How to embed ESG best practice

What is ESG?

Rachel Nicolson The three pillars of ESG 'environmental, social and governance' require businesses to scrutinise what they are doing to ensure it is sustainable and responsible.

Different issues fall under each of those pillars. The E, or environmental, is currently dominant within ESG, and climate change is very dominant within the environment pillar. But also issues like water scarcity and resources scarcity, waste, play a key role in the E pillar as well.

In terms of the S, social, what we are talking about there is social impacts on stakeholders and that often equates to human rights impacts. So, we are talking about issues like labour standards, about standards in supply chains, including, for instance, modern slavery. Issues of bullying and harassment, anti-discrimination, and that includes, for instance, on a gender basis and picks up issues like sexual harassment but also racial discrimination. And, of course, health and safety issues.   

And the G, or governance, covers the governance risk and compliance frameworks that are in place by which a company achieves their policy objectives. And it also covers integrity and accountability issues. So, it picks up issues like anti-bribery and conflicts of interest as examples.

These three pillars work together to ensure that a business is achieving sustainable outcomes.    

Who does this affect?

Jill Button ESG is relevant from the board down and across all sectors of the economy.

How ESG will impact an organisation and the depth of investment required will depend on a number of factors, including the nature and magnitude of ESG risks and opportunities faced, the views of key internal and external stakeholders, and also where the company is at on its ESG journey.

It is important within an organisation not to fall into the sustainability silo. At a minimum, boards, C-Suite, risk and compliance and legal teams should have ESG front of mind and should be working with sustainability teams to drive practices forward. 

What are the key priorities?

Jill Button Given the breadth and magnitude of ESG issues and the pace of change, it can be quite overwhelming. It is also quite a fragmented space. We have identified three actionable steps that can be taken now:

First, make sure your board and ExCo are well informed about key ESG risks and opportunities. This helps them fulfil their fiduciary duties, but also helps them to set the tone from the top.

Second, develop the company's position on key ESG issues. You might want to consider establishing a cross-functional team to look at soft law standards that are relevant to your business; look at what peers are doing; examine what stakeholders' expectations are; and put together a set of core commitments that the company can measure itself against.

Third, prepare an ESG action plan with accountabilities and deliverables, to make good on commitments. This might include, for example, updating the company's risk and compliance framework to embed ESG issues.

Catching up with, and keeping pace with, the ESG megatrend is a journey and not a destination. We think these three initial steps can help a company set a sound foundation and continue to mature over time.