Tackling Decarbonization: ESG Planning Strategies

Visit BSI's Experts Corner: Home for insights from BSI’s practice directors and industry experts on Environmental, Health, Safety, Security, and Sustainability.

April 18, 2022 - Corporations everywhere are feeling the urgency around environmental, social, and governance (ESG) compliance planning. U.S. companies in particular are feeling the pressure as the Securities and Exchange Commission (SEC) has announced its proposed climate-related reporting regulations. Greenhouse gas (GHG) emission goals are clearly laid out by the UN Intergovernmental Panel of Climate Change (IPCC): we need to reach a 45% reduction in emission by 2030 and ultimately achieve net zero emissions by 2050. As an organization, if you're not already banking in the cost of carbon, you're going into the future blind.

But this is only a very small part of a complete ESG compliance plan. More and more, investors are looking to do business with companies that value all-encompassing socially responsible practices. Issues like managing waste streams, sustainability, vendor liabilities, human rights, etc. all need to be considered. Building organizational planning and policies custom to your company is no small undertaking.

When you create an ESG policy, you want to adopt practices that enable you to meet the needs of your stakeholders.

Who are they?
How are they impacted?
How do we get their input to better understand their needs?

Foundational Research

In order for any ESG-related policy to be fit for purpose and ultimately embedded in operational practices, it must be collaboratively drafted with input from all levels, and across all relevant functions within an organization. Varying individuals and departments within your organization will be impacted differently by this policy; therefore, you need a wide breadth of input and perspectives.

Stakeholder input shouldn’t be limited solely to people within your company. Consult with local community members, subject matter experts on a particular topic, local government representatives, your customers, and suppliers. They all have something to gain or lose based on the success of your ESG practices and strategies.

Additionally, an assessment of your peer companies and customer requirements will provide insight. When drafting a policy or a code of conduct related to human rights, for example, be sure your policy does not fall short or is less stringent than that of your customers. You should take care to align your policies with the range of customer requirements, industry standards, best practices, and the laws and jurisdictions of where you operate into your policy.

Stakeholder Engagement

Since your stakeholders have different needs, expectations, and relationships with your organization, it’s important to account for ideal ways they can each be uniquely engaged as part of the process. Direct interviews or workshops with immediate stakeholders such as employees, leadership, or customers allows for deeper dialogue and understanding of their specific needs. It also lets them know they are part of the planning process and that you've taken the time to ask what's important to them. Surveys of a wider population or research of industry initiatives or company disclosures are also useful ways to gather the information needed to make informed choices.

Regional Considerations: More than Just Geography

Different jurisdictions where your value chain operates around the world come with differing risks, legal regimes, and cultural practices. The same is true for specific sectors, products, materials, or processes. Each comes with their own inherent risks, impacts, and opportunities. If you are not accounting for the unique nature of how your business or your business partners operate around the world, then you're limiting your scope of view, and potentially setting yourself up for failure.

Instead, look at your business and value chain through a variety of lenses:

Where do I operate?
What's the local context in which I operate?
What are the local regulatory requirements?
How will my business operate within the constraints of this environment (social or otherwise)?
How will I source materials?
What are the labor considerations? Where is a prevalence of forced labor, child labor, or workforce exploitation?
What are the local business practices, environmental risks, and future climate related risks?

For example, if you or your business partners operate a water-intensive process or site in a water-stressed region, how do you account for your impacts and minimize those that are harmful to the community? What is the impact on the local environment, access to clean water, food production, industrial activity, municipal activity, etc.?

Without answers to these questions, you are setting yourself up for potential risk and financial loss. Think not only from a geographic perspective but from a temporal perspective. How will business activities today impact my stakeholders in five or ten years’ time?

Leadership Involvement

Although this type of reflection and research is necessary, the development and adoption of ESG policies will fail without a strong commitment from leadership. The policy itself is simply a starting point that must be supported by an effective management system in order to become embedded into day-to-day company practices. A mature and responsive management system should:

Provide clear guidance to managers and staff.
Enable cross-functional communication and submission of grievances when workers identify policies are not being upheld.
Train managers and workers on the policy requirements, particularly in complex areas that significantly impact the business.
Establish key performance indicators (KPIs) and goals and monitor against compliance, worker sentiment, or other relevant metrics.
Assess the impact to the workforce, community, and business over time.
Align incentives against program objectives and evaluate individuals and functions against goals.
Communicate measurements to leadership and impacted stakeholders.
Establish a means to make changes to drive continuous improvement based on ongoing monitoring.

By approaching this type of diagnosis and planning as a potentially transformational opportunity – and not solely as a checkbox reporting exercise – you enable your organization to widen the lens of what is possible, see around corners, and engage your stakeholders in a way that improves relationships, builds resilience, and creates value.

Follow our Tackling Decarbonization series for more insight into a complete future-ready approach to organizational sustainability. Click here to listen to “ESG A New Measure of Business Value” as BSI Sustainability Director Ryan Lynch answers key questions about setting ESG policy, what metrics matter, and how corporations can establish science-based targets.