Corporate sustainability quickly is cresting as a growing wave of investors, regulators, customers, employees, suppliers and other stakeholders demand evidence of action on material social and environmental challenges. While the letters, E, S and G once resided on the fringes of business and investor circles, today ESG is one of the most recognized acronyms in corporate discourse.
And this emphasis on sustainability only is accelerating as the financial premium for purpose-driven companies becomes more evident — as George Sarafeim points out in his excellent new book — which is compelling investors to demand that businesses manage, disclose and communicate their material ESG risks and opportunities.
Yet with ever-evolving expectations and frameworks to align to, an abundance of acronyms and few defined pathways to success, many organizations at the beginning of their ESG journeys struggle to know how to take the first step. Most aren’t Unilever, Salesforce or Patagonia — and if we want to succeed in mitigating the climate crisis, reversing deforestation, alleviating water scarcity, advancing workers rights, rectifying racial injustice and addressing infinite other ESG challenges, we’ll need to make sure that all companies, everywhere, can find their way.
That’s why thinkPARALLAX recently published the first of a series of “ESG Field Manuals” aimed at helping companies starting out on their journey to advance ESG strategy and storytelling. The first installment, “From scratch to strategy,” covers the foundations of ESG strategy and goal-setting.
If your organization is working to create its first ESG strategy, or fine-tune an existing one, this field manual is for you. The guide offers three simple steps to getting started:
Step 1: Build an ESG compass to point the way
To succeed in ESG, you must know where you are to get where you are going. For novices and leaders alike, this means conducting an ESG strategy benchmark to look both inward and outward to identify risks and opportunities. This entails completing a comprehensive assessment of publicly available ESG information to determine your company’s performance and transparency compared to peers.
With an entire universe of ESG considerations — from the climate crisis to supply chain sustainability and DEI — it can be difficult to know even where to focus. Taking on every ESG issue isn’t feasible or effective. With limited temporal, financial and human capital, companies must determine which ESG considerations are most important, or material, to their business.
To succeed in ESG, you must know where you are to get where you are going.
The most common way to determine these issues of focus is by conducting a materiality assessment. While there is no standardized approach to materiality assessments, generally it involves the following:
- Narrowing down a list of ESG issues that are important to your business;
- Identifying relevant internal and external stakeholders;
- Conducting peer benchmarking;
- Reviewing relevant reporting frameworks as well as global trends;
- Gathering input from stakeholders (via interviews, focus groups, and/or surveys) about issue importance to the business, perceived performance by issue, current and future expectations of issue performance, and communication efficacy;
- Analyzing the data to create insights and recommendations and
- Creating a materiality matrix to visualize the results.
Step 2: Plan your route
With the results of your ESG strategy benchmark and materiality assessment in hand, it’s time to develop an ESG strategy roadmap. Within the context of sustainability and managing ESG challenges, the term “strategy” simply is your approach to making choices — what to do (and not do), which ESG challenges to prioritize and what to say about it.
Think about how far you want to go — and how fast. Corporate sustainability is, after all, a journey and not a destination. Your strategy and communication must advance in lockstep. If your strategy gets ahead of your communication, you are missing out on opportunities for engagement and building reputation. Likewise, if your communication outpaces your strategy, you’re venturing into greenwashing territory.
Think about how far you want to go — and how fast.
While it might be tempting to think that your company should strive to become a “leader,” not all can or should do so. And the bar for leadership constantly is being raised as more companies get serious about sustainability and addressing their ESG issues.
An effective ESG strategy demonstrates business and ESG value, focuses on priority topics, builds effective governance, maintains relevant policies, aligns programs with priorities and discloses meaningful, comparable metrics. The most effective ESG strategies cover 3-4 priority areas that determine the organization’s focus for goals, programs and other activities. A simple place to start is to align these priorities to the letters of E, S and G.
Yet even the world’s greatest ESG strategy means little without action. Effective communication is how you educate and engage stakeholders to act. By translating your ESG strategy into a clear and compelling story, companies can drive engagement and results — such as more investment in your company, increased customer purchases and brand loyalty, and a more engaged and productive workforce that help companies reach the targets they’ve set.
Step 3: Establish goals to map your destination
Within the context of corporate sustainability, goals are more than just a means to measure progress. Goals set the direction — process gets you where you want to go. While it’s common to see headlines filled with lofty sustainability commitments by companies that have no solid plan for operationalizing them, strive to avoid this by pairing your goals with an action plan for achieving them.
When setting ESG goals, begin with the impact you want to create and work backward. Do you want to minimize your company’s impact on the climate crisis? Start there, and determine what needs to be done to reduce your carbon footprint. Goals can be qualitative (e.g., implement a carbon reduction program over the next 3-5 years) or quantitative (reduce carbon emissions by 30 percent by 2030).
When establishing ESG goals, companies tend to follow one of two paths: being cautious and setting smaller goals that are incremental, or “going big” by setting ambitious targets that are improbable to achieve. The more cautious companies fear blowback if they set a target that they fail to achieve, while the more audacious wish to “shoot for the stars and fall on the moon.”
When setting ESG goals, begin with the impact you want to create and work backward.
So-called “moonshot” goals — the most ambitious — typically work better for major consumer-facing brands. These companies tend to have bigger marketing budgets, which make sustainability and ESG easier to sell internally. IKEA, for example, has established an overarching goal to become “climate positive” by 2030 — reducing more greenhouse gas emissions than its entire value chain emits while still growing its business by designing new products, moving into new markets and building dozens of new stores in that time.
Conversely, B2B brands often have smaller marketing budgets and have more technical sustainability challenges — this makes their approach more technical and focused on operationalizing goals versus communicating them.
The best approaches tend to fall somewhere between the two extremes. Reflecting on your ESG strategy, the level of ambition, and corporate culture can help guide the goal-setting process. Using the letters of E, S and G to guide your goal-setting is a good starting point. Remember, you don’t want to have dozens of goals or a laundry list — it’s better to focus on the few that will allow your organization to create a true impact.
The journey ahead
Establishing an ESG strategy is only the beginning of a long journey toward a better future for your brand, your stakeholders and the world. You will fall, and you will fail. And that is perfectly OK. Because you also will get back up, and little by little, you will learn how to succeed.
And always remember that in this journey, you aren’t alone — no matter where you are, there are strong arms around you. We’ll get there together.