues.
The team should also identify what ESG-related efforts the company already has in place. Examples might be environmental compliance policies or employee wellness initiatives. Another key question is whether the company is quantifying existing initiatives and gathering data that can shed light on successes and weak spots.
“What’s critical here is understanding what actually is important to your stakeholders and also impactful to your business rather than just reporting any arbitrary metrics,” says Monica Mak, who works in consulting at Crowe. A disciplined focus at this point can help keep the ESG proposition on the right track down the line.
Early-Stage ESG: Establishing Quick Wins And New Data Governance
At this foundational stage of an ESG program, a company generally tracks only those data sets related to its targets—and in general “embarks on a journey to incorporate analytics into business decision making,” according to DiSpirito.
At this point, although a company might have a plan that includes ambitious targets, it’s likely to focus on goals that are either within easier reach or necessary to meeting regulatory requirements—or, as DiSpirito notes, “what the organization is already doing and what it can feasibly do going forward.”
Restructuring the company’s data architecture to enable ESG performance tracking is important here, DiSpirito adds. Because the operational data of a company at this stage of its ESG experience tends to be siloed by department instead of shared to a central dashboard, it can be difficult to combine data streams that describe environmental impact with those that describe diversity or employee well-being. Silos have to be eliminated.
In addition, “a company needs to develop systems and processes to conduct business and gather information to see how it is achieving ESG goals,” says Gregg Anderson, managing director in consulting at Crowe. Disruptions might occur as employees learn to navigate new processes and technologies—and as they perfect skills such as how to draft sustainability reports. “This stage of an ESG program requires more focus from personnel,” says DiSpirito.
Mid-Stage ESG: Achieving Strategic Gains And Benchmarking Against Peers
In a more mature ESG program, a company will have already achieved its most feasible targets and met regulatory compliance benchmarks. With a more comprehensive data structure in place, it can monitor additional data streams and set strategic ESG targets that promote long-term expansion.
To keep pace with growth, a company should benchmark its ESG progress against the progress of competitors, says Mak. “ESG is a moving target, and what is industry-leading one year can become minimally acceptable the next.” Think of a financial services organization, which is expected to meet stringent cybersecurity requirements: It might want to invest in and publicize a security-first corporate culture to win customer confidence.
A larger company might now examine how to respond to investor, regulator, employee and consumer pressure to take action on multiple foundational ESG issues, such as governance transparency, carbon footprint and corporate culture. A smaller company might face fewer sources of pressure, which can help it focus on ESG goals directly tied to business. “Small and midsized companies really have the opportunity to make a business case of focusing on a niche area as a competitive advantage,” says Mak.
Advanced ESG: Driving Business Innovation And Supply Chain Sustainability
In a company with developed ESG strategies, ESG concerns permeate all aspects of decision making and ultimately differentiate the company within its industry. Anderson says that for such an organization, “ESG provides strategic direction, drives innovation and enables consistent business decision making.” A good example might be a manufacturer that designs products in order to reduce waste—and costs—in its production operations.
A company with a mature ESG strategy also tends to closely examine its supply chains, often spearheading initiatives to help its partners mitigate their own supply chain impacts. “Mature ESG strategy,” says DiSpirito, “is about collaborating with your peers and advancing ESG practices without having to reinvent the wheel yourself. Hopefully, someone has already leapt that hurdle.”
In order for its ESG strategy to evolve in tandem with the organization’s purpose, a company should annually evaluate stakeholder needs, benchmark its progress and review its targets. “The demand for transparency from organizations only increases over time,” says DiSpirito. “You need to have enterprise-wide initiatives and personnel focused on advancing these topics.”
Whether a company is instituting an ESG proposition to meet demands for business accountability or drive innovation, it must commit to investing the necessary time and resources to a project that will develop over an extended period, step by careful step.
Natasha Stokes writes about workplace culture and technology in business.
Need guidance and strategy on navigating environmental, social and governance issues? Find the latest insights from Crowe on all stages of your ESG journey.
