Today, businesses must prioritise environmental, social, and governance (ESG) in their commercial and investment strategies.
Stakeholders, including investors, customers, employees, and regulators, expect responsible and sustainable operations and that organisations develop a clear blueprint for achieving ESG objectives.
Boards recognise the benefits of integrating ESG into their decision-making as an organisation’s social licence may depend on it.
Many organisations have devised elaborate plans to address ESG risks and opportunities. However, shifting from planning to successful implementation often proves challenging. Even the best-formulated plans can falter during execution, which explains why good plans outnumber good outcomes in ESG.
The crucial question remains: how can companies turn their ESG strategies into tangible outcomes?
To achieve impactful ESG results, companies need to create an atmosphere conducive to transformation, where the leadership and the teams grasp the importance of ESG and are committed to its success.
Understanding ESG in the context of a business is the starting point of the journey towards sustainability.
Given that ESG is a broad, complex, and ever-evolving concept covering a wide array of factors, businesses must distil ESG into a tailored and prioritised list of risks and opportunities that management feels confident in addressing and that meets stakeholder expectations while still achieving its business objectives and purpose.
Inevitably, the areas of primacy for ESG will vary from one organisation to the next. An organisation can opt to commence its ESG endeavours with environmental concerns, in which case it would assess its footprint based on greenhouse gas emissions, air quality, energy management, wastewater treatment, and garbage management.
The organisation would then identify remedies that significantly reduce its contribution to environmental harm. Taking energy management as an example, one option for the company would be to enter into a corporate power purchase agreement for renewable energy for its operations, to generate income and limit wastage by selling surplus power.
Additionally, it could establish a circular economy within its operations, as in the case of recyclable glass bottles instead of single-use plastic bottles.
Putting ESG strategies into motion also requires enforceable agreements with suppliers or relevant third parties and strict compliance with applicable laws. It calls for thorough due diligence to achieve the intended results.
Engaging experts who can advise on issues such as policy and regulation as it relates to clean energy, carbon markets, and sustainable financing goes a long way in achieving the desired sustainability results.
While implementing these strategies would invariably be resource intensive, understanding and accessing green financing presents a solution by providing the necessary capital for ESG initiatives.
Carbon markets complement green financing solutions as they provide access to revenues for those who undertake activities to reduce or remove emissions. While environmental considerations have gained greater prominence, social factors, including working conditions, human rights, diversity and inclusion, and community engagement, are equally important and cannot be neglected when articulating ESG goals.
Organisations must cultivate inclusive practices and take proactive measures to ensure the protection of employees and local communities.
Practical examples include reviewing employment contracts and policies to ensure they comply with the law and auditing and monitoring recruitment and retention practices to ensure they are not discriminatory.
Organisations must also consider the integrity of their supply chains in promoting positive social and environmental outcomes. This entails embedding sustainability into supplier contracts, developing supplier codes of conduct and adopting procurement policies that incorporate ESG criteria in selecting and monitoring suppliers.
Concerning the third limb of ESG, good governance has increasingly become a cornerstone of successful ESG implementation. Boards must set strategy, ensure compliance, manage risk, account to shareholders and other stakeholders, and allocate sufficient resources for ESG initiatives.
As the pursuit of sustainability must start from the top, establishing proper governance structures ensures that ESG issues receive appropriate oversight and executive-level attention. This might involve creating a dedicated ESG committee or integrating ESG responsibilities into existing committees within the board.
Lastly, there is no room for complacency when it comes to ESG. Companies should regularly review and update their ESG strategy to reflect changing circumstances, new regulations, and evolving stakeholder expectations. Staying informed about emerging trends and best practices in ESG ensures organisations remain relevant and innovative.
Clear policies that address governance issues such as anti-bribery, corruption and money-laundering must be put in place. Companies must also understand how to safely use the data in their possession, which may require seeking advice on privacy laws, developing robust data management policies and using compliant data-sharing agreements.
Measuring, reporting and communicating ESG achievements is a critical component as it provides stakeholders with visibility of verifiable ESG results. Tracking performance against agreed KPIs will enable those involved to make interventions or pivot for better outcomes.
James Kamau (Managing Partner), Beatrice Nyabira (Partner), Judy Muigai (Director) and Fred Kibagendi (Associate), all at DLA Piper Africa, Kenya (IKM Advocates)
