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  • Writer's pictureDirk Baerts

ESG (Environmental, Social, Governance) explained

Updated: Mar 12, 2021


What is ESG?

ESG stands for Environmental, Social & Governance. Stating it in an oversimplified it groups all strategies, actions and initiatives business and governments undertake in the areas of sustainability, renewable energy, inclusion, diversity, non-discrimination, equality, corporate governance & ethics.


But the explanation would be too simple, and by far too narrow, as ESG actually covers activities in much broader domains. The list can be sheer endless, but next to the previously mentioned items, it also includes corporate and governmental actions in areas such as:

Environmental:

  • Natural resources & all types of waste

  • Pollution, CO2 & other emissions,

  • Raw material sourcing & production

  • Product & packaging handling

  • ...

Social:

  • Labor standards (in company but also in the supply & distribution chain)

  • Supply chain management

  • (Access to) health, safety, education & training

  • Product quality / safety, privacy & data protection

  • Access to healthcare & proper hygiene

Governance:

  • Board & management diversity,

  • Equal pay & compensation

  • (Anti-)corruption & -competitive measures

  • Accounting & finance practices and controls (including tax)

These is a limited listing of the domains ESG touches upon, these can all be further refined and expanded. It also is not limited to a specific region but is supported globally (although key focus area and initiatives might differ by country or continent), as can be illustrated by the United Nations’ 17 Sustainable Developments Goals. This is part of the UN’s 2030 Agenda for Sustainable Development launched in 2015 to “provide a blueprint for peace and prosperity for people and the planet, now and into the future”, as it is mentioned on the United Nations Department of Economic & Social Affairs website on Sustainable Development. The UN developed 17 Sustainable Developments Goals, with specific targets (169 in total) & actions (over 5,000) (click on the goals for more information):


Why does ESG matter for companies?

A demonstrated, this is an irreversible global movement that is gaining speed, due to greater awareness being created around climate change and its impact on societies and global economies, or around social inequality & discrimination, and (the lack of) diversity & inclusion in organization’s and its leadership. Universal & instant availability of information through news & social media and online networks is accelerating this process, leading to different expectations & demands from (and on) company’s stakeholders (being its employees, suppliers, customers, local communities and shareholders).


As a consequence, the ESG movement is forcing the company’s leadership team and its board directors to completely think and act differently on subjects like purpose definition, strategy setting and execution and stakeholder management and engagement. Putting the right level of processes and controls in place to ensure compliance on all levels, should also be placed high on the agenda. Not reflecting upon how this evolution is (and will be) impacting one’s business as an executive or board director can have significant consequences in the short and long-term, like for example:

  • Less engaged employees, increases staff turn-over & lower success rates when recruiting, as (potential) employees are no longer identifying themselves with the company’s purpose or image

  • A weakened competitive positioning & brand reputation in market, leading to revenue loss and profitability

  • Bad PR & publicity, with serious reputational damage

  • Serious financial implications (penalties, damages, extra taxes, …) to both company as its leadership

On the other hand, there are enormous benefits to be reaped by acting on ESG sooner rather than later:

  • Use it as a market and brand differentiation option, in terms of innovation & visionary leadership

  • Build a reputation with the upcoming generation of customers & (future) employees, who hold ESG-related values high in their views & consider these when making purchases and evaluating career plan options

  • Future proofing the business early and allowing for more planned and gradual approach, rather than being having to deal with a sudden and forced solution, that can be very disruptive

  • Engaging new technologies and creating new business opportunities to grow in the next years


I2ACT is here to support you

You can not tackle all these domains at once, at the same time, so management will need to select and set priorities. The best way for management and board to address this is to work this process methodically and start with educating itself on ESG, discuss objectives and opportunities and research what level of know-how and experience is already available within the company. Following that, it can put its strategy together, select its key priorities & the possible quick wins, and then develop a step-by-step plan, with the necessary goals, metrics & communication moments, before ultimately moving into action. In essence, it will be applying the I2ACT philosophy. And while this sounds extensive, this can be initiated quickly, within a few days or weeks, depending on the size of the organization and project.

I2ACT can assist you in the various stages of this process, either with advisory services or active engagement:

Assist the executive teams and Directors Boards with

  • Education on ESG

  • Determining the organization’s current state & views, as well as its future aspirations, objectives and

  • Developing the ESG strategy, setting the priorities and the related goals & metrics

  • Implementation & execution of the ESG strategy

Create stakeholder engagement

  • Review (and possibly redefine) the company purpose with ESG in mind

  • Facilitate internal discussions & forums to discuss ESG & develop solutions

  • Work with management and HR to create change management & communication plans to successfully take the organization through the process

  • Develop supplier and customer engagement & action plans, with clear goal, in cooperation with the involved departments

  • Work with the sales and marketing teams to create renewed market and brand positioning plans, update USP’s & communication statements and develop sales-oriented education and training tracks

For more information, send an email to dirk.baerts@i2act.ca or call (647) 985-4296.

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