The Ultimate Guide to Your ESG Policy for Companies

June 21, 2022

Does your company have an ESG policy? If it doesn’t, you better craft and operationalize one before it is too late. Any organization that targets modern governance should prioritize ESG policies to drive sustainability plans and achieve the expected success. 

Unlike in the past, when matters of sustainability were primarily voluntary, ESG reporting is now becoming mandatory as authorities, investors, customers and other stakeholders emphasize on responsible corporate operations. This is why you should prioritize ESG policy

Keep reading to learn more about ESG policy and how it should look like. We will also tell you what to include in the policy. 

What is an ESG Policy? 

This is a guideline or a set of rules developed by a company to steer its environmental, social, and governance (ESG) matters. With every stakeholder taking a closer look and only engaging when your enterprise is proven sustainable, the policy acts as the blueprint by identifying what you should target. It is evident in every management strategy of your company’s operations. 

The policy defines the areas of priority to achieve greater sustainability in a company. Although the ESG policy comes in handy in sustainability reporting, it goes far beyond the generation of reports for stakeholders. A good ESG policy should be deeply ingrained into your company’s culture, making it the norm as opposed to being a tool for compliance. This way, you will find the outlined environmental, social and governance (ESG) activities pretty easy to implement, enjoy all the benefits of sustainability and steer your company to success. 

How to Craft a Good ESG Policy

Determining what an ESG policy is is only one bit in responsible management. The next thing, which is even more important, is creating the policy and adhering to it. So, what is the process of crafting an ESG policy? What items should you include in the policy? Here are the main steps to follow: 

  • Understand the Main Pillars of ESG 

ESG stands for environmental, social, and governance of a company, the three areas that are used to gauge the focus on sustainability. Although the concept of sustainability can be traced back to about 30 years during the United Nations Conference on Environment and Development (UNCED), it was not until 2006 that ESG issues were listed in the Principles for Responsible Investment (PRI) report. 

After the release of the PRI report, ESG criteria were added to financial evaluations of companies. This focus was aimed at creating sustainable investments. ESG has three main pillars: 

  1. Environmental:  This pillar details how an organization will work and handle matters that impact soil, water, and air. How your company impacts biodiversity and natural resources also falls into this category. Make sure that your efforts in reducing negative environmental impacts is part of ESG reporting because investors will always check to make their decisions about the company.  
  2. Social: This pillar maps out how a company relates to its employees, clients, suppliers, and community. 49% of investors are strongly focused on social criteria when making the decision on where to invest. Like the environmental criteria, make sure that the data presented is accurate and easy to verify. 
  3. Governance: As the name suggests, this pillar focuses on a company’s leadership and its structure. What is the composition of the board? What about the company’s leadership goals, executive salaries, and handling of financial audits? Issues such as policies on reducing corruption and discrimination fall under this category. 
  • Establish the Company’s ESG Goals 

Crafting the main goal for ESG is crucial in guiding your company’s policy and strategy. Therefore, start by reviewing your company's goals and mission. Then, determine the main areas of focus so that more efforts are directed there. One of the best ways of achieving this is by reviewing the company's ESG risks and opportunities.  

You should also consider working with stakeholders, from investors to customers, and do a materiality assessment. Remember that materiality assessment requires the use of extensive company and industry data. It also factors in the prevailing legislative frameworks to ensure that your company takes the right path for sustainability. 

Some common goals taken by companies, and that underlie their policies include cutting down carbon neutrality (within a specific period) and reducing energy waste. 

  • Draw a Clear Strategy and Methods of Assessing Progress 

Once you have defined the goals, the next step is crafting the preferred ESG strategy. This should include clear rules and steps that should be followed to achieve the goals. Extend this to include components of funding, administration, and the team that will be involved. For example, you might adopt a policy such as ensuring 5% of the company's fiscal budget goes into ESG matters, and a specialized team domiciled under, say, the CEO's office, will be created to drive sustainability. 

Make sure to also include regular assessments that can help to show if your company is making significant progress. So, define clear key performance indicators, and provide room for changes or adjustments. 

  • Work with Third Parties to Help With Policy Formulation and, Perhaps, Implementation 

When crafting an ESG policy, it is pretty easy to see as if everything is okay. However, this can be pretty risky, and it is a good idea to consider working with an objective third party. Experts in ESG matters from Diginex.com would particularly come in handy because they have helped many corporations develop their policies. They are also ready to help you. 

You can agree with the experts on the specific objectives or start reviewing your company’s position from scratch. For example, companies targeting to win more corporate investment should craft top-notch policies and strategies for achieving them. Note that these efforts should demonstrate the ability to deliver optimal returns, especially in the long term.

  • Ensure to Have the Right ESG Management Software 

Once you have drawn a clear policy and strategy for implementation, stakeholders will need to get regular reports. These reports will also help third parties to evaluate and even give your company an ESG score. This means that from the moment you decide to become more sustainable, every piece of information should be captured and used for analysis. Trying to do this manually is likely to result in major challenges. 

The best way to correctly implement an ESG policy and impress stakeholders, be they corporations interested in investing in your firm or partners and customers,  is to ensure you have appropriate sustainability management software. The apps allow you to set outlines, targets, and key performance indicators in line with your policies. With the leading apps, you can even automate part of data gathering and analysis. 

This post has demonstrated that if you want to get it right with your sustainability efforts, the first step is installing an appropriate policy. Talk to our experts at Diginex.com for further assistance with ESG policy development, its implementation, and select the latest apps. From diginexCLIMATE to diginexESG, we have all that you need.

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