More than ever consumers, employees, and investors are making their decisions based on Trust, of which environmental, social, and governance principles like climate change and diversity & inclusion are critical elements. Organizations across the globe are quickly adopting ESG principles and need a central way to track, measure, and report on their ESG goals and initiatives. OneTrust ESG helps sustainability officers, supply managers, CFOs, and other key stakeholders centralize information, align to frameworks, analyze risk, and report on their ESG programs. Let’s dive into ESG management 101:
Learn more about OneTrust’s ESG solution: Watch our webinar.
ESG Defined: What is it, and where did it come from?
So, you’ve decided that you want to make your organization – and the planet – a better place, but where do you start? Environmental sustainability doesn’t happen overnight. It takes a lot of planning, preparation, implementation, and a comprehensive understanding of globally scaled problems in the face of today and tomorrow’s markets.
As enterprises continue to realize the impact of day-to-day business practice on the broader community, they’re prioritizing ESG program management as a part of their cross-organizational strategy. This includes comprehensive monitoring of their environmental and social impact, reporting on and reducing emissions, becoming thought-leaders in the space, contributing to the creation of environmental regulations, and implementing holistic diversity, ethics, and inclusion training throughout all levels of the business.
Environmental, Social, and Governance, otherwise known as ESG, is a program to identify and measure the impact of an organization’s policies and procedures related to environmental sustainability and social standards. Additionally, ESG Governance assesses the corporate structures and processes that are designed to ensure accountability, transparency, responsiveness, empowerment, and broad-based participation at the company. At its core, ESG management is the silo of a brand focused on providing visibility on both the environmental and social impact of a brand on the broader community and the control of data gathered on the topic.
The environmental component:
The Environmental component of ESG handles all things just that: environment. Many environmental expectations stem from EU regulations like the Non-Financial Reporting Directive, which provides disclosure requirements in relation to non-financial information and requires large companies to submit an assessment of their business model, policies, and key performance indicators on environmental matters.
Likewise, the EU Taxonomy Regulation aims to establish a framework to facilitate sustainable investment. The Taxonomy Regulation entered into force on July 12, 2020, and sets out conditions that economic activity must meet to qualify as environmentally sustainable:
- Climate change mitigation
- Climate change adaptation
- The sustainable use and protection of water and marine resources
- The transition to a circular economy
- Pollution prevention and control
- The protection and restoration of biodiversity and ecosystems
Additionally, the EU is looking to implement renewed frameworks for reporting environmental issues and adopt solutions for and advocate laws that enforce corporate due diligence and accountability. It’s expected that the Commission will present its proposal later in 2021.
The social component:
Although many organizations focus heavily on the environmental impacts, the issues around the social component are increasing. In the last year, many organizations have moved to include these metrics in their reporting as well. The Social component of ESG addresses the way in which organizations manage their relationships and foster their reputation when dealing with employees, vendors and suppliers, customers, and the broader communities where they operate. The social criteria within ESG consider the way organizations manage:
- Labor relations
- Diversity and inclusion issues
- Health and safety conditions
- Human rights and labor standards when dealing with their own employees, as well as with third-party suppliers, customers, and the community at large
The EU is establishing new environmental goals and is looking to implement frameworks for reporting and laws that enforce corporate due diligence and accountability around social topics as well. While there are already laws that exist regarding social responsibility and treatment of employees, respect for human rights, anti-corruption and bribery, and diversity on company boards, it is widely believed that laws need to be expanded upon and enforced universally.
The governance component:
The Governance component of ESG addresses the internal system of practices, controls, and procedures organizations adopt to govern themselves, make effective decisions, comply with laws, and meet the needs of external stakeholders. The governance criteria within ESG considers the way in which organizations manage topics such as:
- Tax avoidance
- Executive pay
- Director nomination
- Company leadership
- Executive pay
- Internal controls
- Shareholder rights
ESG is an emerging, yet crucial concept in the corporate and investment worlds. The modern ESG model was created as a way for investors to better target their investments to environmentally sound areas but has now expanded to something much more, piquing the interest of stakeholders, the public, and global regulatory authorities. ESG derived from both Corporate Social Responsibility (CSR) and the Environmental, Health and Safety (EHS) Sustainability Reporting methodology, and is categorized under “sustainability” in the investment industry. There is some overlap with EHS around Environmental issues.
- CSR is private business self-regulation that aims to contribute to societal goals of a philanthropic, activist, or charitable nature by engaging in ethically oriented practices. CSR drove regulations like ISO 26000 and EU Taxonomy.
- EHS is a methodology that studies and implements practical aspects of the protection of the environment, health, and safety at occupation.
Learn more about the history of EHS and OneTrust’s ESG solution in our webinar!
Why is ESG Management important?
As outlined, ESG is an important part of investment decisions, brand image, and fostering the relationship of trust between stakeholders, the public, and a business. The following areas are where ESG’s impact is most notable:
Aligning with the consumers & stakeholders
It’s becoming increasingly important to consumers that the companies they support align with their own ethical commitments. In order to make sure that your brand has the support that it needs, you need to support the same initiatives that your key audience members do.
A brand without people behind it and the support of consumers is just that: a brand. Environmental sustainability is important for both community and the planet, but it’s also important to the people that make your organization what it is. According to a global (US, Canada, France, UK, Italy) Forrester study on CSR in global consumers*, the top areas of importance universally are:
- Commitment to information confidentiality and data privacy
- Environmental protections/position on climate change
- Animal rights and protection
- Giving back to the local community
- Gender equality
Additionally, Forrester reports that“…55% of consumers strongly agree (92% in total “agree”) that brands have a responsibility to step up and play an important role in society during the COVID-19 crisis”.** Prioritizing ESG governance, maintaining ESG insights, and implementing strong ESG management practices is crucial to delivering the aspects of a brand consumers want to see, and building a holistic brand image.
*Consumers’ Corporate Social Responsibility Concerns Vary Globally, Forrester Research, Inc., Aug 17, 2020.
** American Consumers Want More Environmental Protection — Companies Should Make It Happen, Forrester Research, Inc., July 23, 2020.
Building & Maintaining Strong Company Reputation
Having a strong ESG program will improve your brand image, reduce risk, positively impact revenue and company valuation, and enhance overall market perception—in addition to supporting good practices. But it also requires transparency. Publishing ESG reports is becoming more important to the communities you reach who want to know what your impact is in these areas. So, how do you do it? There are four main imperatives to consider when publishing ESG data:
- New Stakeholders: Though ESG started as a way for investors to better target their investments to environmentally sound areas, it has become an area of interest to all stakeholder groups. Employees want to be aligned with the company they work for and are interested in seeing the ESG metrics. Many are focused on gender, pay, and racial equality at work and have started diversity, inclusion, and equality (DEI) councils and steering committees. Customers are also interested in ESG reports and are starting to base their purchase decisions on a company’s information.
- Transparency: A trending topic in the modern business world is transparency. Companies that choose not to publicly report in the areas of ESG have trouble gaining the trust of investors, stakeholders, the public, and regulatory authorities. Even though the rise of ESG reporting is newer, it is being adopted rapidly across industries worldwide. No one is expected to be perfect, but companies need to prove investment in resources and responsibility for making changes in these areas by having research and reporting plans in place and being transparent with findings. Determining a baseline for your ESG metrics is the first step in addressing internal issues.
- Ratings: Many companies, especially public ones, have ratings by external providers which are publicly exposed. Ideally, companies need to have high ratings to showcase their competency in ESG and other crucial reporting structures to investors and stakeholders alike. A low rating may not indicate improper practices, but a general lack of data or data transparency. By prioritizing ESG and sharing your findings, your ratings score will improve.
- Regulation: Though there isn’t current regulation specifically on ESG metrics or ESG reporting, most investment authorities like the SEC or the European Securities and Market Authority (ESMA) are looking to implement it soon. It’s widely agreed upon that regulation in this area, like what’s been done with privacy, is only a matter of time, and kickstarting your ESG metric gathering and reporting program ahead of the curve will help your business comply when it happens.
Learn how OneTrust’s ESG solution can help you implement strong ESG management throughout your brand in our webinar!
ESG by Industry & Position
CEO, CMO & Investor Relations Specialists
As the CEO, your main task is to identify internal risks that may harm overall brand image, valuation, or revenues of the company based on ESG metrics and reporting practices. Understanding your company’s ESG data will enable you to educate your marketing and sales teams so that they can speak to external stakeholders in a way that aligns with the position you want your brand to hold in the market. Additionally, being ahead of the curve on ESG messaging and transparency will set you and your brand apart as thought leaders in the space, increase attractiveness in the market, and open the door to new funding opportunities.
Tip: Evaluate and compare the position of your ESG efforts to be able to explain them to customers, employees, board members, and investors. Start by comparing your ESG rating to other companies of your size, industry, geographical location, etc. This will give you a good idea of where your risks lie and what best practices your company should be following to prioritize ESG in these areas.
CFO & Procurement & Supply Managers
Understanding downstream issues that could impact your organization is crucial to all things financial, procurement, and supply chain related. Identifying any risks that come from third-party partners, vendors, and suppliers now goes beyond the traditional scope of cybersecurity, privacy, and data protection – it now impacts your company’s ESG compliance. ESG should be considered in the following areas:
- Identifying and managing third-party risk
- Vetting third parties for risks
- Identifying potential issues that could impact the valuation of your company
- Managing the finances for investor value
COO & CSO (Chief Sustainability Officer)
Your main task is to enable yourself and your team to gather and report on pertinent ESG data from across the company and external data sources. Operationalizing your team to do this in a concise and effective manner empowers the entire company to take clear, actionable steps to comply with ESG regulation and speak knowledgeably about issues that arise in these relevant areas.
Tip: Focus on evaluating your cross-organizational data gathering and reporting processes and focus on identifying key areas where you can reduce the time and effort it takes to gather metrics from different departments of the business.
Ethics & Compliance Managers
As ESG regulations become more enforced from both a national and global standpoint, it’s important to include in your supply chain risk analysis. Ensuring that your company is in compliance with relevant regulations, performing effective audits, and assessing control systems will become increasingly important. Getting a head start on implementing ESG into your continual risk assessments will not only help you reduce vulnerabilities that are often overlooked but will ensure continuity in your teams’ processes when regulations officially come into effect.
How do I implement ESG management?
Large companies across many verticals want to use a framework or methodology to measure their impact and reporting on ESG is standard and compliant. Good news: you’re one step closer to implementing stellar ESG management practices just by reading this guide. To further act on understanding and implementing ESG practices, check out the resources below:
|Current ESG Compliance:
||Key ESG Frameworks:
How can OneTrust help with ESG Compliance?
Our ESG solution leverages our expertise in Vendor Risk Management, Privacy, GRC, and Ethics to deliver an immersive ESG management experience. OneTrust ESG enables you to use templates and workflows to reduce the complexity of interfacing with many parts of a large organization by providing standard and customized ESG reporting formats.
Learn more about how OneTrust ESG can help you leverage ESG within your organization: OneTrust ESG.
Further ESG Management 101 reading:
- Blog: Gather, Track, and Report on Your Corporate ESG Data with OneTrust
- Infographic:ESG Imperatives 101
Next steps on ESG Management 101:
Learn more: Request a Demo