Take a Continuous Improvement Approach to ESG
As ESG programs evolve into larger and more complex initiatives, many companies are changing the way they approach the work and committing to making ESG an area for ongoing improvement across the organization.
As regulators and investors seek standardized reporting on issues ranging from climate to human capital, business leaders are being challenged to allocate the resources needed to meet the ever-growing list of requirements. Mapping sustainability and social impact priorities, collecting material data points, and preparing disclosures that will be scrutinized by stakeholders every year are no small tasks, especially for small- to mid-cap firms. While six-month dashes to calculate emissions or write a sustainability report may get companies the outputs they desire, this is rarely the most practical or efficient approach. Instead, companies are finding that a continuous process improvement philosophy (think kaizen, lean six sigma, or agile) is an excellent way to manage ESG as it continues to evolve.
Focus on consistent, steady, and incremental improvements
A continuous improvement approach to ESG helps to establish and maintain continuity in a company’s ESG journey and initiatives and maintains a steady pace of ESG activities throughout the year. Instead of the fatigue that comes from stopping and starting multiple large initiatives at various times, ESG becomes an everyday consideration and an ongoing evolution. Such an approach spreads awareness and responsibility for ESG across the organization and helps safeguard against corporate brain drain that can happen if key individuals move on to new roles and new companies. It also ensures companies continue to get more adept at developing meaningful ESG programs and disclosures even as stakeholder expectations continue to increase.
The following recommendations can help companies establish and embrace a continuous improvement mindset around ESG.
Determine ESG scope and goals
ESG encompasses a broad range of topics, and it is safe to assume that many subjects will not be material to a company’s industry and stakeholders. While climate and human resources information are reporting table stakes for every type of firm due to current and proposed regulations, specific issues such as biodiversity and human rights will rank higher or lower on the priority list depending on a business’s specific model, segment, and location.
Nevertheless, most companies will want and need to extend the focus of ESG beyond improving greenhouse gas emissions. Identifying the multiple ESG priorities allows a company to determine strategy, goals, and the scope of data points to be collected and reported. With a more comprehensive view of ESG expectations and compliance requirements, companies will find ample opportunities for continuously improving all aspects of their programs.
Create an ESG calendar that strategically spaces out annual ESG reporting activities
As ESG reporting grows increasingly robust, meeting the requirements of different stakeholders and reporting frameworks can get complicated. Establishing a well-organized, strategically planned calendar—complete with deadlines and touch points for data collection, content creation, review and copyediting, approval by senior management, and assurance actions for each disclosure and reporting effort—will help teams pace out the work and stay on track as they continue to refine and improve their ESG efforts.
Use the existing investor relations calendar as a place to start. Quarterly earnings, the annual report, and shareholder engagements are already on this calendar, and teams can tie in relevant ESG topics with each of these events. Add SEC annual and proxy filings, then work backward from the filing dates to schedule the preparation of ESG data. Typically, SEC filings occur in the first half of the year, so most companies should start the prep work in the late fall or early winter to ensure enough time to centralize and review disclosures before proxy season. Best practice calls for syncing the ESG report (sometimes called the CSR report or impact report) with the annual report and proxy statement timeline to facilitate data collection and reporting, so be sure to include related deadlines for this report as well.
Other important items for the ESG calendar include the annual update of greenhouse gas emission data, submission of questionnaires to relevant frameworks such as CDP and TCFD, annual update of the SASB index, and the periodic management of ESG ratings data. Creating a comprehensive calendar allows teams to order and manage the work over the course of the year in the most efficient and productive ways and to dedicate the right resources to continuously cultivating their ESG programs.
Decide what can and can’t be done in-house
A clear view of ESG priorities, goals, and a well-established ESG calendar allows teams to fully consider the required execution effort as well as any challenges that may arise along the way. Except for large-cap companies, ESG is usually managed by small teams or steering committees composed of people who hold other day jobs. These teams will need to free up adequate time for data collection, review, audit, and standardization, which requires several hours annually just for the table stakes reporting, such as the proposed SEC climate disclosure rule. Senior leadership will also be required to dedicate hours to these initiatives, as these disclosures will be part of regulatory filings.
Most companies find that their ESG teams will need some external support in terms of both bandwidth and ESG-specific expertise. The collection and calculation of greenhouse gas emissions is one example of an activity usually outsourced to specialized consultants as it involves highly specialized analyses, such as assessing the company’s level of exposure to climate-related events. The ESG report and proxy statement are also frequently entrusted to external specialists given the high level of stakeholder scrutiny these documents receive.
For some companies, it’s more economical to outsource the management of the entire ESG calendar, similar to what’s often done with the investor relations calendar, than to try to manage the growing workload internally. An outsourcing approach allows companies to tap into in-depth knowledge of the latest ESG trends, best practices, and mandatory disclosures and to leverage the innovative solutions and perspectives that ESG experts bring to the table and that are critical to continuous improvement. Outsourcing also eliminates the need for in-house training and infrastructure investments, allowing the company to focus on its core business mission while still demonstrating ongoing improvements in ESG.
Take ESG improvement one step at a time
As stakeholders put more emphasis on ESG, companies will need to decide how to enhance their programs and disclosures. A continuous improvement approach that sets the right priorities, spreads the work across the calendar year, and leverages outside help when and where it’s needed can ensure companies continue to make the ESG progress they need to make.
Need help planning and managing your ESG disclosure calendar? Reach out to Riveron. Riveron supports companies in navigating today’s multifaceted ESG challenges. We can provide prioritization, mapping, and guidance on best practices, help with data collection and analysis, and ensure that your ESG program sets achievable goals with a focus on consistent evolution and ongoing improvement.