1. Conduct a Materiality Assessment
Building a successful ESG strategy is a complex, resource-intensive process. Before jumping into data collection and target setting, it’s crucial to identify which ESG factors are material to your organization.
Materiality is assessed by engaging both internal and external stakeholders. Internally, this includes teams such as leadership, HR, finance, operations, and legal. Externally, you’ll need to gather input from investors, lenders, suppliers, and customers.
To prioritize what matters most, create a materiality matrix that plots external importance on the Y-axis and business impact on the X-axis. This helps you visualize which targets hold the most weight in terms of both external relevance and business impact.
By identifying material issues, you’ll avoid wasting time and resources on irrelevant aspects and focus on what truly matters to both your organization and its stakeholders.
2. Explore Relevant Frameworks
The ESG landscape is flooded with numerous frameworks and determining which to use can be daunting. These standards can vary widely depending on industry, location, and specific reporting requirements.
Some of the most widely adopted frameworks include:
- Global Reporting Initiative (GRI): A comprehensive standard covering environmental, economic, and social reporting.
- International Sustainability Standards Board (ISSB): A relatively new standard tailored to meet the information needs of investors.
- CDP: Focuses on environmental impacts, particularly carbon emissions and climate risks.
- Science Based Targets Initiative (SBTi): Focused on helping companies set Net Zero carbon targets.
- Task Force on Climate-related Financial Disclosures (TCFD): Offers recommendations on climate-related financial disclosures.
You’ll also need to consider country-specific regulations, such as the BRSR in India or the CSRD in Europe. Before proceeding with data collection or setting targets, it’s important to understand which frameworks apply to your business.
3. Collect Data & Benchmark
When gathering data for your ESG strategy, it's crucial to set clear boundaries around your data collection process. These boundaries might include:
- Which parts of the value chain will you focus on?
- Which products or services are included?
- How will emissions from subsidiaries or leased properties be reported?
With these parameters in place, your ESG team will know where to prioritize efforts. This process can be time-consuming, as it requires data collection from various internal departments, suppliers, and even customers.
Using cloud-based solutions, like the AMCS ESG Solution, can streamline this process. The platform simplifies data entry and integrates with IoT and other systems, allowing real-time data collection from across your organization.
Effective data collection is crucial to ensure that your ESG targets are meaningful and trackable. Without solid data, your progress will be difficult to measure, and benchmarking against industry standards will be impossible.
4. Set Targets & Goals
Your ESG strategy should begin with clear, actionable goals based on your materiality assessment and data. ESG covers a wide range of issues, including carbon emissions, labor practices, diversity, and ethical governance. The specific targets you set will depend on the most critical issues facing your organization.
Some examples of targets might include:
- Net Zero carbon emission goals by 2030
- Improved working conditions in your supply chain
- Enhanced ethical leadership to attract investors
Once you have your baseline data, set SMART (Specific, Measurable, Achievable, Relevant, Time-bound) goals that will guide your ESG strategy and keep stakeholders accountable.
5. Prepare Reports
With your data in place and targets set, it's time to prepare your ESG reports. These reports should adhere to the standards of the framework you’ve chosen, ensuring compliance and comparability with industry peers.
Typical ESG reports will include metrics on emissions, resource usage, labor practices, and any other ESG-related actions taken during the reporting period. They will also include commentary on data quality, assumptions, and any gaps in your reporting.
6. Update Reports & Monitor Success
ESG is not a one-time initiative; it requires continuous evaluation and improvement. As new data becomes available, and standards evolve, your strategy and reports should be updated regularly.
Cloud-based platforms like the AMCS ESG Solution (formerly Quentic) can help keep your reports up to date, ensuring that you remain compliant with changing regulations and frameworks. These solutions also facilitate the ongoing collection of data, allowing you to track your progress in real-time and make adjustments as needed.
