ecoHQ is publishing a blog series for those who want to know more about Sustainability, Net Zero, ESG and Carbon Footprinting or Carbon Credits.

In this four-part article series, you will learn about the critical components of Corporate Sustainability – Net Zero, ESG and Carbon Footprint Consulting. 

In Part 1 , we laid down the basics of the Net Zero promise. We have also introduced Sustainable finance and discussed the concept of ESG in a previous article. In Part 2, we explore how ESG reporting is the first step in fulfilling this promise.

Change is Here

In 2021, nearly 81% of Russell 1000 companies published a sustainability report. This is a 70% increase compared to 2020! So how did we get here?

In 18th Century USA, religious organisations forbade their members from investing in companies with socially irresponsible practices such as slavery. Jump to the 1960s, when Socially Responsible Investing (SRI) gained popularity, which encouraged investments in companies that supported civil rights.

In 2006, United Nations Principles for Responsible Investing (UNPRI) officially coined ‘ESG’ – environmental, social, governmental – to provide a more concrete framework by which to measure socially responsible investing. But it was not until 2015 that the concept received more substantial recognition, after the adoption of the United Nations Sustainable Development Goals (UN SDGs).

How is ESG different?ESG is far more flexible in comparison to conventional impact investing audits.
It considers an array of risks to all direct and indirect stakeholders…

Source: FTSE Russell

According to McKinsey, a strong ESG strategy ultimately helps create value in five key business areas:

• Top line growth
• Cost optimisation
• Investment optimisation
• Reduced regulatory interventions
• Improved employee productivity

Now that we know how fundamental ESG should be, the next step is to create a flexible but ethically sound standardised framework by which to measure business ethics…

The State Of ESG Today

ESG reports are blueticks for corporate sustainability and accountability. And while they’re currently voluntary, future-forward stakeholders demand them. Moreover, quality data is becoming increasingly accessible, driving a surge in reporting.

17 Major companies link executive performance to ESG metrics:

• Alcoa
• Apple
• BP
• Chipotle
• Clorox
• Danone
• Exelon
• Intel Corporation
• McDonald’s
• National Grid
• PepsiCo
• Shell
• Siemens
• Starbucks
• Suncor Energy
• Unilever
• Xcel Energy

How do they measure these metrics?

The most common approach at the moment is the Materiality Assessment.

A Materiality Assessment covers a corporation’s

• business goals,
• current state,
• future initiatives, and
• response to risks.

Diving deep into each of these helps narrow down and prioritise the ESG problems that are most critical to the business.

ESG materiality assessment helps narrow down and prioritise the ESG problems that are most critical to the business.

Snapshot of Citibank’s Material ESG Topics
Source: Citi ESG Report, 2021

Step 1: You want to start by listing the issues. Prioritise – reusable office cutlery may not make the list, adivasi land rights definitely should.

Step 2: Then survey stakeholders – what matters? Also consider international precedents.

Step 3: And report! Where does your company excel? Where is scope for improvements? What are your plans to achieve them?

ESG is so much more than profit vs. loss. It takes into account the people behind the numbers. For instance, you may want to replace plastic cutlery at the workplace with recyclable ones. However, this project’s impact may not be significant for the organisation. 

On the other hand, if a new industry regulation is introduced and your company is obliged to accept the changes, it may significantly impact your operations or bottom line. Therefore, it needs prioritisation. ESG materiality assessment will help you determine this decision and rank projects based on relative importance. 

That’s not to say ESG materiality and financial materiality are the same.

Remember: ESG Materiality ≠ Financial Materiality

ESG goes beyond financial impact and focuses on non-financial aspects that could shake up long-term business resilience. For instance, COVID-19 affected several companies’ operations, staffing and supply-chain logistics. So, keeping the company running was a priority for many ventures, even when they incurred losses to gain their profits back after the pandemic. For instance, when COVID-19 affected operations, staffing, and supply-chain logistics, many companies continued to operate despite losses.

Employee Retention > Breaking Even.

Give Your Assessment An Edge – Integration With UN SDGs

A great way to take your ESG reporting to the next level is to allude to SDGs. Integrating a company’s ESG goals with the UN SDGs allows stakeholders to measure performance by a global yardstick.

The 17 SDGs, call for urgent action from all countries, corporations and individuals to improve health and education, reduce inequality, fuel economic growth by tackling climate change and preserve ecosystems.

When these global goals integrate with ESG, companies can measure their sustainability performance against globally recognised initiatives. SDGs also guide corporations’ ESG reporting and help understand how sustainability can be incorporated into business practices,  managing stakeholder expectations and building a resilient ESG program.

Including SDGs in corporate ESG reports involves:

1. Selecting SDGs for the company’s overall vision/mission.
2. Linking your materiality assessment to relevant SDGs
3. Developing sustainability action plans using SDGs by understanding which SDGs are impacted by your company’s processes
4. Mapping SDGs to existing ESG reporting processes: how do you intend on ensuring a positive impact?

By combining SDGs with ESG reporting, corporations can significantly improve sustainability practices, demonstrate value and commitment to corporate responsibility and engage stakeholders effectively.

Stakeholder Engagement

Now that you know what you want to say, you must say it.

Stakeholder Engagement signifies the processes using which businesses engage with stakeholders, exchanging information and discussing relevant ESG topics.

Businesses want to share net zero initiatives, CSR targets, and results regularly with internal and external stakeholders like:

• employees and unions,
• shareholders and investors,
• customers and clients
• trade groups, suppliers, & partner organisations,
• the government, and non-government organisations,
• public health and welfare organisations

For healthy stakeholder engagement, businesses will want to share details on the growth strategy, financial performance, sustainable or net zero initiatives, corporate responsibility targets and results. 

But, how does a corporation engage with so many stakeholders? 

There are different ways to do this, each serving different sets of stakeholders: 

Stakeholder Engagement must take on many forms.

For all information that must be readily accessible, focus online:

• Quarterly Performance reports
• Annual financial and non-financial reports
• Climate Disclosure Project (CDP) reports
• Company website and social media
• Customer satisfaction surveys 
• Community platforms
• Performance reviews and company intranet 

For information that needs a personal touch, focus offline:

• Shareholder meetings
• Collaborations with NGOs and community organisations 

Stakeholder engagement plays a primary role in ensuring a company’s ESG efforts don’t go unnoticed. It also instils accountability and transparency in the corporate responsibility process.

Maersk, for example, sticks to ESG ratings their stakeholders are most familiar with, which aligns their ESG objectives and builds transparency. The company also examines corporate human rights impact, holding itself accountable to authorities and civil society.

But perhaps the most important influence of stakeholder engagement is that it drives better consumer trust and purchases as well as employee engagement and loyalty, directly affecting a business’s bottom line.

Source: 2021 ESG Consumer Intelligence Report, PwC

Reporting is just the beginning. Stakeholders must interpret these reports.

Stay tuned for Part 3, where we’ll discuss the different kinds of ESG assessments.

Credits

The article was strategised by Deepa Sai

Ayesha is a freelance writer and editor with 5+ years of experience building brands online. She works extensively with B2B businesses in SaaS (Sales, Marketing & Ecommerce) and Sustainability. Previously a social media manager, she now loves writing long-form articles backed by meticulous research. Connect with her on LinkedIn. 

 The article was edited by A. Ashni, a freelance writer, editor, and translator. Her research expertise lies in sustainability, gender, and disability. When not working, she’s rescuing animals and fundraising for stray population control in Mumbai.