ESG strategy for growth: From compliance to leadership

ESG strategy is a boardroom issue, deserving senior management’s full attention. Every business leader is now an ESG (Environmental, Social, and Governance) decision-maker. But where to start with creating an ESG strategy?

Implementing the right ESG software for watertight compliance is a crucial first step. But that alone isn’t enough for business longevity or sustained competitive edge. Those require shifting from mere ESG compliance to forward-thinking ESG leadership.

Below, we’ll unpack why ESG is important and share examples of good ESG strategies. We’ll also cover key pointers for ESG strategy development and implementation, to evolve companies from compliance to leadership on ESG. 

Why is ESG important?

There’s been plenty of market hype around corporate ESG strategy and sustainability; it’s a defining business issue of the 2020s so far. Over recent years, various drivers have intensified this attention:

• Shifts in ESG regulation mandating deeper insights and stronger disclosures
• Shifts in investor expectations, leading to demand for financial returns in ESG disclosures
• Clear need for ESG governance, structure, and rules piling pressure on companies’ ESG data provision

In short, an ESG strategic plan is the route for businesses to ensure truly sustainable sustainability. This makes every executive an ESG decision-maker:

• CIOs are providing systems for ESG data collection, ensuring algorithms and AI usage are inclusive and fair, and gauging how new technology impacts a company’s workforce and the communities where it operates
• CFOs are examining access to green capital, and monitoring disclosures and regulations
• Chief Supply Officers are responsible for adhering to labor standards and tracking supply chains’ end-to-end impact (including Scope 3 emissions)
• Chief HR Officers are overseeing diversity and inclusion in the workforce
• Chief Sustainability Officer roles are increasing, too. It’s a tricky and exciting time to lead in this area: Collecting and reporting on organizations’ internal data; building relationships with regulators and investors; embedding ESG practices and principles within daily operations.

ESG has already evolved business mindsets and practices. However, we’re still in the relatively nascent stages of ESG thinking. There’s far to go before we reach real ESG business enlightenment, meaning ESG strategy development remains front of mind.

What makes a good ESG strategy?

Fundamentally, a good ESG strategy framework measures a company’s efforts and progress. This, of course, points us straight to ESG data: Sourcing, interpreting, visualizing, and strategizing.

Here are key related factors to consider while developing an ESG strategy:  

Usable data is consumable data

If your ESG data isn’t consumable, it’s not going to be effectively used for decision-making.  All businesses need better, more timely internal data at the core of their ESG ecosystem.

You’ll also need to tap external data sources, as some 70-80% of required ESG data may exist outside your organization. This closely links to supply chains: Visibility is poor (1 up, 1 down) in most firms, with Chief Sustainability Officers receiving requests for ESG data they simply can’t (yet) provide.

But with clear, consumable data from across your business, your ESG strategy gains essential accuracy and integrity.

Optimize source data, optimize disaggregation

Defining and measuring ESG objectives is unavoidably complex. ESG data covers all corporate areas, is pooled from multiple sources, and isn’t naturally granular.

For example, utility bills are commonly used to convert power usage to carbon quantities. But they’re unlikely to identify electricity sources (fossil fuels, wind power, etc.). The deeper insights needed can only be gained via better information at the point of power metering, then disaggregating the data.

Aim for quantifiable maturity

Shape an approach to increase maturity via ESG programs, initiatives, and workflows. To make this quantifiable, connect it to specific themes, goals, and targets.

Harness emerging ESG technology

Technology can help close the significant market gap in ESG insights. For example:

• Digital twins model and optimize processes to reduce waste
• Computer vision maps physical asset risks
• Distributed ledgers increase supply chain transparency and trust

Combine technical and management discussions

ESG reporting uses forward-looking data, including business models, corporate strategy, and ESG policy. These should align with your company’s equity story and past ESG ratings.

So, besides technical discussions on finding the ideal ESG software, management discussions are needed to define ESG strategy development and responsibilities.

Tips on developing an ESG strategy

These 2 angles improve organizations’ chances of driving better ESG insights:

1. Flip it around: Think GSE 
   We see much focus on ‘E’ factors — sidelining the others. Truly tactical, effective ESG approaches, however, balance details and the bigger picture.
   
   Reversing your priority order can help, starting with Governance. Ensure clarity on your firm’s ESG baseline, goals, and processes. Then take care of your employees, via Social factors. From here, Environmental factors are often naturally addressed.
   
   In practice:
   G: Properly tracking employee data on mileage and business travel
   S: Ensure your employees are aware of your ESG company travel policies, and that it’s comfortable and easy for your workforce to leverage them. For example, that you’ll fund verified carbon offsetting for their travel; that you’re willing to reimburse them for more expensive but greener travel choices.
   E: The result? Your firm’s environmental impact via business travel shrinks, but without focusing on ‘E’ as a starting point. 
        
2. Don’t view ESG as a one-and-done exercise 
   Ultimately, ESG needs to be integrated into a core, high-profile remit within your firm. It needs focus, yes, but also to reach into all departments.  
    
   One way to achieve this is integrating ESG into your Risk Management team. This avoids it being siloed as a relatively new, niche area within the firm. And, ultimately, ESG is about managing risk properly and holistically, making the best long-term commercial decisions for your firm.

From compliance to leadership with solid ESG strategy

Evolving from ESG compliance to leadership means progressing from a certification-driven to an outcome-driven approach. Organizations need to move from reactive ESG data-gathering to proactivity, for which data fluidity and open-minded collaboration are vital.

Yes, there are technical and structural data optimization challenges: Lacking industry incentives to share sensitive data; legalities concerning data access. Most businesses also aren’t designed around data flows (as products, divisions, and geographies take precedence) but AI and analytics work optimally when data flows are prioritized.

Yet with thoughtful ESG strategy and the right ESG tools, these challenges are surmountable.

For ESG strategy, think DXC

ESG strategy is a boardroom issue, and that’s clear to us at DXC. We do much more than implement ESG software to guarantee compliance; we’ll support developing an ESG strategy that positions your business as an ESG leader.

For advice on creating your ESG strategy, contact us here.

For further reading, see our whitepaper on starting the journey towards ESG enlightenment.