Thought Leadership

3 Ways to effectively operationalize ESG

Today, ESG no longer applies only to large, global companies reducing their carbon footprints. Regardless of size, sector or industry, organizations are rolling out initiatives that support long-term investment decisions which help drive positive environmental and social outcomes.

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Make your company future-ready and resilient

Environmental, social and governance (ESG) factors and the metrics surrounding them are becoming increasingly important. They help investors, consumers and shareholders navigate how financial, consumer products, transportation, heavy industry, logistics, services, among others think about their long-term growth.

Today, ESG no longer applies only to large, global companies reducing their carbon footprints. Regardless of size, sector or industry, organizations are rolling out initiatives that support long-term investment decisions which help drive positive environmental and social outcomes.

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How did ESG become such a hot button?

Policy reform such as the Paris Climate Agreement boosted the ESG movement by introducing a globally recognized framework with metrics to address climate change risks. This helped bring new players into ESG investment and put a renewed focus on ESG integration into financial objectives.

Plus, the pandemic is shining a spotlight on how companies contribute to the overall well-being of society and communities. The broader investor community supports sustainability centered brands too.

These days investment isn’t focused solely on financial returns; investors look for products and projects that drive measurable social and environmental change, especially in climate change, renewable energy, healthcare, safety standards for working conditions and community development.

Millennials and Gen Z are also helping to raise the bar for ESG investing due to increased visibility and social awareness as a result of widespread access to information. Studies show that many millennial investors have “intentionally stopped investing or declined to invest in a company because of the impact that company’s products or services have on people’s health and well-being”.

The verdict: ESG makes for futureready, high-performing and resilient businesses.

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But many leaders are grappling with the question: how do you operationalize ESG?

Here are our three tips:

1. Align and cascade a clear ESG vision and direction supported by front-line efforts and actions

Leaders must understand how ESG issues can be addressed by the business, with sound solutions and strategies integrated across the enterprise. They set the ESG direction for the entire organization and need to lead the charge when it comes to shifting business focus, such as automation-incentivized policies or remote mining operations by leveraging automation.

Where to start? Align the Board on why they should care, considering demands from stakeholders such as customers, employees, investors, communities and suppliers. Invite an ESG expert to convey how ESG is relevant to your company to help the entire leadership team to understand intimately the issues and opportunities involved. Conduct an audit of ESG messaging and activities across the business to ensure that they align with your organization’s mission and stakeholder interests.

2. Integrate ESG into your Management Operating Systems

ESG is a broad concept, so extend your ESG scope to fit your organization’s Management Operating System. To be ahead of the ESG curve, companies must have a sound operational excellence and a continuous improvement framework.

Move from lagging indicators to leading indicators. An example of a lagging indicator is workplace accidents or environmental misses and breaches – essentially reporting statistics. The difference between the two is about being proactive instead of reactive. A leading indicator focuses on what employees are doing to avoid workplace accidents, for example.

An organization focused on operationalizing ESG needs clear and detailed processes, systems and reporting supported by a change in behavior. By reporting we mean the clear pathways to escalating issues before they become red-alert problems. In industries such as mining, oil & gas and many other heavy industries, this could have catastrophic consequences. Not everything can be or should be escalated to the top management level, but critical ESG risk issues must reach the right decision-making levels.

3. Fold ESG risk into Enterprise Risk Management

There is no universal definition of ESG risk – it differs depending on the industry and the business model. Resilient business strategies require an Enterprise Risk Management (ERM) approach that accounts for several ESG risks. These could include climate change, natural resource availability and social volatility. Why is this important?

Over the last decade, the global risk landscape has shifted significantly. In 2008, pandemics were the only societal risk amongst the top five risks in terms of impact, according to the World Economic Forum. In 2021, six of the top 10 risks are environmental or social. Naturally, the potential impacts to the business have correspondingly increased and must be accounted for.

Through clear accountability and a defined escalation process, ESG risk management shifts from compliance and disclosure-driven to a more proactive, problemsolving approach.

When the business measures the right risks at the right frequency and escalates quickly before an ESG incident happens, the company has operationalized ESG.

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Where to now?

With a worsening climate crisis, a battered economy and fast-evolving pandemic-related setbacks, the ability of companies to survive and thrive is a focus that remains on every leader’s radar. The business narrative has sharply moved to improved performance that is upheld by the scaffolding of social responsibility. Markets, boards and consumers
are rewarding companies that show this commitment. ESG is no longer a nice-to-have but table stakes. Operationalizing ESG is the road to get there.

Yet multiple frameworks and standards can be confusing and overwhelming. At Proudfoot, we’ve achieved some tremendous results even before ESG and social responsibility became the buzzwords they are today.

We’ve handled hundreds of transformation programs across various industries. Proudfoot continually helps energy providers reduce costs, allowing for savings to be passed to their customers. We have also worked with some of the world’s leading agribusiness and food and beverage companies to increase throughput and enhance supply chains.

We have now operationalized carbon footprint reduction by allowing organizations to understand their end-to-end product carbon footprint, develop the strategy to reduce it, and implement improvements at site or with any of the stakeholders in the value chain to ensure you start reaching your net-zero product carbon footprint goals at speed.

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Posted on October 21, 2021

By Proudfoot Team

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