Despite its ocean of acronyms, ESG doesn’t have to be the tsunami you may expect. However, regulation changes are coming in 2024 that will affect tens of thousands more companies, making now the time to kickstart your ESG strategy while the rules are still flexible.
If you are like the 44% of EHS decision-makers with full ownership of ESG strategy (Verdantix EHS Global Corporate Survey 2022), you might be asking, how do we navigate this new landscape?
Inevitably, you can’t have a strong ESG program without robust health and safety management, which falls under ‘Social’. But for the time being, it’s the ‘Environment’ element capturing attention.
According to Deloitte, 97% of top executives expect climate change to impact strategy and operations. So, what can you prioritize now to break down the complex ocean into manageable waters?
What ESG regulation changes are coming?
Currently, ESG-related laws in the US, UK, and EU mostly relate to Greenhouse Gas (GHG) emissions.
In the EU, the Non-Financial Reporting Directive (NFRD) currently affects around 12,000 companies. In 2024, the Corporate Sustainability Reporting Directive (CSRD) will launch, taking this number to around 50,000 affected companies.
The UK enshrined into law the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) in April 2022, affecting 1,300 large multinationals. These are trickling down to mid-market firms looking to get out ahead.
The US is around 2-3 years behind the EU. The SEC Climate Disclosure Rule is still being finalized, but will require the largest companies to report GHG emissions in 2023, reaching the mid-market in 2024.
It is likely this trend will continue, reaching more and more organizations in just a few years.
ESG strategy is not just box ticking
For many organizations, regulations may be the first compelling reason to develop an ESG strategy.
However, studies show that good ESG practices are beneficial to business in several ways. Much like the link between safety and productivity, evidence suggests ESG positively impacts growth.
For example, McKinsey reports that 63% of 2,000 studies on the impact of ESG propositions on equity returns yielded positive findings, and only 8% were negative. The research firm suggests that ESG links to cash flow in five ways:
- Facilitating top-line growth
- Reducing costs
- Minimizing regulatory and legal interventions
- Increasing employee productivity
- Optimizing investment and capital expenditures
Therefore, there are many reasons beyond compliance to get ahead on your ESG journey.
The focus on GHG emissions reporting
GHG emissions reporting is a good place to start if you are not yet covered by comprehensive regulations.
As set out by the GHG Protocol 2001, emissions are categorized into Scope 1, Scope 2, and Scope 3.
Further breaking down the task into bitesize chunks, here are three steps you can take now.
1. Get your baseline
The man who invented modern business management famously said, “If you can’t measure it, you can’t improve it.”
First, you must know your existing carbon footprint. This starts with deciding what to measure. There are several frameworks companies can align with, such as the Sustainability Accounting Standards Board (SASB).
SASB provides helpful guidance per industry on what to track.
Your company may be already capturing some GHG data in spreadsheets. However, getting the right people to submit data correctly, regularly, and on time is a challenge.
Collecting energy, water, and waste data on regular basis is made significantly easier with the use of Environmental Management software. Environmental software automates the data review process, provides visibility to management, and makes it easy to run monthly sustainability reports, so it’s a worthwhile investment for ESG-conscious enterprises.
This helps make a habit out of environmental reporting, in order to avoid last-minute scrambles when audits come around.
Once you know your carbon footprint, it’s time to see how you compare.
Benchmarking against industry peers helps paint the bigger picture.
Where are your competitors in relation to you? What are other similar organizations achieving, and can you learn from them? What does “good” look like?
With sustainability ratings firm Ecovadis reporting 61% growth in companies they’ve assessed over the last 5 years, ESG benchmarking data is more available than ever.
However, making sense of this data is a time-consuming task. This is where EHS services providers, such as Trinity Consultants, can assist. Experienced consultants “mine” data from the industry to inform you on the industry landscape in which you operate.
In turn, benchmarking helps you set realistic, relevant goals that steer the business in the right direction.
3. Set goals
With the data you’ve collected and compared, setting goals is where you can get creative.
Goals should always be SMART (Specific, Measurable, Achievable, Realistic, Timebound), and what works for one company may not be relevant for another.
For example, a food and beverage company may seek to reduce emissions from refrigerants by 20% in the next 12 months by investing in more energy efficient equipment. Alternatively, a logistics company may focus on cutting fuel consumption, and a packaging firm may aim to increase the percentage of waste recycled.
There are many goals organizations can pursue. The EPA suggests several strategies for reducing GHG emissions, including:
- Energy efficiency
- Renewable energy
- Supply chain
- Waste reduction and diversion
- Methane emissions reduction
- Fuel efficiency
Bear in mind that whatever your strategy, goals mean little without Key Performance Indicators (KPIs). KPIs provide your compass to navigate the seas, requiring you to define how you’ll track the effectiveness of tasks in quantitative manner. What you can measure is directly linked to data capture, so consider what data you’re able to collect.
Furthermore, we suggest sharing EHS/ESG performance across the enterprise. Involving all staff can help to increase a sense of ownership and lead to improvements. This is something leading organizations are successfully using Power BI for, such as SJI, LBC Tank Terminals, and ASCO.
Make a start on your ESG strategy
Overall, ESG is an opportunity for companies to do better business—regulatory compliance is the first step towards making your organization more responsible, sustainable, and successful.
EHS professionals are well positioned to rise to the challenge, with an existing knowledge of environmental impacts and experience engaging staff in corporate initiatives.
You have the ability to steer the ship and get the crew rowing.
Now is the time to launch your ESG strategy—and if you’re looking for software to help you do it, learn how Pro-Sapien’s configurable Environmental software on Microsoft 365 can assist!