Unlocking ESG opportunities in the era of people, planet, profit

Stephen Hogan is a specialist in corporate responsibility, ESG and social impact, with twenty years’ experience of working across business, Government, and civil society. Stephen developed PwC’s first social inclusion strategy, covering recruitment, progression, community, and advocacy activities, initiating a programme that has seen PwC become the top-ranked employer in the UK for social mobility.

Stephen founded Exogeny Consulting (exogenyconsulting.com) in 2018 and now works with organisations on a range of issues related to responsible business and inclusive growth, helping them define and achieve their strategic goals, guiding their progress and enabling them to measure, understand and maximise their impact.

Here he talks to BIE about the challenges, considerations and opportunities surrounding ESG and the practical steps organisations can take to improve their ESG performance.

What is ESG?

ESG stands for Environmental, Social and Governance issues. It refers to the three central factors in measuring the sustainability and societal impact of an investment in an organisation. It can be broken down into five component parts:

1. Social issue/impact – How an organisation engages with the communities around it. It is the causes an organisation endorses and how it goes about supporting them. It encompasses traditional CSR activities, such as volunteering, donations, fundraising, and pro-bono work.
2. Environmental – The consumption of natural resources, including energy usage, water, paper, electricity, IT equipment, food waste, business travel, recycling etc. While some organisations will have a bigger environmental impact because they will consume more resources in the activities they undertake, all businesses have an environmental impact. Organisations need to be clear on their emissions, measuring their impact and mitigating as much as possible.
3. People – This covers recruitment practices, pay policies, and whether there are inequality gaps between different groups of employees. It encompasses employee engagement, diversity of staff, and role models, eg. can employees see people that relate to them in leadership positions? There are a range of weighty issues that relate to how a person feels about the organisation they work for and this is at the heart of everything ESG related.
4. Ethics and Conduct. Ethics, values, and the reputation of a company is considered the heart of corporate governance. Company ethics will determine policies, practices, and decision-making processes. It covers how an organisation treats its suppliers, its approach to human rights, where it sources services and products etc.
5. Supply Chain and Procurement– This is how the organisation selects suppliers and conducts business. It will need to review a myriad of areas, including how their suppliers manage sustainability, whether they adhere to the Living Wage, what their policies are on human rights and modern slavery etc. There are significant opportunities to use procurement power to do some real social good.

How does a business tackle all of this?

Quite simply, it will not be possible to tackle all these areas at once. A good place to start is to identify and prioritise the issues that are most important to an organisation and its stakeholders. The business can then plot the results on a materiality matrix, indicating internal and external stakeholder views on how these issues potentially impact on the success of the business. This helps to socialise the issues, visualise the findings and inform strategy development.

Ultimately though, ESG as a concept may be new, but the issues are not. Most organisations will have at least some of this work already in place.

Where in an organisation should ESG sit?

This depends on the organisation. We are likely to see it under Heads of People or Heads of ESG as a greater number of organisations build sustainability departments. For smaller organisations, ESG could sit with the CEO, COO or CFO, especially if they have identified an opportunity or potential issue for the business.

In terms of the ideal scenario, it does not matter where ESG sits but it should report into a Board Member. Embedding good ESG practices means people will be expected to think and do things differently, it will involve buy-in from multiple areas of the business, and for that to happen it must be driven from the top.

What are the key challenges and considerations?

At the heart of ESG is people and the things that matter to them – and that is a constantly changing landscape. It is important to keep listening and responding to what you are being told. If an organisation does not actively listen to its employees, it will not understand the issues impacting them and it will ultimately lose good talent.

It is imperative to understand how ESG relates to you and your organisation and to respond in a way that is authentic to your business. You cannot lift what another business has done and apply it to your own. Senior leaders need to take the time and effort to think about how issues relate specifically to their organisation and tailor the approach accordingly. Every business will be different – even in the same sector.

For change to be embedded, employees will need to understand the reasons behind it – and effective communication is therefore essential. The onus is on senior leaders to educate and inform, eg explain why they should not continue recruiting from the same places, why they may need to do business in different ways etc. Leaders will need to communicate regularly, to ensure the messages hit home.

Senior leaders must also demonstrate the change they want to make – an organisation cannot say it cares about diversity if it has a Board comprised exclusively of white men, or that it cares about the environment if its senior leaders are frequently flying for business meetings.  

It is a journey, and an organisation will always be on it.

What practical steps can organisations take to improve their ESG performance?

Before an organisation can do anything, it will need a framework and strategy that its people can operate within. Historically, activity has often relied on people’s own initiatives, which cannot be counted on to make for a holistic, strategic programme. Once there is a framework in place, activity can hang off the back of it, including targets, objectives, and even linking to individual performance and pay.

For example, everyone in the organisation could be given an ESG objective, which could be as simple as doing more recycling, travelling less or engaging with some volunteering. At Board level, many organisations are now linking pay to ESG and sustainability measures. It is a good way of sharpening people’s attention and encouraging expected behaviours.

An organisation will need to understand what the baseline is – where it is starting from and where it wants to get to. It will need to be clear on what data is available and how it plans to measure progress.

What are the next steps?

If these issues are not familiar than it is important to educate the organisation. Someone appropriate within the business should be mandated to drive ESG, pull the threads together and weave then into a strategic and holistic plan. Importantly, this should not be about how much money can be made but what impact can be achieved.

ESG can have tangible business benefits from an organisation, from reducing spend on resources to improved brand loyalty, employee retention and stakeholder management. And at the same time, the organisation has the opportunity to maximise its sustainability and its impact on the people and communities it works with. Done well, ESG can be a win for everyone.