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Like many others, your company may be feeling pressure to respond to growing interest in environmental, social, and governance (ESG) issues. Customers, investors, lenders, and even insurance providers are all asking more questions about ESG performance.
Unsurprisingly, given this rapidly evolving space, many companies aren’t sure where to start. While each company’s sustainability journey will look a bit different, depending on its industry, location(s), value chain, and investors, customers, or partners, there are some common steps that can help any company confidently start down the sustainability path.
1. Understand where you are headed
While you may be at the early stages of your journey, take the time to understand what leadership looks like – within your sector, within your value chain, and globally. You need to understand the magnitude of journey ahead.
Why? Because the bar is rising rapidly. Customers, investors, and lenders are putting pressure on companies to do their part to help solve some of the most pressing issues of our time. Corporate sustainability goal setting, performance against those goals, and ESG disclosures are all coming under increased scrutiny.
And expectations are ratcheting very quickly – last year setting a net-zero climate target was viewed as a sign of leadership, but in order to be recognised as a leader today, companies need to show they intend to get there with minimal use of offsets, include realistic near-term targets, and show they have committed the resources needed to achieve them.
Here is the high-level question you need to be asking at this point: what will it mean to be seen to be doing your part?
2. Try to get a sense of your company’s most material impacts
Start with trying to understand where your company may have the greatest impacts on its employees, communities, and the environmental and social systems around it.
One tool that can be helpful to those at an early stage is the SASB materiality map. You can search it to see what investors identify as the key environmental, social, and governance risks in particular industries. Just keep in mind that most investors are concerned with their own risks, not the risks you create for the social and environmental systems around you. As a result, communities and other stakeholder may have different concerns than investors. This is only one piece of information.
Your next step might be to conduct a materiality assessment. This is a process where you consult with people inside and outside your business, asking them to help you identify and rank environmental, social, and governance issues and impacts.
Again, just be aware that while sustainability materiality assessments started out with an emphasis on the impacts a company was having on the underlying environmental and social systems, most of them now focus on asking stakeholders which issues they see as most ‘important’. This isn’t really the same thing.
We recommend that you take a slightly more strategic approach by taking the time to assess the relevance of a comprehensive set of potential sustainability issues to understand where your business may have the greatest impacts on employees, communities, and the environmental and social systems around you. If you are looking for a comprehensive list of environmental, social, and governance issues to consider, we have assembled one here.
You’ll need to think about your direct impacts from your own operations as well as those that occur within your value chain: in the materials and supplies you purchase, in your customers’ use of your products, and in what you finance. You’ll also want to think about where your organisation has the potential to make positive contributions to systems change. If you need more guidance, take a look at the prioritisation radar process outlined in our Embedded Strategies Guide.
3. Commit to commit
But at this early stage, you may find yourself conflicted. Investors, employees, the public, local communities, and various other stakeholders want to know what your company is doing to address specific ESG issues. You feel pressure to act, but you may not have the information you feel you need to set credible goals.
One way to overcome this stalemate is to commit to commit.
What does this look like? At a high level, you acknowledge the issues, the role that your company plays, and the direction that you need to be heading to do your part to address them. Then you commit to the long-term vision of where you need to go and set a series of short-term goals around gathering the data you need to develop a realistic strategy and set credible goals.
To see an example of what this might look like, we have a case study on the development of Teck’s first strategy for sustainability. In it, you will see how their leadership articulated long-term visions around doing their part to ensure the sustainability and resilience of the communities where they operate. They also created a set of short-term commitments to gather the data on baseline water use and water quality, undertake assessments of asset-level social risk and performance, develop site-specific goals to operate within ecological limits, and build internal capacity through training.
You may also consider developing a corporate position statement to let others know that you understand the strategic importance of these issues and are committed to addressing them. Through developing position statements, boards and executive teams deepen their understanding of these issues; clarify the link to the company’s overall strategy; clarify their position for other key stakeholders; and provide the direction and confidence for management and employees to act.
4. Build your understanding
It is likely that you will need to continue to build your understanding and gather more data.
How would you know whether your company’s water use is likely to be unsustainable? First, you need to know how much water your production process requires. Then, how that demand impacts ecosystem water levels or water access in the community.
Could your products or services be used in a way that makes your company complicit in human rights abuses? Do you know if your suppliers observe international labour conventions? Do you have policies and processes in place to manage this risk?
If this is starting to sound overwhelming, begin by gathering data about your own impacts and performance and about the health and resilience of the environmental and social systems around you. After you begin to better understand your own direct impacts on these systems, you can move on to understanding the impacts in your value chain from your suppliers and your customers’ use of your products or services.
You’ll find that engaging with a range of people from within the business and outside of it will help deepen your understanding of what you need to know, how you might best gather the data, and what the data is telling you.
5. Build internal sustainability capabilities
Senior leaders, board members, and managers will all need to build their knowledge and capabilities, especially in the areas of systems thinking, mega trends in sustainability, understanding the link between ESG and risk, and understanding your company’s impacts on society and the planet. Your leaders may benefit from input from internal and external experts and community knowledge holders to help inform strategic decisions with sustainability implications. You may even find that you need to recruit senior leaders and corporate directors that have prior expertise and/or industry experience in sustainability.
6. Set credible goals with clear interim targets
After you work to build your understanding of your impacts and where you can have the greatest positive influence, you will be in a better position to set credible goals. This includes committing to do your part, setting realistic interim targets, and committing the resources to get there.
7. Embed sustainability into your core processes
If you are going to deliver on your goals, sustainability needs to be embedded in your organisation’s core strategy process. That’s why it is crucial that sustainability risk is recognised as enterprise risk and that your company allocates the required resources and capital to support the implementation of its near and long-term sustainability objectives. You’ll want to work with your finance team to embed sustainability into your organisation’s business planning and capital allocation processes.
Without the resources allocated to meet your interim targets, your credibility will be at risk.
Eventually, you’ll want to embed sustainability into everything that you do. For now, you can consider starting by assessing your current practices or you can find other tools and resources to help you embed sustainability across your organisation on our resource wheel.
We hope these 7 steps will give you the confidence to get started on your ESG journey.