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ESG requires a measured approach in more ways than one – and over-selling it isn’t in anyone’s interests, writes Luke Cross, director at Social Invest.

People are lining up to bang the drum for environmental, social and governance (ESG). What’s not to like? It’s a fantastic opportunity to talk about purpose, how much you care about your people and customers, your commitments to equality, diversity and inclusion, and what you’re doing to help the planet.

Taken on face value, this is a very exciting concept for people whose job it is to position an organisation in a positive light, including communications consultants like ourselves.

But while communications has a crucial role to play in helping to facilitate, coordinate, articulate and guide the narrative, ESG runs much deeper than a ‘PR opportunity’.

Fundamentally, ESG reporting is about demonstrating good business practice. Many ESG factors are what businesses should be doing anyway.

But ESG offers a framework within which to demonstrate progress outside of the financials, so that stakeholders – primarily funders – can understand and monitor non-financial performance and risks to the business. Ideally, ESG can also help drive up business standards. In this context, it needs to be robust, measurable and credible.

On the back of that, ESG can also be a common language and channel through which to tell your story to other stakeholders; your partners, customers, staff and interested parties, which may include government bodies.

However, like most financial sector constructs, ESG isn’t straightforward. While it’s increasingly expected that ESG factors will become embedded in business and finance over time, it’s currently a sprawling, trillion dollar market, populated by numerous rating agencies, standards and frameworks. And ESG as it stands has its own questions to answer around harmonisation, scrutiny, credibility and data integrity. To use a cliché – we’re all on a journey.

If you’re not in a position, or not willing, to measure and monitor what you do, and hold yourself up to scrutiny, then ESG may not be for you. There are other ways to talk about your good work – just don’t call it ESG.

If you’re thinking about homing in on the bits you’re good at – say the ‘E’ but not the ‘S’ or ‘G’ – then ESG may not be the appropriate route at this time either. Perhaps look towards a sustainability policy or report in the first instance, and keep working on the rest.

If you’re looking to report – and perhaps improve – on performance, then it’s important to go in with an open mind. Some of your KPIs may not look pretty at the start. But that’s okay. It’s what you do with it that really matters.

If you’re a business that’s really serious about values and purpose, then ESG may largely be about getting your house in order; you’ll already be acting in the right way, and potentially reporting on a number of ESG factors already too.

So what are the benefits?

Once you’ve decided – or have had it decided for you by investors or stakeholders – to set out on the ESG road, the benefits to embracing it are wide-ranging.

  • Telling your story via a common language and in a way that resonates: primarily to investors/
    lenders and potentially other stakeholders: staff, residents, peers, partners, sectors, governments
  • Reporting on your ‘non-financial’ performance in a measurable and comparable way is good practice (setting it apart from CSR)
  • Better monitoring and management of ESG risks, and potential performance improvement
  • Greater transparency and consistency
  • Combining the quantitative and qualitative: a methodology underpinned by standardisation, overlaid and enhanced by what sets you apart
  • Improving your inter-departmental coordination and communications
  • Bridging finance/treasury departments with other parts
    of the organisation; including communications.

Key ingredients

With all the above in mind, we at Social see four key elements for implementing ESG effectively across a business. We’ll be discussing these in more depth at a free webinar next Wednesday (23 June), with speakers from the housing, property and investment worlds.

Discovery and data: Underpinning any ESG story is data. For businesses, it’s about defining what you are going to measure, the metrics or standards you want to adopt, and gathering robust and reliable data that can be measured and tracked.

Strategy and policy: ESG has the potential to act as a beacon, guiding a business on its principles, decision-making and activities. But that needs some strategic thinking, setting out where you want to get to and how to get there. In some cases, we see ESG sown into the fabric of the corporate strategy, being used as a reference point for key decisions such as selecting investment and delivery partners. It also plays a role in joining up several business functions, and can bring together existing policies under one umbrella.

Reporting: There is no shortage of ESG reporting standards and frameworks, and plenty of businesses coming up with their own iterations too. Whichever route you go down, it’s worth thinking about whether that standard or framework is a two-way street that both delivers what the stakeholder requires, while telling your story in a way that serves your best interests.

Speaking a common language: ESG is a language in itself. But data, strategy and reporting will all fall short if an organisation isn’t speaking a language its target audiences understand.

In conclusion

We’re now in a world where purpose and values matter in business more than ever. But it’s also a world where grandstanding, or the claims you make on social media, are easier to call out.

Along with customer and stakeholder activism, we’re seeing some of the biggest global investors acting as shareholder activists, demanding better in areas like climate change and diversity.

This is good news for the ESG evolution, and society as a whole.

But it really is an evolution. So, take the time to understand the benefits, and implications, for your business of ESG. And remember, it’s just as much about where you’re heading on this journey, as where you’re starting out from.