The decision to adopt and implement ESG (environmental, social, and governance) in a company heralds the start of a journey, one that cuts through every sector, buttresses into the neighbouring communities, and ultimately links up to other initiatives globally. It is a call to redefine corporate operations, ingraining responsible and ethical operations with the aim of making the planet a better place. However, as an emerging concept, ESG integration is never easy for companies.
For some corporations, the whole idea of ESG sustainability is pretty complex and can easily deviate them from the core corporate operations of the company. It can also be pretty expensive, especially at a time when most businesses are trying to overcome the ever-growing competition on the market. As we are going to see in this guide, ESG integration requires careful understanding and planning, but the benefits for your company far outstrip the cons.
As the name suggests, ESG integration is the process of adding sustainability into the structures of a company's operations. Indeed, it can be employed from a number of angles, like in corporate management, financial related operations, and investment. For investors, the idea of ESG integration means adding sustainability considerations to help them identify firms that are responsible, ethical, and focused on making the planet a better place for all. Indeed, it is becoming a very important component when reviewing the performance of investments or an asset of interest.
As a corporate entity, we must emphasise that ESG integration is becoming a crucial component because almost every stakeholders is demanding it. From customers to governments, every entity is demanding to only work with sustainable businesses. As a result, more capital markets, such as HKEX and NYSE, have put ESG reporting as a core requirement for listed companies. Governments like the EU, the UK, Singapore and the United States, are also passing legislation to make ESG integration mandatory.
Therefore, you had better prepare and implement ESG integration accurately. Check out the next part to see the long list of benefits that come from ESG integration.
The process of ESG integration requires a lot of commitment to be able to realise the benefits we have listed above. Particularly, you need to make it a long-term target for your company with clearly defined steps. Let's check some of the best practices for the process of ESG integration.
As we indicated at the beginning, the process of ESG integration can be pretty challenging. Therefore, the tone should be set from the top. Indeed, most governments, authorities, and stock markets require the top decision making organs of their companies to foresee the process. For example, the Hong Kong Stock Exchange (HKEX) guideline for ESG reporting requires the process to be foreseen by the board of management.
Your company should, therefore, start the process of company integration from the top. Note that this means ingraining ESG as part of the company’s main agenda, alongside others like financials and product development. Again, this should come with ample budgeting for ESG activities like data gathering and analysis. Others include support for ESG reporting topics recommended by stakeholders like investors and consumers.
Once you set the tone at the top, the next step is to understand the current status of the company. Here, you must appreciate that all company's activities are not the same, and the activities for ESG integration might differ. For example, a company dealing with manufacturing might need a different approach to ESG compared to a bank or insurance firm. If you have already started, maybe through programs such as corporate social responsibility (CSR), that will be a huge addition.
Carry out a comprehensive review of the company's ESG risks and opportunities. This will identify the areas where you are making a more negative impact on the environment and society. For example, you might want to prioritise cutting down waste, reducing emissions, or supporting the community. These are the ESG reporting topics almost every investor wants to see.
Armed with the most preferred area of interest, you now have to craft a clear and sustainable strategy. The plan you develop should clearly outline the steps to follow and key performance indicators. Remember that you also need to determine the team that will guide the process. For example, "will ESG be driven by individual departments or managed by a separate sustainability unit?"
Still, on the strategy, it is important to identify and work with an appropriate ESG reporting framework. The frameworks help to guide the process of ESG integration and also in reporting the efforts so that stakeholders can clearly understand your efforts. Some of the best frameworks to consider are SASB, TCFD and GRI.
The last step is showcasing the efforts of your company to stakeholders. You should document the entire process of ESG integration, from the strategy formulation to results, so that investors and authorities can appreciate the efforts. So, analyse the data for ESG performance, capture the information in a report, and publish it in your website for the targeted investing and other stakeholders.
Note that the report you provide should be as accurate as possible to avoid the risk of getting labelled greenwashed by consumers, authorities or investment-interested stakeholders. Also, make the information easy to verify for stakeholders who might want to check back. When you create the report, it should also set the pace for the next phase of ESG in your company.
As you can see, the process of ESG integration can be lengthy and complex too. A closer look will reveal that once you have crafted the plan for ESG activities, the bulk of the remaining tasks involve a lot of data work. For example, the process of cutting down carbon footprint requires clear data on emissions, calculations, and changes over time. To handle data accurately, it is prudent to have the right ESG management software.
At Diginex.com, we have some of the best programs for ESG management. No matter the size of your company, you can use our apps to plan and accurately implement ESG in your firm. We also have some of the best experts, and they are ready to help you get everything about ESG correct. Contact us today for all that you need to know about ESG integration in your company.
The primary benefit of ESG accounting is that it helps to identify the risks and opportunities facing your company.
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