Building an integrated ESG strategy

Through our discussions with ESG Council members, we have identified a number of important issues that need to be addressed when developing an effective ESG roadmap.

1. Ensure that your ESG goals are built on the fundamentals of your business.
   Designing your ESG goals and commitments will likely include input from numerous stakeholders, both internal and external to the business. This is likely to lead to competing priorities, with certain stakeholders pushing for commitments that are meaningful to them, but perhaps not connected to the reality of the business and value creation process in your organisation. This lack of connectivity has the potential to lead to ESG programs that ‘run out of steam’ as their relevance and importance is seen to diminish over time. This disconnected approach also has the potential for reputational damage or erosion as such ESG goals maybe deemed to be inauthentic and seen primarily as ‘window dressing’.

   [Commitments need to be] material to your business, so play in your lane so you can have an outsized impact. You know we get a lot of really good suggestions that have nothing to do with where we have business expertise.

2. Don’t develop your ESG goals in a vacuum – listen to your stakeholders.
   Notwithstanding the previous point, it is essential that ESG strategy and goals are developed with external consultation. While it’s nearly impossible to address all the desires of your various stakeholders, it is important to acknowledge that many have expertise that can help to shape your strategy and increase its credibility to the outside world. External consultation will also increase the likelihood that your subsequent communications will reflect the language and needs of external stakeholders (rather than anodyne ‘corporate speak’) which in turn increase its impact and ability to inform.

   I think employees are really important in terms of driving initiatives on the ground and also pushing the type of company they want to be working for.

   

3. Set a long-term direction and measure progress on the way.
   Long-term goals demonstrate that a company is focused on driving big, meaningful change in both their business operations as well as in society at large. However, setting long-term goals without shorter-term milestones has the potential to open a company up to criticism of purpose-washing. Shorter-term goals provide more tangible, bite-size steps that can be taken to achieve the longer-term vision. This also provides the company the opportunity to measure and report on progress internally and externally, and to demonstrate the next steps that will be taken in the journey against the bigger vision.

   I think it’s really important to have the long-term vision and goals because I think it sets an arc that you can go after it inspires for something bigger. It is hard to get really excited about an incremental goal. So, I think that really galvanises people. I don’t think it can be done without the incremental pieces though. So, setting a 10-year goal and not having something for the next two years to show you’re on track you will quickly lose trust and belief.

4. Goals should never be written in stone and transparency is key.
   Setting shorter-term milestones provides the opportunity to measure progress and sense check your ESG strategy against broader developments in society. Indeed, some companies may identify specific roadblocks that have emerged to achieving goals and objectives, and there may be a need to modify or reframe ESG ambitions. Modifications need not be about compromise – some companies have found that they were able to make faster progress against the commitments they set and have therefore modified their longer-term goals to be more ambitious. Ultimately, it comes down to informed and transparent decision making that allows ESG strategy to evolve over time.
   
   

   You really need to focus less on the commitment and more on the action and the progress to them and there needs to be a degree of transparency against your progress towards them.

   Transparency is based on talking openly and in detail about your progress against milestones, the hurdles along the way. Indeed, in a connected and digital world the idea that you can ‘hide’ negative information is increasingly futile. It’s clear from ESG Council members that candid discussions with stakeholders is not only the right thing to do but can also strengthen an organisation’s reputation as its seen to be taking a genuine approach to tackling difficult issues.

   You need to be very transparent about your progress against those goals, even if they are not going well. 

   Ultimately, ESG is about accountability and the role of companies in society. It is unlikely that there will ever be a total consensus on what that role should be and indeed in some quarters we are seeing a backlash against ESG with the emergence of terms such as 'woke capitalism'.
   
   However, it’s clear from Council members that setting ESG goals demonstrates a corporate ambition to reconcile the creation of shareholder value with the desire to be a force for good in society. And for Council members it’s ok to stumble along the way as long the commitment is genuine, and companies are not deflected or distracted from the goal.

Table of contents

1. Introduction: ESG Council Report 2023
2. Chief Value Creator?: The changing role of the Chief Sustainability Officer (CSO)
3. What is driving change: The role of stakeholder management
4. Building an integrated ESG strategy
5. Doing well by doing good: Resilience, risk and the reputation value of ESG
6. The Future of ESG?
7. ESG - a time for leadership, focus and communication, but above all action.