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Thinking of developing a corporate ESG strategy?

As an organisation, you may be embarking on your Environmental, Social and Governance (ESG) journey, and the process can feel daunting. ESG is here to stay as a lens to view an organisation’s durability, longevity and profitability, with investor expectation to see ESG factors embedded within business models becoming the norm.

It isn’t difficult to get the basics right, and it’s critical to not let perfection be the enemy of good. Each year presents an opportunity for enhancement of an organisation’s ESG strategy and disclosures.

ESG Director, Snigdha Jain, signposts six steps to developing an ESG strategy for new entrants. 

ESG strategy

An organisation is likely to already have in place ESG-aligned practices, and therefore it is crucial to capture these to establish a baseline position. These could include, as an example: 

  • Environmental: measurement of carbon emissions, water usage and waste management.   
  • Social: charitable endeavours, health and wellbeing policies. 
  • Governance: leadership pay, board diversity and voting rules, employee pay and benefits, gender pay gap. 

Identifying these existing initiatives measured using quantifiable metrics can provide a great starting point. Organisations might be fairly mature in some areas of reporting, so it’s important to build on that existing momentum and identify gaps in less mature areas.

ESG strategy

A lot has been written about materiality, which in practice allows for prioritisation. Prioritised disclosure of financial information that meets the needs of investors and allows for transparent assessment of the implications of ESG issues on an organisation forms the basis of single materiality. 

When measured alongside the needs of investors, there is consideration of the impacts on the environment and people, and reporting examines the wider stakeholders impacted by an organisations’ activities - this is wrapped up within the concept of double materiality. Whilst identifying material considerations, it’s important to hear from investors, employees, clients and the supply chain, who will all play an important role in making the ESG strategy a success.

ESG strategy

The UN Sustainable Development Goals (SDGs) have been part of the global business conversation ever since 193 nations voted to adopt them in 2015. The prioritisation of UN SDGs by an organisation based on relevance is a best practice approach that allows for greater impact. Peel L&P[1] is one of many organisations that have taken this further and developed a set of clear targets focused on the issues most relevant to their organisation. At Turley, we have been reporting on how our activities influence achievement of the UN SDGs since 2018/19. 

 ESG strategy

A screening of all existing and anticipated regulations and initiatives that will impact your business is essential. Trigger thresholds for regulatory drivers generally include revenue, employee size and public listings. We discuss some of the new drivers in our 2023 update here. As an illustration, some of the key legislative drivers under the environmental theme include:

  • The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 - requires disclosures to be in alignment with the Task Force on Climate-related Financial Disclosures (TCFD). This has been in place since April 2022.
  • Streamlined Energy and Carbon Reporting (SECR) – this has been in place since April 2019.
  • Energy Savings Opportunity Scheme (ESOS) 2014 - currently in its third phase.

For organisations with significant activity and presence in the European Union (EU), the implications of the EU Corporate Sustainability Reporting Directive (CSRD) which entered into force in January 2023, should also be considered.

ESG strategy

The 2020 edition of Carrots & Sticks (C&S)[2] assessed the regulatory landscape of non-financial and sustainability reporting globally. Over 600 reporting provisions were identified, providing some context to the challenge faced by market participants. Efforts have been taken to mitigate against this, most notably in 2020 when five framework- and standard-setting institutions of international significance[3], published a vision for harmonised reporting[4]. The demand for globally consistent and comparable ESG disclosures has only continued to grow since, and two major initiatives[5] are underway from:

  • the International Sustainability Standards Board (ISSB); and  
  • the European Financial Reporting Advisory Group (EFRAG).

Whilst there are differences between the evolving standards, commonalities are starting to emerge, such as: 

  • General consolidation of reporting areas aligned with the recommendations of the TCFD (1. Governance 2. Strategy 3. Impact, risk and opportunity management and 4. Metrics and targets). 
  • Move from qualitative to quantitative metrics and targets for high-quality, transparent, reliable and comparable reporting. 
  • Expansion of the reporting boundary to cover the value chain, including suppliers and consumers.

ESG strategy

Once material issues have been identified and the direction of travel in the reporting landscape well understood, an organisation can set goals using quantifiable metrics where feasible, and identify priority areas for improvement. 

Goals can include earning industry-specific certifications, such as pursuit of CarbonNeutral® Certification and carbon emission target validation under the Science-Based Targets initiative (SBTi). Prior to pursuit of certification, it might be prudent to put emphasis on collation of comprehensive data points and improving the quality of data. An overarching vision and messaging designed to inspire could then be the catalyst to stimulate action and implementation. 

For a discussion on formulating your corporate ESG strategy, please get in touch with Snigdha Jain. Our team of ESG professionals have extensive experience of creating bespoke, organisation and sector-specific strategies. 

22 March 2023

[1] More information on Peel’s targets and progress can be found here.
[3] CDP, the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB)
[5] Whilst not discussed in this article, the Securities Exchange Commission (SEC) in the US 

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