Increased awareness around climate change, racial and social equity issues and COVID-19 has changed the way that many companies in Rhode Island and elsewhere think about environmental, social and governance issues, or ESG. This convergence of factors has made ESG a focal point for Rhode Island companies of all sizes.
Consumer pressures also drive companies to focus on ESG. Younger consumers are especially more likely to consider these issues when making purchasing decisions. According to PricewaterhouseCoopers, over half of all consumers (59%) say that a company’s purpose and values play an important role in their decision-making.
Regardless of a company’s size and budget, there are ways to develop and implement an informed ESG strategy that addresses stakeholder expectations and delivers meaningful outcomes. Here are six steps for developing and integrating a successful ESG strategy.
Identify ESG issues significant to your stakeholders. The most critical component of any ESG strategy is understanding stakeholder perspectives. Businesses should assess and rank issues that are important to employees, customers, suppliers, investors and other stakeholders. As you identify core priorities, keep in mind that some issues – for example, COVID-19, racial equality and climate change – transcend a specific business or industry and apply to all companies committed to systemic change.
Develop a reporting and measurement framework. What gets measured gets managed, so it’s essential to build a measurement framework around priority issues. Consider consulting popular ESG frameworks and tools to set goals and measure progress. For example, the Global Reporting Initiative, Sustainability Accounting Standards Board, or the World Economic Forum’s International Business Council metrics are all valuable tools that can help companies track performance against benchmarks and communicate progress to stakeholders.
Take an intersectional approach. As you build an ESG strategy, you’ll notice that many issues are related. For example, lack of access to housing correlates to intergenerational poverty and racial inequality. If your goal is to drive greater racial equality, affordable housing may be a key pillar of your strategy.
Younger consumers are especially more likely to consider these issues.
Look across your supply chain. Capitalize on opportunities to work with third-party partners on initiatives that create a broader industry impact. Consider how you can empower, and hold accountable, partners along your supply chain. Depending on the results of your stakeholder assessment, you may consider setting goals in the following areas:
• Energy: Reduce GHG emissions and work toward net-zero by submitting a science-based target. Look across your operations to identify achievable goals, set a timeline and action plan, and report on progress.
• Stakeholder relationships: Select vendors, partners and, where possible, customers based on fair labor practices and responsible environmental impact.
• Diversity, equity and inclusion: Ensure diverse populations have a seat at the table. Bank of America Corp. research found that more than 75% of Nasdaq companies don’t have a woman, underrepresented minority or LGBTQ+ member on their board. Companies can take meaningful action to address underrepresentation in the workplace by doubling down on transparency and reporting, setting company and supplier diversity goals, enhancing trainings, and rethinking approaches to recruiting.
Integrate your ESG strategy across the business. Every business unit can support ESG initiatives, whether it’s making a fair labor supplier strategy, investing in sustainable and climate-resilient infrastructure, sourcing sustainable energy, or revamping human resources policies to increase diverse recruiting, hiring and retention.
Look to the power of your people. Even without a large budget for ESG initiatives, you have the power of your people. It’s not about the dollar amount, but it is always about action.
Businesses with well-articulated ESG goals and purposeful strategies are more likely to be resilient and create long-term value for stakeholders. Middle-market companies have a critical role to play not only in the future viability of their business, but in delivering on the promise of stakeholder capitalism.
Terri Monjar is global commercial banking senior relationship manager at Bank of America Corp. in Rhode Island.
