How to Create an Environmental, Social, and Governance (ESG) Plan
Environmental, social, and governance (ESG) are currently playing a significant role on boards in almost every industry.
In today’s climate, each board of directors must possess a full grasp of what kind of impact their organization has on society and the environment.
For further context, environmental criteria are based on how organizations perform as a steward of the natural environment. While social standards assess companies’ relationships with their employees, suppliers, customers, and the communities in which they’re located. And governance accounts for processes and leadership (e.g., executive pay, audit controls, internal controls, shareholder rights).
With matters such as climate change, water shortages, and human rights at the forefront, boards of various landmines through which they must navigate.
Therefore, any board must understand the framework and inner workings of crafting an ESG plan.
Start with a Thorough Assessment of ESG Practices
Every member of the board must know of the potential impacts, risks, and opportunities concerning ESG and the company. They also need to be aware of which ESG-related factors will be most integral to the organization’s future.
So that it can adhere to the above principles, it’s wise for a board to implement ESG inventory and a formal risk assessment. Furthermore, beyond assessing internal operations under this protocol, it’s wise to reach out to external stakeholders.
The ESG assessment should weigh the following categories:
- Supply chain
- Resource accessibility
- Usage and sustainability
- Talent recruitment
- Employee engagement retention
- Financial performance and risk
- Reputational impacts
It’s necessary for this assessment to both evaluate all risks and weigh how they connect at the enterprise level.
Involve Management in the Process
Without the management’s knowledge of a company’s ESG practice, the entirety of the organization can’t uphold those values.
Managers must see clearly the ESG priorities of key stakeholders, such as investors, employees, regulators, and business partners.
This knowledge can be accumulated through surveys with stakeholder groups. A formal process is most ideal in this context.
Some companies will monitor their ESG reputation on social media. While other organizations will converse with a committee of representatives of key stakeholder communities about ESG-related issues.
Establish Specific ESG Roles and Responsibilities.
Boards need to establish who’ll be charged with handling each respective ESG components.
More substantial corporations will bring a chief sustainability officer aboard. Other companies placed the responsibilities of ESG-related issues on the laps of the CEO or other executives in similar positions.
The entire board should have a strategy or risk committee in place to oversee ESG responsibilities. This audit committee’s primary focus should be pushing for comprehensive ESG assurance to the other directors.
Boards Must Stay Ahead of ESG Responsibilities
Recent reports show that ESG investing has reached over $20 trillion. Also, Millennials and Gen Z will end up making the majority of the world’s investors soon enough, and they tend to ask more about their investments.
To keep up with the changes in society and its investors, boards of directors must commit to crafting an effect ESG plan.