ESG Strategy
Implementation, Process, Benefits, Template
Learn how to develop and implement an ESG strategy in 8 steps, plus 4 powerful benefits of doing so, with examples of companies that are doing ESG strategy well
What is ESG strategy?
Crafting an effective ESG strategy involves outlining a comprehensive roadmap aimed at realising predetermined environmental, social, and governance (ESG) objectives. An essential aspect of this strategy is regular ESG reporting, which entails transparently communicating an organisation's advancements in meeting dedicated ESG metrics and gauging its performance against them.
4 Powerful ESG strategy benefits with examples
The benefits of having a successful ESG strategy in place are numerous and becoming widely acknowledged. McKinsey research strongly links prioritising the ESG process to cash flow, stating that, “Paying attention to environmental, social, and governance (ESG) concerns does not compromise returns—rather, the opposite.”
1. Boosts top-line growth
Far from being separate to, or even at odds with, financial performance, your ESG strategy could actually facilitate growth. McKinsey research shows that customers are willing to pay to “go green.” Approximately 70% of consumers surveyed across multiple industries, including automotive, building, and electronics, said they would pay an extra 5% for an eco-friendly product if it met the same performance standards as the non-green alternative. This has the potential to form the basis of a powerful growth strategy.
However, organisations must be mindful that consumers are aware of “greenwashing”, which can lead to serious reputational damage if eco-friendly claims are found to be baseless.
Example: Starbucks
An example of how your ESG strategy can improve organisational growth can be seen in Starbucks and its entry to the China market. For years, Starbucks struggled to gain momentum. It was only after offering healthcare to employees' parents that sales growth skyrocketed. Now, Starbucks has 2,000 stores in one of the fastest growing markets on the globe.
2. Reduces costs
Not only can your ESG strategy boost sales, it can also reduce costs in the long term. Executing ESG initiatives effectively can help combat rising operating expenses (such as raw-material costs and the true cost of water or carbon). Yet more McKinsey research has found that these can affect operating profits by as much as 60%, stating that, “While the investments required to update your operations may be substantial, choosing to wait it out can be the most expensive option of all.” Because even if these expenses aren’t hurting your bottom line too badly yet, you can rest assured they soon will be.
Example: Unilever
Unilever focused on sustainable sourcing of raw materials, particularly in the agricultural sector. They worked on promoting sustainable farming practices and reducing the environmental impact of their supply chain. By implementing efficient water use, reduced chemical inputs, and improved farming techniques, they not only positively impacted the environment but also achieved cost savings.
3. Improves employee productivity
The so-called “Great Resignation” has been a wake up call for many organisations, as they’ve seen their employees find better opportunities elsewhere. There is a willingness to ‘jump ship’, should their current employment not fulfill their needs and values. This is something that a strong ESG proposition can help to minimise, as Millennial employees in particular seek job satisfaction and alignment with personal values from their employment.
According to the London Business School’s Alex Edmans, employee satisfaction is positively correlated with shareholder returns. Whereas, a weak ESG proposition can actually drag employee productivity down, especially in instances of activism, labour actions, and strikes.
Example: Microsoft
Microsoft has implemented various initiatives aimed at enhancing employee well-being and work-life balance. They prioritise the mental and physical health of their employees and recognise the importance of creating a positive work environment. The results of these initiatives include increased employee engagement, reduced burnout, enhanced creativity and efficiency.
4. Increases investor and partner appeal
Study after study shows that companies prioritising ESG stand out in a positive light to both investors and lenders. Not only that but these investors are likely to stick around. Because ESG investors are values-based investors, they understand that change takes time and positive change is worth the time it takes. They’re more interested in what happens during the next decade than the next quarter. Of course, driving much of this shift toward sustainable investing are millennials and Gen Z, with a $51.1 billion contribution to sustainable funds in 2020. This is an enormous increase on the less than $5 billion five years previously.
Just as investors are paying more attention to organisations with good ESG practices in place, so too are companies looking for supply chain partners that embrace sustainability.
Example: Patagonia
Patagonia is a well-known outdoor clothing and gear company that has gained recognition for its strong commitment to environmental and social responsibility. The company's ESG strategy is deeply embedded in its core values and marketing. The company, which has been known to promote used wear and ask consumers to think twice before buying its products, saw its revenues grow from $543 million in 2012 to $1 billion in 2017. In 2022, Patagonia founder Yvon Chouinard announced that he had given away the $3 billion company to a charitable trust to fight climate change.
How to develop & implement an ESG strategy in 8 steps
Organisations that need to reevaluate their business practices in favour of sustainable ones, should take the following steps:
1. Conduct a materiality assessment
Before you think about how to implement ESG in a company, you need to assess your current position and develop a strategy to follow. The first step in creating your company’s ESG strategy is to perform a materiality assessment. This is an analysis that determines the critical ESG issues to your organisation. Take the Ansarada ESG pulse check now.
2. Determine your baseline
Using the insights learned during your materiality assessment, it’s time to quantify your organisation’s current ESG performance. There are a number of different ESG standards out there – including SASB, GRI, ISSB, TCFD, and PRI to name a few. The World Economic Forum has now released a consolidated set of standards, which aims to set a global framework for ESG measurement.
3. Set your ESG goals
What are the critical ESG issues your organisation needs to address? They won’t be the same for every business but they may be similar across your industry, so it’s worth reviewing what competitors are doing when determining your specific ESG goals. Your goals should be spread across all three aspects of ESG.
4. Analyse areas for improvement
This analysis should determine realistic timeframes and risks associated with your organisation’s current poor performance, which can help to inform your ESG strategy. This can be viewed as part risk assessment, part scenario testing, in relation to identified ESG issues.
5. Create your ESG strategy
You should now have a list of ESG issues and targets, as well as estimated timeframes for rectification of the most critical issues. From here, it should be a fairly straightforward process of putting together the strategy.
6. Monitor progress
Identify as part of the strategy people, processes, and platforms suitable for tracking the progress of your ESG activities. To minimise laborious and error-prone manual tasks in monitoring and reporting (step 7), organisations should consider using ESG software to maintain data governance best practices.
7. Report regularly
ESG reporting is fundamental to communicating your ESG performance to stakeholders. This step completes the stakeholder engagement feedback circle that was started during the materiality assessment in step 1.
8. Tweak and refine
Your ESG strategy is not a ‘set and forget’ activity. It requires continuous monitoring, analysis, and adjustment to ensure it remains on-track.
60-second takeaways
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ESG strategy is essential for realising predetermined ESG goals.
The first step in creating a company ESG strategy is to conduct a materiality assessment. Take the Ansarada ESG pulse check now.
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Developing and executing an ESG strategy can boost growth, reduce costs, improve employee performance, and increase investor appeal.
ESG reporting is fundamental to communicating your ESG performance to stakeholders.