13 October 2022
What is ESG?
Very briefly defined, the three branches of ESG cover:
- Environment: Includes reference to climate change and greenhouse gas emissions, but also to biodiversity loss and energy efficiency.
- Social: Human rights (a huge topic itself) along with the health and safety of an organisation’s workforce, principles of equality, diversity and inclusion, and equal pay.
- Governance: This limb is two-fold. First, it refers to precepts that map to the now displaced idea of corporate social responsibility ie good practises that seek to ensure that organisations run transparently and that conflicts of interest are avoided to the furthest extent possible. However, it also provides the foundations for control and behaviour within an organisation – in other words, the focus on specific ethical behaviour gives away to a global idea of good governance. Think of it as governance with a small “g”.
"Governance” is used to indicate the method and framework by which any organisation is directed and controlled. This wider idea of governance is critical, because it describes the system of overarching control that allows organisations – and their decision-makers – to:
- make changes;
- communicate decisions and standards of behaviour throughout the organisation;
- specify what is to be achieved and by when; and, perhaps most importantly;
- publicise how those issues are to be reported and promoted to all those with an interest in an organisation.
Where to start with ESG?
In dealing with the scope of ESG and in formulating strategy, the place to begin is with the existing framework for governance (whatever name that goes by):
- What does your organisation already do in these areas that you know about as a result of current methods of control and information exchange?
- What level of ESG understanding can be distilled?
- Is there somebody senior who is responsible for ESG, particularly on the board – someone who is empowered to make decisions?
- Are the risks and opportunities presented by these areas of concern factored into strategic thinking?
- What is engagement with the workforce and other interested parties like?
- What are the results used for, and where do they have influence?
Of course, if there is no governance framework in place, that’s an obvious place to start. Such a structure will be required before ESG can be meaningfully dealt with (at least in anything but a piecemeal way).
The candidate perspective
Such considerations are vital for recruiters, both in their own businesses and in placing candidates. Research conducted by Nielsen in 2019 found that 83% of millennials – those born in the early 1980s – care deeply about ESG, with the implication that it would influence their choice of employer, and act as a differentiator. Candidates will assess the ESG approach that is taken by any organisation they consider joining, and they will ask questions.
Even beyond those initial conversations, recruitment and retention will require organisations not only to understand ESG as a concept (however wide) and what those terms mean in its own particular context, but also to understand and articulate its stance and contribution to society both to candidates and other stakeholders. That would include existing employees, the communities it operates in, its regulators and its financiers.
This may sound daunting but it need not be. An effective approach to addressing ESG is to switch the focus from specific activities to a more fundamental (re)positioning of the organisation’s values. Rather than focusing on what can be done, organisations are invited to consider what and how activities should be done.
An ESG culture
Central to questions of “should” is the concept of organisational culture – commonly accepted as describing the beliefs, values and accepted standards of behaviour that create the environment of an organisation.
This is not an academic point: the UK Corporate Governance Code, the gold standard for UK governance, states at the outset that it is the responsibility of the board of directors to, “establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned.”
Establishing a culture where ESG is embedded is not as fraught with difficulty as it might sound. Responsible business practices can be built into any organisation’s decision-making if it seeks to regulate and understand its impact through its governance principles. That will promote a culture where:
- diversity in all senses (of thought, of gender, of ethnicity, of experience);
- integrity and respect; and
- high ethical conduct
are all integral pillars of the governance framework.
Why? Because ESG, at heart, is about the impact of organisations on people and the planet. Methods of control that have ethical concerns as a base will, by definition, create an organisation in which people will be keen to work, that has a reputation for taking ESG matters seriously, and which aims for and creates ambitious, real-world change.
Whether you are just starting your ESG journey, or already have an established strategy, it’s essential that you have the right advice, take the necessary actions and meet all the legal and ESG regulation requirements.
Get in touch with our team today for tailored support to your ESG journey.