Environmental, Social, and Governance (ESG) is more critical than ever for businesses aiming to ensure long-term success and resilience. Companies are increasingly recognising that integrating ESG into their overall business strategy can drive sustainable growth, mitigate risks, and enhance their reputation. 

This year, ESG is transitioning from a peripheral concern to a core strategic priority, spurred by strengthening regulatory frameworks and heightened stakeholder expectations. This guide outlines three essential steps to consider when developing a future-ready ESG strategy tailored to your industry and business needs.

Step 1: Align ESG Framework with Business Strategy

Over 88% of public companies now have some form of ESG strategy in place, driven by the growing realisation that ESG factors significantly impact financial performance and stakeholder trust​​.

To stay ahead, businesses must identify the most relevant ESG issues and set clear, actionable goals that integrate seamlessly with their overall strategy.

Identify Material ESG Issues

Conducting a materiality assessment is crucial to identify and prioritise the ESG issues most relevant to your business and stakeholders. This involves understanding the environmental, social, and governance factors that impact your operations and setting clear, science-based targets to address them​​.

Example: For technology companies, key issues may include data privacy, cybersecurity, and the environmental impact of electronic waste. 

Microsoft, for instance, aims to be carbon negative by 2030, leveraging AI to optimise energy usage and enhance data privacy measures​.

Set Clear Goals and Targets

Establish specific, measurable, achievable, relevant, and time-bound (SMART) goals. These targets should align with broader business objectives and reflect your commitment to sustainability. 

For example, targets might include reducing carbon emissions, improving workforce diversity, or enhancing supply chain transparency​.

Step 2: Engage Stakeholders in ESG Framework Development

Recent trends indicate that investors and consumers are increasingly prioritising transparency and accountability, with 78% of consumers considering sustainability crucial in their purchasing decisions​​. 

By actively involving stakeholders, companies can ensure that their ESG strategies are comprehensive and aligned with stakeholder expectations.

Consulting with Key Stakeholders

Engage investors, employees, customers, and community representatives to gather diverse perspectives and gain support for ESG initiatives. Methods include surveys, focus groups, and roundtable discussions to ensure comprehensive input​.

Example: Financial institutions like BlackRock incorporate ESG criteria into their investment decisions and actively engage with companies on sustainability issues to drive change​.

Incorporate Feedback into ESG

Actively incorporate stakeholder feedback into ESG policies and reporting practices. Transparent communication about how stakeholder inputs have influenced your ESG strategy fosters trust and encourages ongoing engagement​.

Step 3: Adopt Standardised ESG Reporting Frameworks

With regulatory bodies worldwide, such as the EU and the US SEC, increasing the rigor of ESG reporting requirements, adopting these frameworks is crucial for compliance and stakeholder confidence. Accurate and transparent reporting helps businesses showcase their ESG efforts and align with global standards.

Here are some key frameworks and standards relevant for companies operating in the UK and EU:

Global Reporting Initiative (GRI)

The GRI Standards are among the most widely used frameworks for sustainability reporting. They provide detailed guidance on reporting a wide range of ESG impacts, ensuring that companies disclose material information that stakeholders need.

Sustainability Accounting Standards Board (SASB)

SASB Standards focus on financially material sustainability information tailored to specific industries. This framework helps companies report on the sustainability issues most likely to impact their financial performance.

Task Force on Climate-related Financial Disclosures (TCFD)

TCFD provides recommendations for disclosing clear, comparable, and consistent information about the risks and opportunities presented by climate change. This includes governance, strategy, risk management, and metrics and targets.

Corporate Sustainability Reporting Directive (CSRD)

The EU’s CSRD will significantly expand the scope and detail of sustainability reporting requirements for companies operating within the EU. Starting in 2024, this directive mandates comprehensive sustainability reporting aligned with the European Sustainability Reporting Standards​.

European Union Taxonomy

The EU Taxonomy provides a classification system for environmentally sustainable economic activities. It is used to help investors identify and invest in activities that contribute to the EU’s environmental objectives, such as climate change mitigation and adaptation​​.

Non-Financial Reporting Directive (NFRD)

The NFRD, which will be replaced by the CSRD, currently requires large public-interest entities with more than 500 employees to disclose non-financial and diversity information, providing a foundation for comprehensive ESG reporting in the EU​​.

UK’s Streamlined Energy and Carbon Reporting (SECR)

The SECR framework mandates that large UK companies report on their energy use and carbon emissions, helping to increase transparency and drive improvements in energy efficiency​​.

Example:

Energy companies like BP and Shell use these frameworks to report their progress in transitioning to renewable energy sources and achieving net-zero emissions. 

By aligning their reporting with frameworks such as TCFD and GRI, these companies ensure their disclosures are robust, transparent, and comparable across the industry​​.

Conclusion

The future of ESG is on a path to be more integrated and central to business operations. Companies need to stay ahead by continuously evolving their ESG strategies and leveraging emerging technologies for better data management and reporting. 

Key trends to watch include the increasing scrutiny of supply chain practices, the rise of green technologies, and the integration of circular economy principles​.

By following these three essential steps, businesses can ensure their ESG strategies are not only future-ready but also aligned with global best practices, driving sustainable growth and enhancing stakeholder trust.

When you’re ready to take the next step, we recommend investing in building the necessary capabilities for effective ESG management. Continuously adapt your strategies to evolving standards and foster a culture of sustainability across all levels of your organisation​.

How Chesamel Can Help

We offer comprehensive business transformation services to help your organisation develop and execute robust ESG strategies. Our services include identifying improvement opportunities, guiding regulatory compliance, and supporting sustainable business transformation. 

Partner with Chesamel to drive your ESG initiatives forward and secure long-term success in an increasingly ESG-focused world.