ESG Strategy and ESG Reporting

Developing and implementing an ESG strategy is critical for any organization today

ESG Strategy

An ESG strategy cannot be considered as a separate piece of work sitting alongside the overall organizational strategy. Given today’s interconnectedness, interdependence and prevalence of ESG reporting standards and ESG reporting requirements, the ESG strategy for an organization requires careful consideration to ensure that the appropriate factors are seamlessly integrated into the organizational strategy.

A well-considered ESG strategy and review of your organization’s ESG risk landscape clarifies and establishes direction and priorities, helping to define what it will take to achieve competitive advantage and future business success.

ESG strategy outlines how an organization intends to allocate and use its scarce resources including its financial and material assets. Typically the ESG strategy development (plan and process) will involve a degree of strategic option formulation, implementation planning and thereafter, strategic evaluation.

Getting your environmental, social, and governance (ESG) strategy wrong, or badly communicating it can lead to undesirable outcomes. Conversely, carefully considering your ESG strategy and how it is seamlessly incorporated within your overall organizational strategy and thereafter communicating it in a simple, succinct, and readily-understood manner can bring many benefits.

Consider ESG factors that are material and relevant to your organization.

One common mistake is trying to address “all things ESG”.

Research shows that organizations focusing on only those ESG items that are relevant and material to them, reap rewards. These include higher revenue growth, reduced expenses (reduced “fix-it” expenses, reduced legal and oversight costs), reduced regulatory interventions and increased productivity as a result of higher employee engagement (remember by 2030, 70% of the workforce will be ‘millennials’).

...An honest appraisal of ESG includes a frank acknowledgement that getting it wrong can result in massive value-destruction… Companies that perform poorly in environmental, social and governance criteria are more likely to endure materially adverse events….

McKinsey Quarterly, Witold Henisz, Tim Koller, and Robin Nuttall

ESG Communications Strategy

Stakeholder Communication - ESG and Sustainability Reporting

Just as important as getting your ESG strategy right is how you communicate it and your organisation’s progress against it.

ESG performance reporting is one of the key tools to ensure clear communication and messaging around your ESG investment strategies to a broad range of stakeholders, often with diverse interests.

Currently, there are no formalized ESG (or Sustainability) reporting standards for corporates, although several developments in this area are expected towards the end of 2021. It is anticipated these developments will include an ESG reporting framework, ESG reporting requirements and ESG reporting standards, all which will be welcomed by the business community seeking clarification and direction.

In the absence of any ESG reporting framework or ESG reporting standards, ESG reporting should be considered with reference to the TCFD principles for effective disclosure.

Thinking about how to prepare your ESG report can be daunting, whether it be your first or your fifth CSR, Sustainability or ESG Report. Knowledge, experience, credibility and consideration of the ESG reporting framework, standards and requirements will therefore become key to ensuring your organisation targets the most relevant and material ESG factors.

Playing fast and loose with ESG is playing to lose, and failure to confront downside risk forthrightly can be disastrous.

McKinsey Quarterly, Witold Henisz, Tim Koller, and Robin Nuttall

There is much to consider.

Regardless of your starting point, opting for the common sense, pragmatic, and structured approach will always pay dividends.

Further, organisations need to ensure the approach leverages knowledge, experience, and subject-matter-expertise. Consider the TCFD disclosure principles, including – relevant, specific, complete, clear, balanced, understandable, and consistent over time – these will provide strong foundational guardrails for what should be included in your report.