How ESG transformation can help you respond to stakeholder needs

ESG gets to the heart of why you are in business, who you are as a company, what your impact is on the world, how you align your business model with the needs of society, what you report, and how you engage your people and with your stakeholders more generally.

Deferring integrating ESG into your overall business strategy creates the risk that you will hardwire old value creation models that can't meet the concerns of your stakeholders and the long-term needs of your business. It also becomes increasingly likely that you will fail to manage very real and material risks while also finding yourself out of step with your stakeholders.

That’s why integrating sustainability into your overall business strategy is essential, as ESG will propel the next wave of corporate transformation.

Strategic reinvention

Companies are redefining their business and sustainability strategies before determining how to respond most appropriately to the evolving non-financial reporting environment. Management teams are taking a fresh look at difficult strategic trade-offs in response to both new opportunities and external pressures, such as concerns about heavy carbon emissions (very much on the radar of energy companies and cement manufacturers, for example) and a range of social concerns including health, race, gender, inclusion and inequality. If an organisation’s current strategic priorities result in outcomes that are increasingly viewed as unsustainable (or even unacceptable), it needs a strategy to address such concerns, exploit different opportunities and, ultimately, redefine not only what the business does, but how it does it.

Reimagined reporting

The most immediate call for action is often a combination of heightened regulatory requirements, greater risk awareness, and demand for data to support the management and disclosure of ESG factors. Everything from carbon emissions to racial and gender balance and the sustainability of sourcing strategies is under the microscope. Investors, governments, regulators, rating agencies, and informed customers are assessing whether businesses have identified, and are appropriately managing, ESG risks. As companies reevaluate what they report publicly, formal non-financial disclosures are starting to augment or replace non-binding frameworks.

Business transformation

A business that begins to report against broader non-financial metrics will quickly find that it needs to define objectives to manage these metrics, and drive change to achieve these objectives. Similarly, a business that has had to redefine its strategic priorities to ensure its sustainability and relevance will urgently need to transform if it is to deliver on the new strategic objectives. Either way, businesses will have to actively manage ESG outcomes by internalising ESG into strategy, transforming to implement the related change, and reporting on both progress and outcomes. Senior leaders have a critical role to play in driving this agenda for transformation, which is not separate from ongoing digital transformations, but which will inform and build on them, redefining both their context and purpose.

Every company is uniquely situated, as is the scope of change needed. Whether the motivation is an ambitious emissions target that inspires strategic reinvention, deals to exit or restructure businesses that are unsustainable, ambitious diversity, equity, and inclusion (DEI) priorities or supply chain overhaul, the resulting ESG agenda will eventually encompass reporting, strategic and business transformation initiatives. It all adds up to a new equation for business: behaviours based on purpose and trust that create value by finding solutions to the challenges society is facing.

Four actions to help your company begin its ESG transformation journey

1. Decide on your ESG strategy and metrics

The first step is strategic. Set an overarching approach to ESG. It should be supported by a clear tone from the top, with CEO and leadership team commitment to encourage buy-in across the entire organisation in a cohesive and inclusive way.

2. Define process and governance steps to have confidence in your reporting

Standardised policies, procedures, controls and governance are crucial to efficiently integrate ESG into your business. Automated workflow and data transformation tools can help ensure that your data is appropriate and your metrics are clearly defined. Through this kind of structured approach to reporting processes and governance, your ESG story will be grounded in objective and reliable data.

3. Design your reporting architecture and technology

Treat ESG reporting like the integrated effort that it is. Create an architecture that includes data sourcing, aggregation, calculation, validation, reporting and analytics. Leverage existing financial reporting architectures to the greatest degree possible. Map each ESG reporting element to the architecture.

4. Tell an authentic and coherent story

When telling your company's ESG story, present more than a snapshot of where you are now. Rather, talk about where you want to go next and how you plan to get there. That sense of evolution will help you take action now, with reporting and data that you can stand behind into the future.

We are here to help you

The impetus for business to address ESG issues and opportunities is likely to continue to grow, spurred by investors, shareholders, governments, policymakers, employees, suppliers, customers and citizens more broadly. We are ready to help you as you face the future. Contact us today.