Making sense of ESG  

Fri 07 Jul 2023

Businesses and institutions are increasingly held accountable for environmental, social and governance (ESG) actions. Customers, suppliers, shareholders, investors, employees and regulators not only want to know your ESG strategy, but they also want to see that strategy in place and what difference it is making as we shift to a more sustainable global economy.  

While businesses may be at different points in their ESG journey, the ability to make sense of what ESG means is both an essential starting point and a way of ensuring strategies remain on track.  

It’s not just about climate change 

Just because your business is not carbon intensive doesn’t mean ESG isn’t relevant. What’s important to remember is that ESG covers almost every aspect of business, from diversity and inclusion (D&I), health and safety, and human rights to providing a living wage. In addition, the fact that sustainability reporting standards require companies to look beyond company walls involves consideration of the entire value chain, which means analysing any indirect exposure to ESG impacts. 

ESG isn’t new 

Approaching ESG as a new topic can be daunting, but it’s rarely a blank piece of paper. If companies look at their current practices, they will find that many ESG topics, such as good health and safety practices, having a clear human rights policy or sustainable packaging processes, mean the journey has already started. It’s then about moving from a fragmented perspective on different aspects of ESG to taking a more holistic approach that joins up the dots. Adding a robust process lens on top makes life easier as it tests that you are on the right track, where the focus should be and what changes are required. 

Clarify business purpose and impacts 

Undertaking a materiality assessment of your ESG exposures can help clarify business purpose and any key ESG impacts that need addressing. When conducting an assessment, it’s important to gain a wide variety of thoughts to ensure you are focusing on the right areas. For example, it may be that the leadership team feel recycling should be a top priority. Yet, when suppliers, employees, clients and investors are surveyed, health and safety come out as the top ESG priority. Wider engagement across the business ecosystem helps align business purpose and ESG impacts. 

Assess risks and opportunities 

Once a materiality assessment has been undertaken and you understand which topics are important to your business, it’s a question of understanding their significance on the business model and strategy. In particular, what risks do ESG impacts create and what opportunities do they bring to light? Depending on how significant the impacts are, you may need to adjust your organisational structure to ensure the right leadership framework is in place to drive and manage ESG initiatives and report progress to the board and risk management teams.  

Data should inform 

ESG data is essential to inform and measure progress. However, ensuring data gathered informs rather than directs is also important. While data is needed to build a sustainability report, it is also an important tool to clarify where and how ESG factors impact your business on an ongoing basis. As such, the data gathered must have the breadth and depth to help measure impacts as they evolve.  

Making sense of what ESG means to your business shouldn’t be intimidating. While there are challenges, looked upon as a new way to learn about how business is conducted and where it needs to change is one way to ensure that sustainability is baked into the business going forward. It’s about having the courage to change mindsets so that ESG is focused on the opportunity of adding value to the business and not just a compliance exercise.  

This blog is based on a webinar produced by Mazars entitled How to Begin your Sustainable Journey. Speakers included Chris Fuggle, Global Head of Sustainability, Mazars, Giles Bradford, Head of Sustainability at Bradfords Building Supplies and moderated by Helen Parker, Director, Management Consulting Team, Mazars.