Global trends reveal that investment thinking is transitioning away from traditional sustainability reporting.
The usual definitions of sustainability are centred around your organisation’s ability to maintain growth at a certain rate or level and avoiding the depletion of natural resources or causing harm to society. This perspective of sustainability is a desired outcome and a rather dated outcome at that! This perspective won’t cut the mustard in the current business environment where we beholden to the judgement of a more conscious, social network savvy customer or consumer. These stakeholders demand more accountability and transparency from your business.
The management and performance reporting processes of ESG and Sustainability are not synonymous, or at least shouldn’t be! To test the difference, I turned to google.
The first response from the Google search for using “ESG definition” was the following: ESG (Environmental, Social and Governance) is a generic term used in capital markets and used by investors to evaluate corporate behaviour and to determine the future financial performance of companies. source – http: lexicon.FT.com.
In layman’s language, the financiers want to know that you are aware and are prioritising and managing the non-financial strategic and operations risks in the same diligent manner used for finance-based risks.
At Synergygrc we interpret it as “the due consideration of ESF aspects in parallel with the financial factors that form part of the investment decision-making process.
How broad are these ESG management areas?
Our Integrated ESG Risk Management and Reporting Framework below illustrates the extent of these areas
Globally the application of ESG has many different challenges and the best way to start the journey is to apply the following sequential steps in order to manage your ongoing ESG rating:
- Understand your Organisation context
- Determine and document your ESG Strategy based on the review of the context of your organisation
- Determine and document who your strategic and operational material Stakeholders are
- Determine, document, check and review if the stakeholder linked material risks are being effectively managed
- Link these risk areas to ESG performance indicators
- Based on the above, review which are managed according to ISO standards-based risk management and business continuity processes
- Review delegation of authority lines
- Review or introduce monitoring programmes
- Evaluated ESG information flows and reporting processes
- Review results and initiate improvement actions
- Appraise disclosure and performance of the improvement initiatives
- Ensure that your Combined Assurance – Three lines of defence controls are effective across the material management areas
The above approach is very different from the generic carbon foot printing, Corporate Social Responsibility (CSR) sustainability reporting processes. Establishing a proper ESG Risk Management and Reporting Framework will take a lot of upfront effort and involvement across the business resources, especially from a business leadership perspective.
It is worth it. The outcome will be a sustainable resilient business run by leaders and managers who achieve their strategic objectives and address uncertainty in a transparent manner that oozes with integrity. This is an organisation worth investing in.
Written by Hayden Green and reviewed by Steve Simmonds
Please contact us should you wish to find out more.