7 Steps to Develop and Implement an ESG Strategy
ESG disclosures are also being tallied more now than ever – with stakeholders searching for company commitments to ESG through public disclosure of information on a website, sustainability reports, annual reports, or via common rating publications. The COVID-19 pandemic of 2020, the racial justice movement in the United States, and changing administration priorities under President Biden have amplified the need for attention to ESG, making it clear that doing nothing is no longer an option.
While companies find ways to tackle day-to-day challenges, it’s important to keep sight of the big-picture and establish a strong ESG program framework that can withstand the test of time, investor demands, and cultural shifts. Being proactive in ESG allows time to build more programmatic strategies versus one-off reactions to current events. Here are seven steps to develop and implement an ESG strategy that highlights how Antea Group helps companies take a methodical approach to building scalable and efficient ESG programs and processes. While we focus on ESG as a whole, the process can be applied to select aspects of ESG as relevant to your industry and business.
Before You Get StartedBuilding an ESG program can be overwhelming when you consider all the potential topics that make up “E,” “S,” and “G” and the reality that ESG covers all functional areas of a company. For a quick refresher on what that is, take a look at our intro blog on ESG. We recommend first focusing on assembling a team of cross-functional stakeholders who are fit to identify and evaluate ESG risks, opportunities, and performance in your company from all necessary perspectives to ensure your program will have the internal support to succeed.
1: Conduct a Materiality AssessmentA materiality assessment should be the foundation of the ESG strategy. Without a proper assessment, companies often have ad-hoc efforts or lack sustained focus on consensus priorities. The purpose is to hone in on the key ESG issues and opportunities that are most likely to affect your company’s business performance as well as your stakeholders. At the end of the day all ESG topics are important, but they simply cannot all have the same priority. Materiality assessments have evolved to consider more than just business impact - taking into account issues from a financial materiality perspective (impacts inward, focusing on the business) and environmental and social materiality perspective (impacts outwards – focusing on the company impact on the economy, environment, and people) – a concept known as double materiality. Materiality assessments can be scaled to provide the right level of insight to jump-start your planning – noting that the importance of ESG topics varies by industry, company, and stakeholders. Check out this blog for a more in-depth look at materiality assessments.
Integrating a benchmarking exercise into the assessment is also a good way to gather intel on the ESG maturity of competitors and analyze industry challenges, opportunities, and leading practices related to ESG.
Conducting a solid materiality assessment should wield the following core outputs:
- An understanding of the relative materiality of each topic to your business and stakeholders, which is commonly visualized in a Materiality Matrix.
- Insight on how your company stands on specific topics in comparison to peers and competitors.
- Guidance for how to emphasize topics with annual reports and disclosures.
- A methodical way to define priorities for action.
2: Assess Current State (Baseline)Once you know which ESG topics to prioritize, it’s important to assess existing programs, policies, metrics, and engagements in your company. You can do this by working directly with cross-functional stakeholders within your organization that have expertise in each priority ESG topic. We recommend gathering information from reports, policies, and data systems first, supplemented by interviews with internal stakeholders to follow up on specifics and collect more detailed insights.
This assessment allows you to take stock of your company’s current state and gauge the relative maturity of ESG across the organization. Oftentimes, you may find silos of ESG activity in the organization that has not been included in larger strategies or communications. By getting a pulse on ESG at your organization, you can better gauge the level of ambition and fitness for ESG goals.
3: Set Objectives and GoalsNow that you know your baseline ESG stats, you should start setting your sights on how you can focus efforts moving forward. We recommend topic-focused working sessions with key stakeholders to better define strategic objectives, beginning with:
- Maintain: What are you already doing well that just needs to be maintained or communicated? This may be something like ‘complying with applicable product safety regulations’ – something that is considered ‘table stakes’ and material for the business to maintain, but not where you would prioritize resources in the short-term to provide the greatest ESG value. In this case, you may decide to maintain current efforts to ensure compliance.
- Improve: What areas can you make incremental improvements to better align with peers, meet stakeholder expectations, or demonstrate commitment to ESG? For example, you may have inclusion and diversity programs internally, but little communication to external audiences about how and why these are important to the company. Your strategic objective may then be to externally report key inclusion and diversity metrics and begin setting goals.
- Optimize: Where can you really sharpen your existing efforts to move toward industry leadership in ESG? Perhaps you have already calculated and communicated your operational carbon footprint and set site-level greenhouse gas emissions targets, so your strategic objective may be to complete a decarbonization plan and set a science-based target.
There are certain things you should consider when setting goals, such as:
- What context is needed for your proposed goals?
- How can performance be assessed?
- How ambitious do you want to be with target dates?
- What levers need to be pulled directly or indirectly?
At this stage, we recommend presenting your draft goals to your leadership team, Board of Directors, and sustainability councils. By engaging these stakeholders early on in the process, you gain consensus around your direction and support that may be needed to build resource teams or programs.
4: Analyze Gaps to Achieving Future StateSteps 1, 2, and 3 are the first wave of health screenings to get you in shape for a successful ESG sprint, but you also want to make sure you are aware of all the potential issues that your company may encounter when trying to achieve your new goals. We recommend conducting a brief gap analysis between your current state and your objectives or goals to identify what may be missing so you can strategize and plan accordingly for the future. Depending on where you are on the fitness scale, gaps may be as minor as only needing to collect one more metric, or as large as needing to set up a sustainability council to make key decisions moving forward. Understanding your gaps between now and five years from now will help define the level of ambition before diving into minutia. Understanding the end results you can realistically achieve allows better strategic guidance across the organization.
5: Develop a Strategic ESG Roadmap and FrameworkAn ESG program won’t hold up unless it has a framework that clearly outlines where your organization’s vision and purpose meet your ESG priorities. The development of a roadmap ensures accountability for key actions, and a compelling ESG framework gives stakeholders a clear picture of your strengths and goals. This is a time to be reminded of the level of ambition you previously identified and to set in place a reasonable approach that you know you can commit to, often through a phased plan with measured steps along the way.
When building a framework, it’s important to consider how it applies across your organization (by operation type, function, region, etc.) and how you will monitor progress to achieve goals.
6: Set Action Plans and Measure Key Performance IndicatorsTo effectively implement an ESG program, it requires the integration of ESG into business practices and processes. You need to outline programs to stay in shape all year long so you’re prepared when the ESG spotlight shines on your company. Here are a few best practices to implement:
- Identify clear and measurable outcomes that define what success looks like for you.
- Utilized centralized management systems or data software to more easily track and trend key metrics and performance.
- Set a regular cadence of communication and updates for key stakeholders to continuously evaluate goals, update data, and compare best practices. By constantly monitoring your plans, you can stay apprised of adjustments that might be needed to stay on track toward your goals.
7: Report ProgressSimilar to goal-setting, there is not a "one-size-fits-all" approach to ESG reporting. Regardless of the standards, frameworks, or guidance used to tell your story, the most important component of reporting is communicating your information out in a compressive and clear manner. To develop your report, you first need to decide what you want your report to accomplish. It should ideally be a combination of:
- Communicating ESG strategy to stakeholders while demonstrating alignment to business objectives.
- Highlighting ESG policies and programs already in place.
- Sharing company-specific ESG goals and metrics.
- Evaluating your progress and engagements in key ESG areas.
In addition to external communication, it’s good to provide regular internal updates to reinforce the importance of ESG to the organization and acknowledge contributions employees have made toward achieving goals.
Finally – review and update your ESG strategy regularly to ensure your company stays aligned with stakeholder and business expectations. This is not a one-time assessment and plan but a living and breathing strategy that you need to continue to nurture and grow.
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