Building a Strategy to Meet Your ESG Goals

Building a sustainable company is no longer on the list of nice-to-haves. Environment, Social and Governance (ESG) metrics are insights that rank just as important as Return on Investment (ROI) for company executives, shareholders and even consumers. More than just financial benefit, having clearly defined ESG metrics can help a company attract and retain talent, build loyal customer relationships, lower costs and spur growth over the long term.

Recognizing the importance of an ESG strategy is one thing, however, implementing an effective strategy is another issue entirely. Before you can adequately measure your ESG goals, you must first align with how they are defined.

McKinsey offers help with the definition of each category in the article, Five ways that ESG creates value:

The E in ESG, environmental criteria, includes the energy your company takes in and the waste it discharges, the resources it needs, and the consequences for living beings as a result. Not least, E encompasses carbon emissions and climate change. Every company uses energy and resources; every company affects, and is affected by, the environment.

S, social criteria, addresses the relationships your company has and the reputation it fosters with people and institutions in the communities where you do business. S includes labor relations and diversity and inclusion. Every company operates within a broader, diverse society.

G, governance, is the internal system of practices, controls, and procedures your company adopts in order to govern itself, make effective decisions, comply with the law, and meet the needs of external stakeholders. Every company, which is itself a legal creation, requires governance.

Once you have a clear understanding of how to define your ESG initiatives, the next questions to ask are how to properly assess where your company currently stands against these metrics and exactly what is best to measure? 

There is no universally accepted definition of ESG metrics, so every company may track different things. It’s important to take an honest assessment of your organization and determine which areas are most impactful to ESG goals. Some metrics you may already be performing well in, others could be woefully inadequate. The goal here is not to devise a metrics-tracking strategy that only puts the company’s best foot forward, but instead to find a system that offers honest insight into how the company is improving over time. It’s also important to consider every side of an ESG strategy and ensure you’re tracking metrics that represent the E, the S and the G.

Environment metrics

The E in ESG often takes the spotlight, with companies spending a great deal of time talking about their carbon footprint, and with good reason. The era of climate change is no longer a warning, but a fact. We are living among its impact and seeing the results of climate change every day, from extreme weather patterns to an uptick in natural disasters and more. Corporations of all sizes can play a significant role in driving environmental change for the better, but it must include the support of everyone from partners to vendors to employees. Some important metrics to consider when evaluating your environmental goals include:

• Carbon footprint: What is your carbon footprint, and are you measuring it correctly? What are your reduce, reuse and recycle policies and how can those be expanded and enforced? Are you considering viable ways to impact your carbon footprint, such as reducing travel when possible or working with greener suppliers?
• Energy consumption and efficiency: Are you seeking out ways to use less energy in your facilities? Are you working to offset your energy output? Are there opportunities to tap into more renewable energy options? 
• Resilience: How prepared are you to weather unexpected crises, especially those brought on my natural disasters or climate change? Are you able to navigate changes in policy or market shifts that will impact your business?

Social metrics

Quantifying your company’s social impact is significantly harder than measuring its environmental impact because so much of it is subjective. However, that doesn’t make it any less important. According to the Stanford Social Innovation Review, the S in ESG should take into account how your company improves the lives of people—whether employees, consumers or the broader community. Some metrics that can be useful to measure here include:

• Workplace health and safety: Have you properly accounted for the health and safety concerns of both your customers and employees? Do you provide the necessary tools and equipment for your employees to safely do their jobs? Is there a well-supported system for worker compensation claims?
• Use of data and digital rights: Are you in compliance with GDPR and other privacy laws? Is your consumers’ and employees’ digital information properly encrypted and secured? Is there clear communication of how digital data is collected and used?
• Community support: Are you a good corporate citizen, both in your local community and the larger community? Does your company have a clear line of how and when to communicate during a crisis, even one that falls outside of your own organization?

Governance metrics

The G in ESG covers a broad range of corporate activities, everything from management policies and procedures to information disclosure and reporting. More and more, your investors and customers want to see transparency, authenticity and diversity from your company and they want to know you are seeking to operate in a trustworthy manner. UPS, for example, defines its governance as the foundation for its commitment to being an ethical and responsible global business. With that litmus test in mind, here are a few examples of metrics your organization can measure to ensure you are improving on your governance goals:

• Diversity and inclusion: How diverse is your workforce, your executive team and your board? Do you have fair and equitable hiring policies in place, and are those policies followed? Do you support ongoing training to promote DEI practices and is there a clearly understood policy for eliminating discriminatory practices? 
• Compensation and pay gap: How transparent are you about board and executive compensation packages? What is the pay gap among your employees based on gender, race or other factors? Is there a fair and equitable opportunity for salary increases?
• Risk management: How well can you separate risk from various departments and business lines? How dependent are you on outside sources for your supply chain? What is your mitigation strategy for risk?

While there is no one set of metrics to effectively measure and evaluate your ESG initiatives, there are strong guidelines for each category and wonderful examples of corporations who are taking the lead in providing greater transparency around ESG and ranking it just as high as other financial deliverables.

StrategyBlocks can be a highly effective tool in helping to define, track and effectively measure the success or challenges your company faces in achieving its ESG goals. Contact us today and let us help you better define and measure your ESG strategy.