With a fast-rising focus on Environmental, Social and Governance (ESG) factors, organisations now face a range of pressures to disclose and report how they’re managing operations without compromising on safety, sustainability, or ethics. Indeed, research from KPMG showed that ESG reporting had risen from around 18% to 80% in the two decades to 2020. However, it can be an overwhelming area to tackle, with a bewildering array of standards to consider.
Increasingly, the relative benefits of well-constructed ESG programmes are becoming more mainstream. Organisations are engaging with sustainability in a more meaningful way and many now place it firmly on the risk agenda as an opportunity for value creation – and a way to underpin purpose. Issues like climate risk, the quality and diversity of the board, sustainable supply chains and cybersecurity are now routinely included within shareholder due diligence. At the same time, government regulation is being strengthened and stakeholder expectations are rising.
When it comes to ESG factors, a common reporting theme is that companies with the greatest public interest are required to disclose the most. Reporting requirements come from a wide range of sources and vary depending on factors such as company turnover, the number of employees, the nature of operations and whether the company is quoted.
While there is not currently one primary piece of UK legislation covering all ESG factors, there are various regulations covering aspects of ESG that companies must comply with in different ways, including the:
- Companies Act 2006
- Bribery Act 2010
- Modern Slavery Act 2015
- UK Corporate Governance Code 2018 (UKCGC)
- Streamlined Energy Carbon Reporting 2019
With ESG regulations likely to grow in the coming years, many companies are adopting frameworks and implementing processes which can embrace both voluntary and mandatory ESG reporting. Among them is Lloyds Banking Group, which published its first ESG Report in February 2021, stating: “We have noted a shift in stakeholders increasing their focus on ESG performance when assessing the overall success of a company. We have listened to our investors’ and stakeholders’ feedback, to make this document a more useful tool for understanding and engaging with our ESG performance for all of our stakeholders.”
ESG factors have become increasingly important to identify risks and growth opportunities and finding the framework that works best is likely to depend to some degree on the sector the business operates in and the nature of operations.
Materiality Analysis: Start by understanding the risks and materiality in your sector or nature of operations – asking stakeholders what matters to them. This insight can then be aligned with the aspects of the environment, society and the economy you have an impact on, and where you can set goals and relatable actions.
Set Your Sustainability Programme: Create a sustainability policy and objectives to articulate what you want to achieve and the key sustainability issues you’ll focus on. Once you’ve put in place targets and action plans, focus on implementation and working with your teams to communicate the strategy internally and move it forward.
Gather The Right Data and Set Targets: To show that you’re improving your sustainability performance, it’s essential to gather credible (assured) data, set targets against it and then build plans to achieve those targets. Having consulted with your stakeholders during your materiality assessment, you will then be able to show that you are focusing your improvement efforts in the areas which matter both to you and them.
Make Sustainability a Two-Way Street: By engaging with employees everyone can do something. Encourage everyone to get involved – their views will help to shape your programme and prioritise the things to focus on together to work towards your goals. Training in these issues is also key. NatWest research has shown that among medium-sized businesses that have embraced sustainability, 86% had invested in training for employees.
Seek Feedback and Continually Improve: Get feedback as much as you can – internal and external stakeholders will tell you where you’re going right and wrong. This completes the cycle, allowing you to see where you’ve made improvements, which initiatives are working well and what you need to do next. Sustainability, by its very essence, never stops – keep improving, keep assessing and managing the risks and opportunities, keep tracking the data and reporting accurately and honestly.
One of the biggest challenges is data visibility, which has seen an unstoppable shift towards the use of technology to capture and shape sustainability performance and outcomes. ESG technology has therefore become pivotal to digitise processes that help to track, manage, report and improve sustainable outcomes in meeting goals such as:
- Compliance with relevant regulations and obligations
- Informed decision-making
- Promoting a sustainable culture
- Cost reduction
- Preventing financial and indirect costs of quality failures
- Demonstrating credibility and winning new clients
- Managing reputation
- Safe work behaviours
- Audit of continuous improvement
- Visibility into employees, contractors and supply chains
- Reducing administrative time
Recognising that data visibility is the key to intelligent analysis and timely, accurate decision-making helps to drive a deeper understanding of sustainability’s risks and opportunities. With insight, streamlined processes and continuous improvement, organisations can drive greater control and increased efficiency.
David Picton, SVP of ESG and Sustainability at Alcumus says:
“Sustainability isn’t a buzzword, it’s crucial to an organisation’s purpose and strategy to grow brand equity and trust. Heightened stakeholder expectations and growing public scrutiny mean that businesses need to prove they’re managing their operations without compromising on safety, sustainability or ethics. It’s a journey, not a destination and everything is a learning process where there will always be room for improvement to shape better futures. Sustainability is no longer a nice-to-have, but a must do.”
Next steps – Building Sustainability Through Data Visibility
Download your free eBook to guide you on your ESG and sustainability journey. This eBook explores:
- Building more sustainable and resilient organisations
- Beginning your sustainability journey
- ESG factors to consider
- Using technology to build safe, responsible, and ethical operations
- Six steps towards sustainability
