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ESG: Why Does it Matter? And How Can Safety Leaders Take the Lead?

Toby Graham /

ESG has emerged as one of the most critical areas for effectively running an organization and attracting investment across the globe.

What is ESG?

Short for Environmental, Social, and Governance, ESG criteria are a set of standards for a company’s operations that investors use to screen potential investments through a socially conscious lens.

And, here’s what it’s not.

According to McKinsey, “The magnitude of investment flow suggests that ESG is much more than a fad or a feel-good exercise.”

EHS professionals are in a unique position to take the lead on ESG initiatives. As a concept with some demonstrated staying power, let’s make sure you understand the topic and how it impacts your world.

Starting off, let’s dive into the three areas ESG covers:

Environmental

This area examines a company's impact on your local environment. Some examples include waste management and recycling, water management, renewable energy use, environmental compliance, and greenhouse gas emissions.

Social

This area examines how a company treats and values people. Social topics include a focus on health and safety, privacy and security, as well as diversity and equal opportunities.

Governance

This area examines a company's corporate governance practices. Areas of focus here would include topics like sales and procurement practices, bribery and corruption, and risk management.

Reporting on ESG performance is voluntary, but by providing this transparency companies help identify both growth opportunities and risks. Investment dollars are flowing toward companies that demonstrate they’re prioritizing ESG issues, as historical data shows that this focus delivers financial returns.

Why Does ESG Matter to Your Company?

Developing and reporting on ESG is a demonstration of strong corporate leadership and governance. This tends to have positive impacts on a company’s brand, legal liability, and financial position.

And a focus on ESG can have exponential impacts across your organization. ESG initiatives help companies identify areas for improvement, increase efficiency across the organization, and develop defensible audit trails.

Key Benefits of ESG Initiatives

Streamlined Regulatory Compliance
Companies with established ESG targets signal to regulators that they’re putting good faith toward following regulatory guidelines. And with this good faith potentially comes a lowered level of regulatory scrutiny and more leniency on the off chance regulators find areas that are out of compliance.

Improved Efficiencies
You’ve heard the adage, “What gets measured gets improved.” ESG strategies tend to find the inefficiencies hiding across an organization. And this improved transparency can impact operating expenses across many parts of the company.

Stronger ROI
Given these first two benefits, streamlined compliance, and improved efficiency, it makes sense that ESG initiatives would also impact your bottom line. The data supports this premise as well. An analysis of over 2,000 studies by McKinsey found that ESG propositions had a positive impact on equity returns 63% of the time.

Improved Employee Engagement
There’s plenty of data to support this benefit as well. Marsh & McLennan found that organizations with the highest employee satisfaction had ESG scores 14% higher than the global average. McKinsey also states that ” A strong ESG proposition can help companies attract and retain quality employees, enhance employee motivation by instilling a sense of purpose, and increase productivity overall.”

Customer Loyalty
Reputation is everything – particularly when it comes to customer loyalty. Customers want to be reassured that they’re supporting companies with a commitment to both their people and the environment. One study found that 88% of consumers will be more loyal to a company that supports social or environmental issues.

How Can Safety Leaders Take The Lead on ESG Initiatives?

EHS professionals are in a unique position to take the lead on ESG initiatives. You’re already managing several programs that fall under the ESG umbrella. You have a great deal of data at your fingertips, and understand the value engaged employees people bring to the programs under your purview. In short, you’re in a perfect position to drive performance improvements across the organization and help maintain a competitive edge.

Given that you’re a key player in any ESG initiative, how do you get one off the ground?

5 Steps to Developing Your ESG Strategy

Step 1: Develop the Mission

Here’s where you ask the important question, “How do environmental, social, and governance concepts relate to our corporate mission?” Not all aspects of ESG will relate to your organization, but many will. Keep in mind, this is an activity that can’t be done in a vacuum. You’ll want to establish a cross-departmental team of stakeholders to answer this question as well as tackle the remaining steps. This is the point in the process where you will establish your ESG goals.

Step 2: Determine Objectives & Strategies for Measurement

Objectives naturally flow from the goals you set in your previous step. From here your ESG framework starts to take shape. This is where you’ll ask questions like, “What does success look like when we achieve our goals?” Clearly defined objectives inform key data points to monitor in order to demonstrate progress against these goals. From here you’ll determine your reporting frequency and start setting baselines.

Step 3: Identify Risks & Opportunities

As you start developing objectives and establish measurement strategies, the risks and opportunities become more apparent across your business. Which areas are you lacking data? Which parts of the organization will be more challenging to get buy-in. On the flip side, where are your quick wins? Identifying your risks and opportunities helps prioritize your initiatives to ensure you’re focusing on the most impactful ones first.

Step 4: Get Buy-In

ESG initiatives fall flat without buy-in from two key groups: your senior leadership and your employees.

Critical to the success or failure of most initiatives, senior leaders need to be both aligned and supportive of your ESG initiative. They have the ability to reinforce that ESG is an organizational priority as well as ensure proper funding and staffing.

With employees, sharing the company’s ESG initiative is a great culture-building opportunity. Much like building a culture of safety, building a culture that supports ESG principles goes a long way toward employee satisfaction and retention.

Step 5: Reporting & Transparency

Many organizations have a lot of this data at their fingertips – now, it’s a matter of organizing it. The process of collecting and analyzing this critical data helps you identify areas for improvement, increase efficiencies and overcome roadblocks.

You’ll want to determine not only what you’re going to measure, but how often as well. Perhaps you produce an annual ESG report, with quarterly updates and monthly stakeholder reviews.

Reporting is the first step towards transparency. Transparency involves clearly articulating your ESG goals to all of your stakeholders – be they workers, management, customers, or investors. Then follow up consistently, demonstrating your progress towards those goals.

How KPA Helps Support Your ESG Goals

KPA’s here to help by providing consulting, software, and training to align with your ESG mission.

Environmental

KPA provides consulting and training to help ensure you’re minimizing your impact on your local environment. This can span ensuring compliance with environmental regulations, to helping develop strategies and best practices for reducing your environmental waste streams.

Social

KPA’s 35 years of health and safety experience are here to help you develop an initiative that shows you put people first. Rely on safety program data, comprehensive training library, and usage metrics to demonstrate your organization values people both inside and outside the company.

Governance

Lean on KPA’s comprehensive policy and training libraries along with in-depth reporting to demonstrate your organization follows good governance practices. This is governance that spans ethical sales practices, adherence to a comprehensive code of conduct, and audit trails that demonstrate your commitment to good governance.

KPA’s technology and expertise can help you make successful strides toward fulfilling your ESG mission.

Contact us to learn more >>

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