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In the 21st century, ESG strategy isn’t just a nice-to-have. Today, organizations are expected to have comprehensive Environmental, Social, and Government (ESG) programs with sophisticated goals and accurate reporting mechanisms. For decades, corporations have worked to meet Environmental, Health, and Safety (EHS) standards, as recommended by government agencies. But more and more, EHS teams are shifting their traditional programs and implementing ESG strategies with far-reaching environmental implications.
Explore this topic with greater depth in Environment + Energy Leader’s recent eBook: From EHS to ESG: How Do I Get There (And Why Should I Care?). For now, we’ll highlight some of the most salient takeaways.
What’s wrong with simply maintaining an existing EHS program? Is there really a difference between EHS and ESG?
While there is not one strict framework for either of these models, you may think of ESG as EHS 2.0. It’s newer, it’s more modern, and it’s more comprehensive. Most people would define an EHS program as something that aims to take action on environmental and sustainability initiatives. ESG goes one step further; it comprises the elements of an environmental management program that can be measured, tracked, and ultimately used to disclose a complete environmental and financial picture to stakeholders.
ESG programs require built-in accountability. Organizations that do ESG properly have a well-defined strategy and goals. They have determined which issues are important to their organization and their stakeholders. They can share data across their organization that will quantitatively show the impact of environmental initiatives.
Why should businesses go through the trouble of shifting to an ESG strategy? One of the most compelling reasons is to mitigate risk. In failing to address ESG factors, companies expose themselves to reputational harm and noncompliance penalties.
EHS focuses only on strengthening environmental sustainability and compliance. ESG zooms out, taking into account overall sustainability as a holistic business case. Said
one manufacturer, “ESG considerations enhance our company by reducing investor risk and enhancing value. It creates a greater level of resilience and output so we can outperform our competitors.”
Steps to Operationalize Your ESG Program
If you’ve decided to implement an ESG strategy, experts and researchers agree that the following steps will lay the groundwork for success.
Step 1: Conduct a materiality assessment
There is no one-size-fits-all ESG strategy. That’s why the first step involves asking your team what success looks like. A materiality assessment is a formal exercise that allows stakeholders to define and prioritize the most important ESG issues. This assessment will ultimately shape the commitments you make, both internally and the outside world.
Kelly Vickers, VP of ESG Strategy & Solutions for SitelogIQ, says: “By first identifying and prioritizing the ESG topics most relevant and important to your business and stakeholders….[you set] a solid foundation from which to build, and ensure that you’re focusing energy and time on what matters most.”
Step 2: Name a Quarterback
Strong ESG programs retain a committee of leaders. This committee might include representatives from legal, marketing, product development, and human resources departments. These leaders can help guide initiatives and outcomes, ensuring that important decisions pass through one central hub. If you haven’t identified one leader with the ability to influence and lead, that responsibility often falls to the EHS team, who are already committed to moving sustainability initiatives forward.
Step 3: Consider outcomes for each initiative
Tie data-driven goals to each initiative in your ESG strategy. You may look at factors like short ROI periods, or volume reductions in your water footprint, for example. “It may also be useful to set secondary goals,” says Ben Slick, Senior Vice President of Business Development at HydroPoint. For example, if you have too much water at the base of stucco outside an apartment, those structural issues lead to insurance considerations: what are your water-related claims? How did your deductible change after a claim? “These are all secondary things that contribute to the bigger picture beyond the water bill.”
Step 4: Digitize and define
Choosing to digitize elements like energy or water management across properties will help improve your control over them. “You know the old adage, you can’t manage what you can’t measure? It’s true,” says Slick. While you can start to digitize via spreadsheets and emails, as your ESG world expands you’ll want to try to automate where you can.
Before starting an initiative, identify what you already know, and start with baseline metrics. Then identify the gaps between that and what you want to know. The basic metrics that are unique to your business will be your guiding light in defining your goals.
Step 5: Wave your magic wand
Learn from your past wins and mistakes. If you could wave a magic wand, what would you do differently in your organization’s journey? Ask yourself questions like:
- Where have you spent your time and budget?
- Which programs worked?
- Which programs didn’t work?
- How did you select vendors?
- What lessons have you learned?
Says Vickers, “I strongly believe in learning from others, so soliciting feedback from external stakeholders can help unlock ideas and strategies that you may not have thought about or avoid costly mistakes. Tap into your village.”
The importance of data
When you’re shifting EHS to a holistic ESG approach, adopt a data-first mindset. You’re looking to more effectively parse through data and measure its results. The ability to do that often depends on technology, or a so-called “digital transformation.”
Which digital tools allow your initiatives to be tracked? For example, if you have an ESG goal to reduce water use across your properties, you can’t measure how you’re doing against you’re goals if you aren’t properly collecting water use data.
Once data is effectively collected and managed, you’ll be able to build a digital ecosystem that connects people, processes, and other systems. Accurate data management must be:
- Repeatable – When data is standardized and integrated into a single platform, it simplifies reporting, whether for voluntary disclosure for entities like CDP or GRI, or for responding to stakeholders, customers or suppliers.
- Traceable – It is vital that the numbers you report are accurate — and that, if scrutiny is placed upon the data, you can show where the numbers came from. For example, are you able to separate water use amounts by indoors versus outdoors? Are you able to attribute a single large water bill to a water leak event that you already fixed and will not be repeated?
- Shareable across business sectors – Getting the right data to the right person at the right time is a necessity for making data actionable. For example, when the University of Utah replaced all of its outdated irrigation controllers on campus, they were able to reduce all outdoor water use by as much as 25%. That water use data could be attributed beyond just the landscaping department, and work toward the organization-wide sustainability goal of water conservation.
ESG is not a “new thing.” Rather, it is the continuation of a conversation being driven increasingly by a broader audience.
Encourage stakeholders to understand the importance of ESG in business terms: customer retention, cost reductions, saving resources, reducing liability, managing risk of business interruptions, and more. “Help them understand that wasting resources is wasting money and is absolutely worth stopping,” explains Chris Spain, CEO and President of HydroPoint.
The true potential of ESG lies in the fact that meaningful environmental conservation can scale, because it is economically and operationally sustainable. Spain says: “When you are able to save real money by eliminating needless waste, your entire world view of the problems before us is transformed from seeing an endless landscape of challenges to realizing that, if managed right, there’s gold in them darn hills.”