How to Incorporate ESG Principles
July 26, 2023
There has been a significant rise in the
need to integrate environmental, social, and governance (ESG) principles into the day-to-day
functioning of every organisation. These involve a set of standards and practices that
companies need to adopt to control their impact on society and the environment.
For example, it involves considering environmental factors such as keeping a tab on carbon emissions, social factors that require thinking about the community, and governance factors that push for the adoption of strong and ethical practices per the relevant standards and regulations. The environmental consciousness among customers today remains high as they look forward to recycling, minimising waste, adopting greener products, and rewarding businesses that undertake responsible initiatives. Therefore, it becomes crucial for companies to incorporate ESG principles into their strategy while promoting sustainability, ethical practices, and transparency.
There is no one-size-fits-all solution to integrating ESG principles, especially considering it is a complex and multifaceted issue and every organisation may have its interpretation. There are, however, some basic parameters that any company can consider when it comes to incorporating ESG principles.
- Identify pertinent ESG challenges: This involves
undertaking a materiality assessment through interactions with stakeholders, including
employees, investors, and customers. It is crucial to gauge their expectations and
reservations while assessing the opportunities and risks associated with various ESG
issues. The examination will account for how much energy a company uses, how much waste
it generates, the diversity of its personnel, human rights, supply chain ethics, data
protection, and board composition.
Evaluate the performance:Collecting relevant data
related to the adoption of social practices, governance structures, and environmental
outcomes remains a crucial part of this process. The performance can then be compared
concerning the requisite standards and regulations.
Set tangible targets and goals:Companies should start
by setting a baseline and undertake a gap assessment of activities, policies, and
processes. It will help a company adopt a strategy and set realistic targets, internal
key performance indicators (KPIs), and relevant metrics.
- Factor ESG into daily decision-making:
An effective ESG-centered business strategy includes integrating sustainability
measures into performance assessments and assessing ESG risks and opportunities when
making investments or mergers and acquisitions (M&As). ESG is to be integrated into the
operation of the business as well.
- Engage with stakeholders: Share information related to
business strategy and growth objectives, financial performance, corporate responsibility
objectives, targets, and results with every stakeholder. On their part, they will want
to provide their perspective and concerns that intersect with a company’s operations,
plans, results, and impacts.
- Measure and report progress: This is also essential for
reducing a company’s operational costs while seeking support from investors and
Essentially, ESG is a required corporate philosophy manifested in all the initiatives a particular company undertakes. Also, it is a collective process that involves everyone associated with a company. That is how ESG principles become integral to the company’s ethos and daily operations.