ESG survey: Measure, monitor, and enhance your strategy

The poll, “ESG Clarity: Benchmark Your Initiative,” launched in June and garnered responses from 219 compliance, audit, legal, and finance executives. Respondents said while their organizations were largely successful in launching ESG strategies and goals in their business plans, they were less successful in understanding ESG-related risks and applying those lessons to their initiatives.

Only 13 percent of respondents said their companies have fully implemented and embedded an ESG strategy. Nearly 70 percent said their firms were either in the process of implementation (40 percent) or that it was more ad hoc at this point (29 percent). The remaining respondents either said their firm did not have an ESG strategy or they weren’t aware of it.

“People are really trying to find their way with ESG, but there is some confusion as to how to measure it,” said Pam Shearing, a managing partner at Fulcrum. “ESG is an evolving conversation and, as such, companies need to continue to work on their ESG strategies. For some companies, there is still a lot of work to do.”

Respondents to the survey represented a wide range of industries, including banking (11.5 percent), healthcare (8 percent), manufacturing (8 percent), technology (7.5 percent), and energy and utilities (6 percent).

Generally, respondents said ESG initiatives address environmental concerns like climate change/carbon emissions/energy emissions; pollution control; natural resource usage; biodiversity/deforestation; and waste management. Social concerns include data privacy; gender equality; ethnic diversity/inclusion; health and safety; human rights and labor standards; ethical supply chain procurement; and community support, while governance covers inclusive executive board/leadership; ongoing leadership training; executive compensation; fraud, bribery, and corruption; money laundering; lobbying and political spending; and a firm’s whistleblower program.

Choosing up to four drivers of their company’s ESG initiatives, respondents said they were pushed by company leadership (19 percent), shareholders and investors (16.5 percent), customers/clients (16 percent), government/regulators (15 percent), and employees (13.5 percent).

ESG must have full buy-in at the top, said Shearing. Ideally, clear goals would become part of the company’s culture, with everyone from the C-suite to the shop floor understanding what ESG is and how to apply it to everyday practices. Employees should be encouraged to report what parts of the initiative are working and what are not so companies can implement remedial steps, she said.

“You really have to involve everyone to have a culture across the firm that everyone understands what ESG is and how to bring it into their everyday practices,” she said.

Although only 40 percent of respondents mentioned employees as a driver of ESG initiatives, this is an emerging benefit, Shearing said. Companies are finding promoting and adhering to ESG initiatives is helpful for retaining employees and attracting new ones. Companies that weathered the pandemic and stuck to their ESG goals can see a competitive advantage in hiring, she added.

“It goes back to ESG-related risks and opportunities. If your firm is doing the right thing for the environment, for society, for employees, and across its supply chain, it really can attract the best talent,” Shearing said.

Nearly 1 in 5 respondents (18 percent) said their organization had refused to work with a party on ESG grounds over the past three years, although most said no (42 percent) or they didn’t know (40 percent).

“If you’re saying you won’t work with someone due to ESG concerns, you’re saying they don’t share your values,” Shearing said. “ESG becomes not just a spoken value, but one that is lived and breathed.”

There seems to be less agreement among survey respondents on how best to monitor and measure the risks addressed by ESG initiatives. More than half said they have not formally incorporated ESG-related risks into their risks assessment, monitoring them on an ad hoc basis (27 percent) or not at all (25 percent). Ten percent said they undertake an annual ESG-specific risk assessment, while 29 percent said their companies conduct a full annual risk assessment that now incorporates ESG considerations. The remaining respondents said they didn’t know how their company measures ESG-related risks.

Muryel Boulay, a U.K.-based sustainability in business expert who is director and founder of the consultancy B Other Wise, said all ESG risk assessments should begin with a materiality analysis. That analysis should measure what ESG initiatives are important to the economic, environmental, and social goals of your organization and should determine what is important to internal stakeholders (senior leadership, board members, and employees) and external stakeholders (investors, customers, clients, and vendors).

Boulay advises companies should focus on what activities their business does to generate revenue, then work out what is necessary to produce those goods or services. Start simply, setting a baseline for data like how much electricity your firm uses or how much carbon emissions are generated by facilities and vehicles. Risks like employee burnout might be foreseeable once you understand what kind of hours workers typically log.

“It doesn’t need to be perfect,” she said. “There’s only one way to learn to swim, and that’s to jump in the water and move your limbs. Start simple, and then bring in other factors.”

To follow up on that point, when asked to select all the biggest obstacles facing their ESG initiatives from multiple options, the most common option selected was ‘obtaining data and establishing metrics to measure it’ (23 percent of 404 total votes). Other obstacles included operationalizing the initiative across all aspects of the organization (18 percent); lack of clear, tangible directives (15 percent); and a lack of engagement (13 percent). Respondents could choose all the obstacles they believed were impeding their company’s progress on ESG initiatives.

“There’s a huge need to simplify the message. To start, people need to understand where they are,” Boulay said. “What are your company’s values and your company’s mission? What are the biggest places you can have an impact? Then you can link ESG activity to your everyday activity, to be part of everything you do every day.”

Embedding ESG initiatives in a company’s culture is key to making them stick, said Pamela Park, managing editor at Thomson Reuters. Larger companies should have board committees formed to focus on ESG matters; all companies should be educating employees about their ESG initiatives and goals.

A successful ESG strategy cannot rest on the compliance department’s shoulders, Park said.

“Every employee should know the company’s stance and its goals and have formal training,” she said. “It should become a much more formalized part of a company’s culture.”

The survey found about one-third (30 percent) of respondents’ compliance functions met with senior management or the board of directors every couple of months to discuss ESG-related matters. Only 18 percent met with senior leaders or the board once a month. Thirteen percent met annually, 11 percent met twice a year, and 28 percent did not know how often.

“It’s important that senior management are communicating to staff about the progress of ESG initiatives,” Shearing said.

Another key part of ensuring ESG initiatives take hold is training, and this was clearly an issue for respondents. Only 14 percent said their organization devoted more than four hours to ESG-related training in the previous 12 months. About a third (31 percent) said 1-2 hours, while another third (31 percent) said less than an hour.

Training helps incorporate ESG initiatives into a company’s everyday business practices, Shearing said. “It helps employees understand what the strategy is and what you’re trying to achieve,” she said. “They’ll learn not just what ESG is, but how to monitor and assess it correctly.”