As ESG continues to evolve, it is important for each organization to develop a unique and tailored ESG strategy based on their sustainability goals. In this article, we provide a simple guide on how companies can ensure ESG compliance:
Ensure alignment and real commitment of leadership.
The board of the company should find an alignment related to the commitment level on a short and long-term basis related to their ESG performance. The mission and vision of the company related to ESG factors, the risks and opportunities related to their core business activities in connection to the ESG criteria should also be identified and agreed upon at a board level.
The commitments need to be realistic and achievable, in this context ‘less is more’. Being overly ambitious in relation to targets, such as claiming to be ‘net zero by 2050’ with no realistic and detailed action plan on how to achieve this can lead to accusations of ‘greenwashing’.
Assess current state.
Under this step an assessment of the current state of the company is being done in relation to its chosen ESG strategy. The results will then be used in the next step which is the materiality and gap assessment.
Materiality and gap assessments
Materiality is the process that narrows down and defines which information is relevant for the company, meaning how it can influence the stakeholders’ decision-making process in relation to the company in question. The scope of this step is to understand and define the key ESG factors, risks and opportunities that have the highest chance of affecting the company’s business performance.
The gap assessment is the result between the comparison of the current state of the company with the objectives and commitments assumed in step one by the board of directors.
The result will give a clear picture of what is missing or what items need an upgrade in terms of process, policies and/or in-house activities in order to meet the goals.
Related to this step, companies can find support in the different existing methodologies, or standards such as the Materiality Map that was developed by the Sustainability Accounting Standards Board (SASB) based on 77 industries, or the material topics found in the Global Reporting Initiative (GRI) standar
Chose a methodology.
In order to ensure that the ESG factors are incorporated in an organizations’ strategy and a suitable reporting framework will be used, choosing a methodology is essential.
There are a couple of well-known and established initiatives such as the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Carbon Disclosure Project (CDP), the International Sustainability Standards Board (ISSB), the Task Force on Climate-related Financial Disclosures (TCFD) amongst many other that are providing reporting guidelines, methods to define a company’s materiality, choosing the suitable KPI’s and guidelines on continuous monitoring.
Choose your KPI’s and report on your ESG performance.
Once a methodology has been chosen and key performance indicators have been identified, then the company needs to respect the reporting framework chosen and ensure a coherent communication to their stakeholders based on the company’s progress towards its milestones.
The report is a communication tool that will keep the stakeholders up to date with any changes, updates and achievements related to the company’s performance.
By following these steps, companies can ensure ESG compliance and contribute to a more sustainable future.