A Newcomer’s Guide to Environmental Social Governance

Guide to Environmental Social Governance

Do you know what ESG means? If you don’t, it doesn’t mean you have to be an expert on the matter right away. That’s where this guide comes in handy! ESG refers to Environmental Social Governance – a term that may sound intimidating but has grown in popularity over the last several years. This comes as more and more investors are looking to find sustainable investments that will provide them with long-term growth rather than short-term profits.

Maybe you decided to launch your ESG journey after a call from an investor, questions from your board or CEO about proposed SEC legislation, or from a groundswell of interest from employees or other stakeholders. Whatever the reason may be, this article will help you take the first steps toward improving your organization’s sustainability for the benefit of your shareholders, employees, suppliers, and customers alike.

Understand your company’s relationship with ESG factors

Defining the component parts of ESG is relatively straightforward:

• Environmental – consider any environmental risks associated with your company’s operations and determine how the company manages those risks. These factors include corporate climate policies, energy use, waste, pollution, natural resource conservation, and treatment of animals. For example, if you are a food manufacturer, considerations may include greenhouse gas emissions, compliance with environmental regulations and animal welfare.
• Social – consider the company’s employees, contractors, and community. These factors include stakeholder inclusion, diversity throughout the supply chain, the compensation of employees, their data privacy and protection, and how the company impacts the surrounding community. For example, if you are a food manufacturer, considerations may include internal whistleblower policies that protect employees who provide information relating to any violation of the food safety and fraud regulations of the US Food, Drug and Cosmetic Act.
• Governance – consider the company’s strategy for upholding legal and ethical obligations from the top-down. What is your board composition? Do you consider integrity and diversity in selecting leadership? Do you conduct regular audits? Do you embrace corporate transparency? For example, a company may amend its bylaws to require a percentage of board seats to be held by women.

What can you do about it?

Not all ESG-related issues will be relevant to your company. The first step to your ESG journey will be defining the role of ESG factors within your business. What have your investors been asking about? Will the SEC’s proposed rule apply to you? What are your employees’ concerns? What is going on in your community right now?

Once you’ve assessed which ESG issues are relevant to your business, the next step will be to integrate ESG considerations into business strategy, operations, and decision-making. Here are some examples of steps you can take:

• Capturing goals – review your company’s governance documents to align with ESG goals and commit to stakeholder transparency through periodic reporting.
• Leadership – bring the board and executive leadership on board with ESG goals.
• External relationships – seek contractor sustainability commitments throughout the supply chain.
• Internal relationships – offer employees an opportunity to share their likes and dislikes.

The final step will be to communicate your ESG efforts to the public. This can be done through a corporate narrative that outlines the company’s mission and regular reporting that authenticates ESG efforts.

An ESG strategy can’t be perfected overnight. This guide provides you with the tools to take one or more concrete steps to start your ESG journey. At Christopher & Panasci, we’re here to help you make sense of the ever-evolving ESG landscape and implement best practices and strategies for your business long term.