In recent years, Environmental, Social, and Governance (ESG) factors have emerged as critical drivers of sustainable business practices. Initially championed by NGOs and advocacy groups, ESG considerations have now evolved beyond altruistic endeavours to becoming a key strategic focus area for business as well as investors.
One of the most significant shifts in the ESG landscape has been that Governments and regulatory bodies are recognizing the need to institutionalize ESG reporting and moving from voluntary to mandatory disclosures. This change reflects the increasing importance of ESG factors in evaluating a company’s overall performance and long-term viability as well as the growing recognition that ESG initiatives are not only ethically sound but also financially prudent.
Now let’s explore the key drivers to help accelerate your ESG roadmap and drive enterprise value.
Executive Commitment to ESG Agenda
To drive meaningful change, top management and the company’s board must exhibit unwavering commitment to ESG principles. This commitment is exemplified through the establishment of clear goals ranging from short, mid to long term; key performance indicators (KPIs) and well-defined milestones. Setting up a robust system to measure and monitor ESG performance against the set goals further demonstrates the organization’s dedication to ESG initiatives. Additionally, the organization can further strengthen its commitment by directly linking the achievement of its ESG goals to the Incentive Plans paid to top executives.
Leveraging Design Thinking to integrate ESG from product development to supply chain and to Human Resources
Traditionally Environment has been a key pillar and driving force within the ESG agenda. However, it is crucial that a company places equal importance across all three pillars including Social and Governance. A company can leverage design thinking to effectively embed ESG considerations into decision-making processes across all facets of the organization. For instance, adopting innovative technologies to transition from fossil fuels to biofuels demonstrates a commitment to environmental sustainability. Similarly, leveraging HR policies that prioritize inclusion and diversity in hiring practices reflects a dedication to social responsibility to ensure the best talent is retained and hired within the company. Onboarding diverse suppliers as part of brown field and green field expansion plans can provide added advantage under ESG performance.
Build Robust Data Management Systems for Transparent Disclosures
Robust measurement and governance mechanisms are essential for accurate and transparent ESG reporting. Companies must establish right metrices, clear data points, verifiable methodologies, and governance to assess their ESG performance. Regular performance reviews of this data prior to transparent disclosure ensure that any risks or opportunities are mitigated or seized in a timely manner. For instance, Business Responsibility and Sustainability Reporting (BRSR) reporting has been made mandatory for top 1000 listed companies in India which requires ‘reasonable assurance’. Global companies present in India can go beyond BRSR by mapping their disclosures to global disclosure standards such as Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB) and United Nations Global Compact (UNGC) principles as good governance practices.
Sustain Engagement with Stakeholders
Sustained engagement with stakeholders like investors, customers, policy makers, NGOs, community etc. is paramount in demonstrating a company’s commitment to ESG. Publishing ESG performance reports annually, serves as a vital communication tool. In addition, the company can engage and share ESG performance updates with investors during events like annual general meetings and quarterly investor calls and other stakeholders through events, forums and partnerships led by industry bodies like FICCI, CII, UNDP, ASSOCHAM to foster a collective commitment to sustainable practices.
In conclusion, infusing ESG ambitions into business goals leads to multiple benefits from an environmental point of view, implementing ESG measures can lead to significant water and energy savings, positively impacting both the environment and a company’s bottom line. Having robust HR policies that prioritize diversity and inclusion across gender, sexuality, physical disabilities along with health, safety and wellbeing of employees ensures that the best talent is driving innovation, productivity and social change.
In terms of governance, transparent and reliable reporting builds trust and enhances a company’s reputation. In addition to company’s business strategy and performance, new investors closely monitor the ESG ratings provided by independent ESG rating agencies like MSCI, Sustainalytics, DJSI and CDP while making investment decisions. Therefore, by prioritizing environmental, social, and governance factors, companies can drive positive impact while securing long-term success to create enterprise value.
(This article is authored by Navdeep Singh Mehram, Head CSR and Sustainability, Diageo India.)
