5 steps to better ESG management

Without doubt, ESG (Environment, Social, and Governance) may be described in any number of ways from person to person. But despite the largely fluid definition, there is little doubt that a firm implementation of ESG programs at a corporate governance level is growing in importance - and particularly from an investor relations perspective. 
 
The days of ESG being a niche concept are long gone. ESG has gone mainstream, and organizations are required to take ownership of this issue. Recently, we’ve seen prominent fund managers further integrating ESG metrics into their decision making, while at the same time dangling the prospect of divestment in front of those who aren’t willing to up their game here. 
 
We can associate this shift in ESG reporting expectations with a broader societal shift.
 

Lessons learned the hard way

As the Black Swan event of 2020-21 begins to fade away in the rear-view mirror, we are left with lessons learned – lessons that proved to us without doubt that sometimes things in that mirror are closer than they appear. 
 
What happened is a reminder that we live in a physical environment that can mess with us, and without mercy. Lockdown after lockdown has allowed greater introspection, and a greater focus on the nuances of society as a general concept, while at the same time reminding us of our collective responsibility towards others. By being denied the societal interaction that we once took for granted, we have gained a new appreciation of society as an organic structure. 
 
Add to this a general societal shift in recent years in terms of our understanding of our impact on the environment. In 2019 and 2020, Australia experienced the worst bushfire season ever recorded in its history. California experienced incredible wildfires. Other extreme weather events filled the headlines.  
 
The overwhelming catalogue of research spanning decades drawing a link between a carbon-based economy and increasing climate disturbance seems to have finally resonated, with a realization that we are most probably running an unacceptable risk. 
 
This shift has manifested in policy at the public level – the United Kingdom has pledged to hit a carbon neutral target by 2050, and China has declared it will go carbon neutral before 2060, with a carbon peak in the 2030s.  The Green Party made huge gains in the German elections of 2021, and at the time of writing, looks set to join the next Coalition Government. A long list of nations is pledging to develop carbon neutral economies over a period of time - it’s basically a case of ‘watch this space’.  
 

Let’s look at this shift in terms of ESG

People in general tend to associate themselves with projects, goals, aspirations, and ideas that reflect their own core beliefs. Therefore, it’s a fair assumption that as societal values shift, investor attitudes and expectations will change with it. For this reason, we believe that those organisations staying ahead of the curve with regard to ESG reporting will do so to their great benefit.
 
Organizations that demonstrate a clear commitment to ‘give back’ to the society that allows them to operate are generally subject to lower reputational risk associated with poor publicity, as well as a greater predisposition towards stronger operational performance, stronger financials, and corresponding higher investor returns. 
 
On the subject of investors, take note – organizations at the forefront of ESG reporting are also less likely to expose themselves unnecessarily to activist activity. Activist investors, who may not necessarily have sufficient industry knowledge, could ultimately take the approach of pushing resolutions that aren’t in the organization’s long-term interest, whilst also taking other destabilizing steps.
 
With this in mind, there are steps an organization can take to stay ahead of the curve with regard to ESG management:
 

Networking is key. 

It is critical that any organization takes time to network with a broad array of stakeholders in their industry to gain not only a sense of their expectations, but also an understanding of what would delight them. Empathy makes a big difference. Remember that whilst your investors are critical, they are not your only stakeholders. Map it out. Outline all the different groups who are impacted by your work and look for common themes. Learn from them and analyze them. 
 

Communicate it out. Be creative.

Whilst it is critical that you stay consistently up to date with trends, the magic comes to life when you get your best people in a room and map out what would be truly unique. Remember your job is to demonstrate through words and deeds that your organization is giving back to the society that allows them to operate. Package it. Market it. 
 

Use visualizations. Use analytics. Use AI. 

A picture tells a thousand words. From both an internal, organizational perspective and from an external, stakeholder perspective, clear infographics can demonstrate how toolsets interact with organizational values and financial performance. They can demonstrate how the organization fares against industry equivalents, and can map investment exposures.

AI and analytics can help you sort through complex datasets for a better reporting outcome, including the use of sentiment analysis algorithms to uncover recurring themes and general tone from written reports.
 

Set clear and tangible goals.

Ensure your ESG management ultimately aligns with a set, uniform goal. For example, many organizations are using the United Nation Sustainability Goals to develop a broad array of programs from an environmental and general social improvement perspective. Remember that stakeholders ultimately relate to broader programs they may already know about, potentially have already contributed to in some form, and that are well considered at a macro level. 
 

Wrap it all up. 

Ensure you consistently track optimized ESG metrics against organizational performance, and don’t be afraid to visualize it. ESG is not just an ‘add on’. It’s a fundamental part of any organization’s recipe. Tell the organization’s narrative in terms of an ESG journey, and ensure your stakeholders come to appreciate your organization for what it is – not just one that is out to ‘make money’, but one that operates constructively within a broader societal construct.   
 
 

Get full visibility over ESG initiatives

Confidence in ESG management comes from getting full visibility over your organization’s critical information, and insights that allow you to act in accordance with the best path forward at any given moment. The right technology solution is essential for meeting these objectives with confidence.

Ansarada has recently acquired TriLine GRC so we can fulfil our mission of offering a truly integrated GRC solution and becoming an end-to-end information governance platform.