30th August 2022
Key considerations before implementing an ESG strategy
Marcus Gunn, Head of ESG
ESG is an inescapable part of today’s business landscape. Financial firms in particular are under moral, regulatory, and financial pressure from all sides to demonstrate their commitment to better Environmental, Social, and Governance performance. But for many businesses, the problem is knowing where to start.
Implementing ESG strategy can be costly, confusing, and run a risk of ‘greenwashing’ controversies if mishandled. This paralysis creates a gap between intentions and actions.
But ESG is increasingly non-negotiable. New regulation is incoming, attitudes are changing, and it is becoming clear that good ESG is good business. This means that firms who act early can benefit from the reputational gains of ESG, and pre-empt change before it is enforced.
Below I outline key considerations and best practice for how ESG strategy can be effectively implemented across an organisation.
The question of responsibility
Step one when improving ESG is defining whose remit the strategy falls under. All too often, ESG is relegated to a middle-office or low level HR function, and this is the wrong place. These functions lack the company-wide influence or authority to enact the meaningful cultural, operational, and business changes that real transformation requires.
The ‘G’ for governance is instructive here – effective ESG strategy must be inseparable from a company’s governance, and this means responsibility must lie with the CEO and board. CEOs are invariably too busy to take full ownership, but best practice requires buy-in and oversight from the CEO, supported by knowledgeable directors and non-executive directors equipped with appropriate resources.
In large companies, a ‘Chief Sustainability Officer’ or ‘CSO’ can be a valuable hire, offering not just the expertise to execute the strategy, but the symbolic significance of including a specialist at the highest level of the business. Research we recently undertook with our partners TISAtech found that 69% of UK finance leaders had plans to adopt such a specialist in future. However, the combination of elite C-suite business skills and proven ESG acumen are rare, and expensive. For smaller businesses, knowledgeable directors and a willing CEO are sufficient to work together to draw up and execute the strategy.
Collaboration, transparency, and buy-in
Once the leadership team has decided to implement an ESG strategy, the hard part begins- implementation. Successful execution requires buy-in from across the firm, without the emergence of siloes or internal competition. Improving ESG is much more likely to succeed with alignment of the collective- and of course, this sort of culture is itself good ESG! But the larger and more mature the firm is, the harder this can be. However, steps can be taken to boost chances of success.
Firstly, it should not be unilaterally imposed. Successful strategies reflect the essence of ESG itself: shaped by the culture of the firm through employee inclusion and collaboration, and leveraging their unique strengths. Ensuring employee concerns and suggestions are heard at the start of the process means they feel involved, and can offer management invaluable perspectives of those ‘on the ground’.
Following these consultations, strategy must be crystallised in a clear policy document. This is a crucial step if changes are to be effectively communicated, and must be transparent, actionable, and free of buzzwords. Failing to do this runs the risk of apathy and greenwashing. These deliverables can be reviewed by the board and iterated upon periodically.
ESG Technology and the human factor
The rise of ESG has been concurrent with the rise of a vast ‘ESGtech’ industry. The Disruption House is part of this growing sector, and we have seen first hand the power of technology to advance the ESG agenda across industries.
However, it is important to recognise that technology is never sufficient alone. It can be a powerful tool, but strategy must always be first defined in non-technological terms: what are you trying to improve, what are your objectives, who do you need to talk to, and why are you making changes. Only after answering these can you ask How this will be done, and it is here that technology can be the answer.
Key options to look out for are benchmarking tools that give you an accreditation. This is increasingly important in both B2B and B2C sales, with consumers looking to make ethical choices, and businesses under pressure to clean up their supply chain. Technology can also be of particular value to growth and mid-sized firms. At this scale, expensive ESG consultants and bespoke solutions can be out of budget or unnecessary, and technology can make an able replacement. The key thing to remember is that ESG is never one size fits all- the important part is to define, understand, and begin on the road to improvement.