Good corporate governance, a robust program to reduce the impact on the environment and a proven commitment to social good should be top priorities for all procurement and supply chain businesses. Developing an effective ESG strategy helps ensure you are on the right track.
This article will talk you through the benefits of setting ESG goals and why they matter. We’ll also offer some guidance on setting up and implementing your ESG strategy. Let’s get started.
What is ESG?
ESG (Environmental, Social and Governance) refers to the set of standards used to measure and benchmark a business’s impact on society and the environment. Brands of all shapes and sizes use ESG planning and goals to demonstrate transparency and accountability, both internally and externally.
Why is ESG important?
Developing and implementing an ESG strategy is vital as it provides a framework for businesses to identify the strategic goals and operational activities that will enable them to measure their impact on the world and the people that live in it. ESG reporting also helps investors to identify opportunities in companies that are environmentally and ethically sound.
ESG is important for all companies, regardless of size and sector. Rather than focusing their business reporting on profit and market share, ESG goals ensure that companies take the impact they have on the environment and society into account. Business leaders can then use this important data and insights to create meaningful improvements.
The key benefits of ESG
ESG offers a variety of benefits for procurement and supply chain businesses. Here are five of the key advantages of developing an ESG program.
Your business is more attractive to lenders, investors and supply chain prospects
Investors are increasingly seeking out businesses that have strong social and environmental credentials. In fact, according to the Confederation of British Industry (CBI), two-thirds of investors take ESG factors into account when investing in a company.
You get a competitive advantage
Today’s consumers want to align themselves with transparent businesses that can prove they are ethical. If brands can demonstrate accountability they can build that all-important trust with their audience and gain a competitive advantage.
You can control and reduce costs
Implementing an effective ESG program enables businesses to track energy and water consumption, raw material usage, waste shipping and treatment costs and their overall carbon footprint. This helps identify opportunities for operational efficiencies, better risk management, improvements in cost management and more. All of which have the potential to make significant impacts on procurement and supply chain costs. ESG can also help business leaders to innovate and identify ways in which automation or digital transformation can assist with process efficiencies.
You can attract and retain top talent
The best procurement and supply chain candidates want to work with businesses with good values and ethics, particularly Millennials and younger people. Demonstrating a robust commitment to the environment and social good indicates that you are a business that is honest and prioritises wellbeing. Today’s candidates are looking for more than a paycheck. They want a workplace where they will feel valued, where they know that management shares their beliefs and values.
It’s equally important when it comes to retaining employees. A recent survey by Bupa shows that over half (52%) of UK adults would stay longer in a role than they otherwise might with a company that had made ESG commitments and also recommend it to others as a good place to work.
How to develop and implement an ESG strategy
The exact strategy and goals you put in place for your ESG initiatives will depend on the size of your business and the sector you operate in. It will also be affected by the risks you are exposed to and your business’s current performance in sustainability, social impact and governance initiatives.
Here are some tips to get you started.
Define your goals and objectives
Gather your stakeholders and identify what you want to achieve from implementing an ESG program. Think about the benefits we have listed above, and what your priorities are. Keep the goals fairly broad to start with; you can consider them in more granular detail once you start to flesh out your plan and strategy and assign responsibilities.
Where possible, try to include stakeholders from several business areas and levels of responsibility. Senior management may not be available at this stage but they should be kept aware of the progress of the plan and be 100% on board with all objectives and activities.
Conduct a materiality assessment and analysis
With your goals in place, it’s time to carry out a materiality assessment to see which issues and challenges are affecting your business performance as well as your stakeholders. This will require careful analysis of both internal and external operational data, looking specifically at your environmental and social impact. Where possible, it’s also useful to benchmark your business against competitors. You can use this information to decide what your priorities are in both the short and long term.
If this is the first time you have conducted a materiality assessment or you want to make sure you are working to best practices, take a look at ESG’s Seven Steps for Conducting a Materiality Assessment.
Set objectives and goals
Create a gap analysis, documenting where your business is and where it needs to be. Analyse the different programs, initiatives, policies and metrics that you have in place currently and work out what is working and what needs improvement.
Think about how you can meaningfully assess and report on your objectives and who your audiences are. Find a balance between achievable and overly-ambitious goals and present them to senior management and stakeholders.
Develop a roadmap
This is where your ESG strategy starts coming to life. Create a framework outlining your company’s current situation, aspirations and objectives. You can then develop a roadmap around this framework including a realistic phased approach, benchmarks, timelines and responsibilities along every step of the way. You should also clearly indicate how you will monitor progress.
Make sure you have complete buy-in from all stakeholders and colleagues before moving on to the next step.
Create an action plan
Return to your objectives and ascertain the expected outcomes and who will be responsible for what and when. As with any complex project, communication is key. Set up regular meetings between relevant stakeholders that correspond with the milestones and benchmarks you have put in place. These meetings are an opportunity to report on progress, adjust timelines and make sure everyone is adhering to best practices.
Set up and implement reporting processes
Regular reporting is critical to your ESG strategy. You will need to demonstrate to all stakeholders, particularly senior management that your plan continues to be aligned with the business objectives and they will want to see a comprehensive analysis of your progress and results.
When your ESG strategy is bedded in you might want to consider communicating elements of your program in your annual reports, internal newsletters and marketing campaigns.
Don’t forget that your ESG strategy will continue to change and evolve. Revisit it with relevant stakeholders regularly, making sure you keep sight of goals and objectives. Keep checking in on what your competitors and peers are doing too and keep abreast of developments in the ESG sector so you can stay one step ahead of the curve.
