Approaches to Implementing ESG Principles in Practice
In order to meet their commitments to investors, clients, shareholders, staff, and society as a whole, businesses should be sustainable, and ESG principles should be implemented. As according PwC, by 2020, more than 90% of institutional investors around the world would use ESG metrics to make investment decisions. Black Rock, the largest global investment group, has opted to quit companies that have not declared themselves carbon-neutral by 2050.
So, let's look about how companies might get started on the road to a sustainable future and long-term success.
Priorities must be established at the beginning. Today's sustainable development goals are more than simply a call to action; they're also calculated and displayed in specific international ESG ratings. Given the growing relevance of the ESG agenda, firms must enroll in one of the recognized international ESG ratings, since ESG-loyalty is being used to judge investment attractiveness. As a result, it is vital to establish sustainable development goals and priorities that are appropriate for the company's profile, which can include:
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a paperless "green workplace";
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a decrease in carbon pollution;
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corporate social programs or programs to improve employment conditions;
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recycling projects;
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corporate transparency, diversity, and gender equality efforts;
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corporate governance system change;
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digitization of business processes programs, and so on.
The next step is to determine which risks and opportunities exist in the business. Risks are at the forefront of many companies' ESG agendas. The World Bank, for example, announced in 2018 that beginning in 2019, it will no longer support initiatives related to oil and gas development. However, adhering to ESG principles not only entails risks, but also opens up new business opportunities such as production chain optimization, technology implementation, cost reductions, and so on, all of which will improve competitiveness, generate additional sources of profit and growth, increase business capitalization, and increase attractiveness in the eyes of shareholders and clients.
Making improvements to the company's strategy is the next stage on the path to ESG transformation. When designing long-term initiatives, ESG factors must be taken into consideration. However, it is not possible to achieve all of the sustainability goals at the same time. It is vital to clearly outline and express what adjustments to the existing strategy are required, as well as what will be considered in the next strategic iteration.
Then, in order to deal with relevant issues, a profile ESG-structural unit must be formed. In general, such a structural unit can be divided into three groups:
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The first group is concerned with the creation and implementation of a comprehensive ESG agenda, as well as interactions with investors, the community, and other interested parties, trend analysis and monitoring, best practices and experience, and various processes taking place at the international, state, and industry levels that are associated to sustainability issues;
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The second group is concerned with auditing issues such as control, collection of data, and analyzing of information and indicators on ESG issues, as well as relevant reporting;
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The third group is concerned with motivational concerns, such as identifying accountable individuals, developing KPIs and objectives, analyzing their performance, and managing the reward system.
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Of course, each firm will follow its own route of ESG transformation, depending on its profile and goals, but one thing is clear: we have already entered a new era of civilization growth, and the ESG agenda is a critical component of long-term sustainability and profitability for businesses.