Five ways to leverage ESG for business sustainability

Five ways to leverage ESG for business sustainability

As the global sustainability landscape focuses on big-picture constructs like climate change; greenhouse gas emissions; net-zero and renewable energy, private sector CEOs are wrestling with how to promote environmental, social and governance (ESG) outcomes in their businesses, and – perhaps more importantly – how to report on these outcomes to their shareholders.

Unfortunately, it seems Africa-domiciled executive teams are behind the curve when it comes to reporting on this important area. Case in point, KPMG recently revealed that only about 8% of South Africa’s CEOs have invested money towards adopting a more transparent approach when it comes to ESG reporting. This despite the firm’s 2022 CEO Outlook Survey showing that 45% of CEOs globally agree that such programmes improve financial performance. This writer reckons that reporting transparency will improve exponentially once the remuneration committees at large, listed companies cotton on to this realisation – and start linking salaries and bonuses to firms’ resilience and sustainability outlook.

“Businesses need to transform words into actions; by embedding sustainability and jumping on the ESG wave, by doing so, organisations can revolutionise the way of doing business,” says Hariprasad Viswanathan, head: Sub-Saharan Africa at VFS Global, the world’s largest outsourcing and technology services specialist for governments and diplomatic missions. He expects companies that take the lead in all matters ESG will become more resilient in the long run, and reap benefits such as improved operations and performance, greater customer satisfaction and better financial results.

How can executive teams embed sustainability into their businesses and ride the proverbial ESG wave to better times? Mr Viswanathan shared five key observations in a recent thought leadership article, beginning with incorporating ESG as part of the larger company strategy. The first step for a company to achieve its full sustainability potential is to integrate the identified sustainability goals with its overall business goals, especially those for setting and delivering financial KPIs. To succeed in this regard requires businesses to examine both their corporate and sustainability strategies to see how closely they align and reinforce one another.

According to Mr Viswanathan, these strategies should be put to the test using a variety of criteria, such as peer comparison and competitive pressures; stakeholder expectations for the present and the future; and the overall operating environment. “In the future, a business can make use of this knowledge to elevate and integrate sustainability into its strategy and operations,” he writes. “However, to smoothly execute a sustainability strategy, it is necessary to onboard experts who are aware of emerging environmental and social trends, and the risks and opportunities they create for business.” This comment perhaps explains the recent appearance of chief sustainability officer and similar titles on the executive teams of large, listed companies.

The second technique is described as leveraging the S and G in ESG. Viswanathan argues that while environmental ideals such as lowering carbon footprints and renewable energy infrastructure are non-negotiable, businesses cannot disregard the equally important social and governing values. “Companies that ignore challenges with diversity, equity and inclusion; data privacy; compliance; and human capital may put themselves in serious financial, reputational and even legal danger,” he writes. “According to data recorded in The Wall Street Journal, shareholders and customers are already exerting pressure on businesses to address governance and social issues, such as the diversity, or lack thereof, on their boards of directors. This challenge varies from one firm to the next and across sectors, industries and geographies.

The third point derives from the realisation that you need to involve employees in your ESG strategy in order for it to succeed. An accompanying observation is that “greater employee engagement is a natural outcome of companies adopting an ESG strategy by integrating it into the foundation and culture of their business”. This method of integration improves a firm’s financial status even though it comes with upfront costs. “Getting employees to actively participate in building the organisation’s sustainability impact outside of typical silos – such as the conventional corporate social responsibility departments – helps them see that their efforts are benefiting not just their work and organisation but the society and planet as well,” writes Mr Viswanathan.

The fact that 92% of South Africa’s CEOs appear to be missing is that transparency is a critical component of embedding sustainability through ESG. Embedding transparency is thus the fourth factor for sustainability success … Transparency – or being open and honest about the firm’s approach to ESG matters – is essential to protect firms against charges of greenwashing. Again, Mr Viswanathan writes: “Being honest about both your positive and, more crucially, your negative [ESG] impacts will help you avoid criticism from others by demonstrating your grasp of the areas where your business needs to develop and advance sustainably.”

The fifth and final way for executive teams to embed sustainability in their firms was offered as prioritising ESG efforts. Businesses can better handle sustainability challenges if they concentrate on each issue that the company wishes to prioritise … So, for example, green hydrogen or its sub-topic, being operational decarbonisation. “Companies should use processes like materiality assessments to determine the list of sustainability topics that are important to the firm and its stakeholders to do this effectively; and businesses must concentrate their efforts on the most important problems after the top ESG risks and strategic opportunities have been identified,” writes Mr Viswanathan. The focus should be on goal formulation, ESG governance and communication.

An interesting observation shared in the thought leadership piece was the mismatch between the executive team’s time horizon and that over which ESG outcomes are measured, with the latter typically spanning decades. “Since executives come and go, we must underline the importance of institutionalising ESG oversight … specific activities should be actioned within the duration of the existing executive team so that individual leaders can get the ESG ball rolling and help the company achieve its larger, long-term ESG goals. Successful ESG frameworks must make an organisation future ready and future proof [and] should account for the needs of all stakeholders [as well as] delivering on all pillars within the framework, holistically,” concludes Mr Viswanathan.



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