Blog

ESG orientation is playing an increasingly important role in economic and social debates. Etienne Cadestin, CEO of the sustainability consultancy Longevity Partners, outlines ten steps how companies can develop an ESG strategy.

1. Focus on the best strategy

The starting point is to realize that every company is different. What works for companies that you find similar to your own will ultimately not work for you in the same way. Every company has different internal stakeholders, external stakeholders, supply chains, locations, budgets and goals. Your ESG strategy needs to be tailored to be effective.

2. Set your goals, top down

By setting an overall goal from the start, you can define your strategy and tighten the priorities. The commitment of the company’s top executives is vital and the board of directors must believe in these goals. Think about what you want to achieve and keep that goal broad in the beginning. After a proper check, company-specific goals and specifications can be formulated. The best way to do this is through a materiality analysis.

3. Perform a materiality analysis

A materiality analysis is at the core of any company’s ESG strategy. It examines the issues companies need to prioritize and identifies where time and resources should be invested from two perspectives: importance for external stakeholders and importance for the company and its internal stakeholders. Carrying out a materiality analysis requires extensive data collection from both internal and external stakeholders.

Entering this data in a diagram, a so-called materiality matrix, creates a visual representation that clearly shows which topics are most important for both camps and therefore which priorities should be set. The result of your analysis will highlight ESG priorities and define an overarching strategy and will be tailored to your company.

For a materiality analysis to be as effective as possible, the following two points are of great importance:

4. Use an objective third party

Whether you’re doing a materiality analysis or checking a company’s ESG credentials for some other purpose, it’s always best to hire a professional third party as an unbiased perspective will legitimize the results. This is an integral part of what ESG consultants like Longevity Partners offer their clients. Objectivity is especially important as allegations of greenwashing and public scrutiny increase.

5. Engage with all stakeholders

Assessing the mood of the stakeholders is an important part of a materiality analysis. This is an important step to be right, especially considering the “governance” aspect of ESG.

A bottom-up approach is beneficial; Data should be collected from all employees. In addition to a materiality analysis, structures can be created that create feedback loops within your company from bottom to top in order to strengthen the corporate culture and highlight potential problems before they come to fruition. A good strategy is a mix of a top-down and a bottom-up approach.

It is also important to push for collaboration with external stakeholders. Organizations are sometimes reluctant to do this, but it is essential to a successful and well-informed analysis.

6. Estimate costs

Once a materiality analysis has informed your business goals and strategy, consider your budget, take a lifecycle approach, and not just view it as a significant upfront cost. More importantly, you should also estimate the cost of inaction and the risk it would pose to your business.

While perhaps daunting, strategies with higher upfront costs can result in significant lifetime savings, just as higher initial insulation costs can result in savings in heating costs. As with any investment, expert advice should be sought in order to make the results as efficient as possible.

7. Build an ESG team in your company

Hiring professionals from the sustainability sector is essential for any company that takes its ESG results seriously. Strategies need to be nurtured, and internal stakeholders can provide that consistency while protecting the personal interests of the company they work for. Hiring a sustainability professional also creates a strong governance structure within the company. The G in ESG is just as important as the E and the S.

8. Ensure third party verification to demonstrate robustness

It is not enough to say how responsible a company is, it is just a matter of proving it. The best way to demonstrate accountability and transparency is through a third-party verification and validation mechanism, such as: B. Company-wide or fund-wide certifications.

Certifications are not used as a marketing tool as many would think, but are a risk management tool to measure and track validated performance and identify potential gaps. It’s also a fantastic tool to help fund green bonds and other value-adding green finance tools.

Since greenwashing stories continue to make the headlines on a regular basis, with certification like this, you can stand up to such claims.

9. Manage your supply chain

When expanding a supply chain, it is important to have a sustainable policy to ensure that ESG is embedded in the procurement process. The procurement policy must reflect your company’s values ​​and include a commitment to incremental improvement. A strong starting point is to consider and build on existing frameworks such as the UN Sustainable Development Goals.

At the same time, companies should conduct due diligence within their existing supply chains to avoid being associated with companies with poor values ​​and potential reputational damage, especially those related to human rights abuses.

10. Realize that the process is dynamic

The most important part of a successful ESG strategy is realizing that it is not a one-off assessment. Strategies have to evolve with every company, the expectations of the stakeholders and, last but not least, with the changing regulatory landscape. This doesn’t have to be constant, but a three-year re-evaluation of your company’s ESG strategy is a workable metric, while strategy progress is reviewed annually.