While ESG might seem like three little letters, the scope is enormous. A significant number of matters could be considered under the umbrellas of environment, social and governance (ESG). In this article, BDO’s sustainability experts Aletta Boshoff and Ashley Bleeker outline the five main themes emerging in ESG for boards and organisations.
At the recent ESG Summit, BDO led a panel discussion on ‘mastering all stages of the ESG integration process’. From this discussion with the panellists from Vocus Group, Capital Management and Patties Foods, along with a day of discussions with the 160-strong delegation of sustainability professionals, we noticed a distinct similarity to the conversations we have regularly with our clients.
1. Sustainability is everyone’s responsibility
It was Helen Keller who reportedly said, “Alone we can do so little; together we can do so much.” And it’s undoubtedly true for making headway in sustainability. Of course, we need leaders and practitioners focused on innovating and driving sustainable change in organisations and society, but they can’t do it alone. As citizens, there’s no doubt that the small changes we make in daily life can add up to a significant impact in time, but an even bigger impact when we influence others to do the same.
Organisations also have the opportunity to create change and influence, both internally and externally. In many sectors, a great opportunity exists for industry-wide collaboration in processes or standards to create economies of scale and efficiencies with suppliers and the like.
Identifying opportunities to influence policy and broader practice provides the chance to make wholesale, sustainable change. Organisations that take the leap will only strengthen their reputations as leaders in their field.
2. Education is key to implementation
For many organisations, implementing a sustainability program will take some change, and communication and education are critical to enabling this. Experience tells us that communicating ‘the why’, while educating people on ‘the how’ goes a long way to making change easier, more successful, and sustainable over time.
All stakeholders have the potential to have an improved experience with an organisation through a greater understanding of a company’s sustainability program. For example, education and communication can help:
- Employees to better understand an organisation’s diversity and inclusion policy and its benefits, while influencing hiring processes to influence a more diverse workforce
- Customers to ‘vote with their wallets’ through verifiable, measured manufacturing process improvements that decrease the environmental impact
- Shareholders to better understand how sustainable investment practices can drive strong economic outcomes.
3. Don’t try to be a jack of all trades
While ESG might seem like three little letters, the scope is enormous. A significant number of matters could be considered under the umbrellas of environment, social and governance (ESG). In fact, many organisations are likely to be addressing a number of ESG issues already. But before attempting to take on ‘all’ the issues, it’s critical to understand what’s important to the organisation and its stakeholders.
For a sustainability strategy to be successful, it needs to be aligned to the company strategy, culture and story. When any plan is inconsistent with the company’s purpose, it can feel inauthentic—particularly to the people who work there—and can quickly turn from being a series of well-intentioned initiatives to a risk to the company’s brand and reputation.
4. Investors are talking with their feet
Investor interest in sustainability is on the rise, and it’s not going away. Organisations relying on investors for access to capital – either now, or in the future – should be aware of this increasing interest.
According to the Global Sustainable Investment Alliance’s (GSIA) 2020 Investment Review, there was a 15% increase in sustainable assets under management (AUM) in the two years prior. This equates to US$35.3 trillion in AUM in sustainable investment globally or 36% of professionally managed assets.
Understanding the investor group’s influence over the organisation’s strategy, along with their needs and drivers, can be critical for effective communication. While each investor or financier is different, they generally want access to sustainability information that’s easy to understand and compare to other data sets. Organisations should consider the sustainability metrics that drive investment decisions and how to measure them before identifying clear and effective ways of communicating current performance, targets and intended activities for the coming period.
5. Make room for S and G
For many people, climate, carbon neutrality or net zero are the first things that spring to mind about sustainability. But even within the ‘E’ of ESG, there’s so much more to consider—from land use, to impacts on water pollution and management, influence over biodiversity and deforestation, and even waste recycling are essential considerations for an organisation’s environmental policies.
We find that different stakeholders tend to focus on various matters, depending on their own values and interests. However, some similarities emerge with particular stakeholder groups. For example, suppose employees are asked to rank the issues that are important to them. In that case, we often see the social issues come to the fore (think diversity and inclusion, health and wellbeing, employee engagement). Similarly, when boards are asked the same, the governance issues tend to pique their interest. Suppliers are likely to be interested in how you treat suppliers, as customers are in how you treat their cohort too. But none of these issues alone can make an ESG strategy, so it’s essential to make room for the relevant social and governance issues to be addressed alongside the environmental issues that are important to stakeholders.
Transparent sustainability reporting is key to access
Ultimately, we’re seeing greater demand for transparent sustainability reporting from various stakeholders. Access to capital, markets and people depends more heavily on this over time. Beyond that, sustainability programs are anecdotally having a positive impact on an organisation’s financial performance, while 64% of mid-market CFOs surveyed by BDO in the USA believe that ESG will improve their long-term financial performance.
This article, written by Aletta Boshoff BDO Partner National Leader, IFRS & Corporate Reporting, National Leader, ESG & Sustainability and Ashley Bleeker BDO Director, Corporate Reporting first by appeared on 18 August 2022 HERE.