Become the Norm: 3 Best Practices to Establish Your Company as an ESG Leader
By leveraging learning, companies can stay on top of the evolving ESG landscape — and become trailblazers in the field.
Earlier this year, the European Union finalized its Corporate Sustainability Reporting Directive (CSRD), one of the most far-reaching environmental, social, and governance (ESG) reporting requirements to date. The CSRD, which goes into effect in 2028 and will apply to nearly every company active in EU markets, will mandate that organizations disclose how sustainability factors like climate and pollution impact their businesses — and how each business affects these factors in turn.
CSRD is only one of many noteworthy recent developments as ESG principles rapidly evolve. The U.S. Securities and Exchange Commission (SEC) is also working on its own climate disclosure rules.
Of course, there has been pushback. Some U.S. lawmakers have tried to curtail the use of ESG criteria in retirement funds, and some surveys show corporate executives fear the impacts of ESG mandates on their organizations. But this is not so different from Sarbanes-Oxley, which also received pushback when it first passed. Now, it's widely lauded as the standard for financial transparency.
ESG is likely to follow a similar path. While the rules and regulations are still taking shape, ESG will one day be the norm. This presents a powerful opportunity. Organizations that begin acting on ESG today will not just avoid any potential consequences of not complying; they will position themselves as ESG leaders in the future.
Let's take a closer look at how you can prepare yourself and your organization for the ESG mandates on the horizon.
3 Best Practices to Drive ESG
I realize that, even under the best circumstances, starting an ESG journey can be daunting. It doesn't help that so many regulations and frameworks are still in flux or actively contested. But, the good news is that you don't have to start from scratch or wait for all the guidelines to be finalized.
Many ESG principles are based on voluntary standards that have been around for some time. For example, the EU's CSRD draws heavily from preexisting frameworks put forward by the Global Reporting Initiative (GRI), the Task Force on Climate-related Financial Disclosures (TCFD), and the Sustainability Accounting Standards Board (SASB). If you familiarize yourself with these and other relevant standards, you won't be blindsided by formal regulations when they do arrive.
You can also draw on your corporate social responsibility (CSR) initiatives to help shape your ESG strategy. To be sure, CSR and ESG, while related, can represent different approaches. CSR efforts are typically defined internally, focusing on how companies hold themselves accountable to employees, customers, and other stakeholders. ESG is driven by external rules and focuses more on data and objective reporting.
Yet both CSR and ESG are concerned with how companies can do good in the world. So, prior CSR initiatives can be good starting points for your ESG journey. For example, if your company supports non-profits promoting solar energy, you could explore how it might incorporate more solar power into its own supply chain.
Beyond these broader considerations, you can consider adopting three specific best practices:
1. Treat ESG Like a Team Sport
In the past, some companies handled CSR as an HR or marketing initiative. ESG, however, benefits from involvement across the whole organization — from procurement, product management, and finance to technology, communications, talent strategy, and more. That means ESG also requires the participation of leaders from various stakeholder departments.
Some organizations are tackling this challenge by creating ESG review boards or oversight committees. Participants often include a range of leaders or C-suite officers, each of whom can address the specific ESG challenges — and opportunities — facing their particular team or function. And ESG initiatives should also proceed with the approval and, ideally, participation of the Board.
That said, many organizations have realized that their commitment to ESG is best served when it is owned at the executive leadership level. A Chief Sustainability Officer (CSO), or head of ESG, ensures that the organization is held accountable for the goals it sets and the outcomes it achieves.
And ESG is more than just a concern for leaders. Because ESG initiatives typically require changes in company culture and business processes, employees at all levels should be part of the journey, even if they don't sit on official committees.
Learning can be a powerful tool for equipping your employees with the skills and knowledge they need to contribute to ESG goals. For example, companies often use Skillsoft's Global Code of Conduct training solution to help reinforce their positions on social responsibility and regulatory compliance.
You and your team can also benefit from compliance training to understand any new regulations your company must adhere to. Leaders in rapidly evolving roles, like CSOs and chief ethics officers, may also benefit from learning leadership and business skills to help them confidently navigate the changing landscape.
2. Centralize and Digitize Reporting
While CSR often entails some level of reporting, ESG reporting standards tend to be more stringent since they're imposed by investors and government regulators who want to prevent practices like greenwashing. Your ESG data must be as comprehensive, consistent, and verifiable as financial data. In fact, a current standard involves what’s called, “double materiality.” This refers to organizations reporting on issues that financially impact the value of their enterprise and issues that affect the greater economy, environment, and society.
Today’s investors are already making decisions based on sustainability. And, more and more companies are demanding that their suppliers disclose ESG goals and — more importantly — outcomes. The truth is, ESG reporting and rankings will only become more important in the future.
For this reason, you need to ensure the integrity and accuracy of your approach to tracking ESG metrics. New tools and specialists are arising to fill this need, and third-party organizations and consultants can be valuable partners. If you’re just getting started, you might look at some preexisting frameworks — like GRI or the Carbon Disclosure Project — to understand what you need to report and how. You might also consider providing data science skilling so employees can develop the skills and competencies to accurately track and report on key ESG metrics.
3. Operationalize ESG
While ESG initiatives are driven to some extent by reporting requirements, it's important to remember that reporting is only part of the picture. ESG, at its core, is about setting objectives that lead to operational changes and measurable outcomes. In other words, what are we all trying to achieve together for ourselves, for our communities, and for the planet?
Operationalize ESG by reviewing your processes and practices for opportunities to implement meaningful ESG goals. Are critical parts of the supply chain vulnerable to climate risks? Are recruiting efforts too concentrated in certain socioeconomic strata? Ask these kinds of questions to identify organic ways to bring ESG into your business strategies.
As with most ESG best practices, operationalizing ESG isn't just a good thing to do. As more laws like Germany's Supply Chain Due Diligence Act are passed, it becomes a business imperative. Regular compliance training can help leaders and employees stay on top of these new regulations.
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ESG Requires Workforce Transformation
Any new social change brings some push and pull, but in the long term, the principles of ESG will be normalized. To keep up with ESG as it evolves, companies must transform their strategies, cultures, and workforces.
That's why learning is such a crucial part of ESG success. Learning helps employees across the organization — from entry-level to the C-suite — gain the skills and knowledge to meet ESG goals and comply with ESG regulations.
Moreover, learning can even play a role in ESG reporting. Companies have included details on Skillsoft ESG programs, like Pollution Prevention for Employees, The Effects of Environmental Change on Business, and Building a Strategic Commitment to Sustainability, in their disclosures to demonstrate commitment to and progress on ESG objectives.
We’re proud to help customers take these important steps. If we are to effect lasting and meaningful change now and in the future, we need to work together for both the greater good and more responsible business. We’re on a sustainability journey together.
Are you still curious about how your company can address the complexities of ESG and CSR?
Feel free to view my recent conversation with Doug Henschen, principal analyst at Constellation Research, and Kevin Kelly, general manager, compliance, at Skillsoft. The free webinar addresses the crucial questions that boards, CXOs, and environmental and social leaders are grappling with to meet the changing expectations of stakeholders including employees, customers, partners, communities and investors.