ESG, or environmental, social and governance criteria is not a new phenomenon in the business world, but it is rapidly gaining momentum and will continue to do so in 2022 and beyond. The expectations and demands on business leaders are increasing and the focus has extended to greater regulatory scrutiny and accountability. For procurement and supply chain businesses that means not only ensuring good business practice internally but right across the supply chain.
This article offers a high-level overview of what ESG involves and why it is a priority right now.
What is ESG?
ESG is an established framework that businesses use to set standards and objectives around environment and social impact as well as corporate governance. This could include initiatives to ensure that employees and stakeholders act responsibly, setting up programs to manage risks or environmental impact, or any other ESG criteria that is relevant to the scope of the company.
What are the benefits of ESG?
ESG programs have the potential to benefit businesses of any size and sector. Here are just a few of these benefits:
The ability to control costs
Tracking energy usage and harnessing the data to optimize processes and improve utilization should save businesses money over time. This also applies to waste management and water usage. ESG programs also help firms to mitigate and reduce risks and closer monitoring of your supply chain means you can hold external businesses to account and tackle any bottlenecks or inefficiencies.
Getting a competitive advantage
Consumers and investors increasingly prioritize working with companies that have a good environmental record and that actively promote a culture of well-being. Thanks to the democratization of ESG software it is simpler for even smaller businesses to monitor their ESG programs and share progress with the public.
You can attract the best candidates
As with engaging investors and a wider customer base, demonstrating that you have a robust ESG strategy is a significant draw for attracting top talent. Gen Y and Millennials want to align themselves with businesses that share their values and that have strong ethics. Without provable ESG credentials you may struggle to source the candidates that will help your business to succeed in the long term.
How to improve your ESG strategy and performance
If you don’t have an ESG program in place, now is the time to start. Here are some steps you can take to boost your ESG performance.
Make sure it is aligned with your wider business strategy
ESG should not be viewed as an entirely separate strategy. It needs to be integrated into your wider operational structure and business objectives. Think about what your investors, stakeholders, employees and customers want and expect of you and devise meaningful, actionable ways to achieve these goals. Keep abreast of ESG developments but don’t be tempted to adapt your strategy to incorporate the latest trends if they aren’t relevant to your business and market.
Conduct a materiality assessments
Understanding what materiality topics you need to take into account are central to the success of your ESG program. If you are new to materiality assessments you can find plenty of useful information in this guide by Sphera.
Include your supply chain in your ESG framework
We’ve mentioned the importance of this already but it bears repeating. A 2021 report by McKinsey revealed that two third of a firms's ESG commitments lie with its suppliers. All supply chain relationships need to be monitored and managed with your ESG goals in mind.
Understand your regulatory responsibilities
There isn’t a global framework for ESG regulatory responsibilities so it can be difficult to understand exactly what standards and frameworks you need to comply with. This article by White & Case provides a lot of information or you can discuss your responsibilities with a consultant.
Make sure you communicate your progress
A fundamental part of your ESG strategy is establishing channels and a roadmap for monitoring and communicating your progress, performance and successes. This could be through an annual report, stakeholder and employee newsletters or if you have something notable to report you could consider publishing your results on your website.
Remember that your data and performance are likely to be subject to a lot of scrutiny so you will need to be able to explain your findings and your methodology.
We hope this short guide to why ESG is a priority in 2022 has been useful. This is a big topic so there is a lot we haven’t been able to cover here. Whether you are new to ESG or want to refine and improve your current strategy it is important to get advice from the right professionals. There are plenty of ESG advisory companies out there that can help ensure your program is robust and suited to your business goals and objectives. Having a strong ESG framework in place can mean the difference between getting the investment, talent and customer base that you need to succeed. So, why not make it a priority for 2022 and beyond?
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