Implementing ESG strategy within an organisation

October 2023  |  ROUNDTABLE | BOARDROOM INTELLIGENCE

Financier Worldwide Magazine

October 2023 Issue

While profit was once the fundamental measure of an organisation’s success, there has been a shift toward increased corporate social responsibility in recent years, with environmental, social and governance (ESG) at the forefront of this transition. From investors, suppliers and customers to employees and regulators, the unequivocal expectation among key stakeholders is for organisations to develop strategies that convey their commitment to ESG outcomes – a business reappraisal that is fast becoming a key metric for measuring future success.   

FW: Could you outline some of the key drivers compelling companies to implement and enhance an environmental, social and governance (ESG) strategy across their organisation?

Baum: When adopting an environmental, social and governance (ESG) strategy, the top line literally is the bottom line. Ignoring customer demands and expectations carries a heightened risk of revenue loss and is emerging as one of the foremost drivers encouraging companies to get on their ESG strategy ‘A-game’. If a company’s actions or practices do not align with their values, customers will simply take their business elsewhere. Investor and lender requirements also play a part, as both often recognise that ESG risks can materially impact a company’s performance. For others, compliance with forthcoming regulations is driving the ESG strategy conversation, but compliance alone will not be enough for ESG strategies to generate value. Adopting sustainability strategies across an organisation’s operations provides an opportunity to optimise process efficiencies and resource use, which frequently drives cost savings and improved performance. Whether a company is seeking growth or resiliency, sustainability strategies offer up solutions that make good business sense.

May: In the UK and the European Union (EU), legal and policy frameworks are driving the ESG agenda. The law usually evolves and follows the event but in this case, and in view of the climate emergency, policy and lawmakers are trying to drive strategy development and implementation to meet these new demands. Compliance is a key driver. The setting of net-zero targets and corporate disclosure requirements is making organisations assimilate their ESG data and in particular their supply chains to report Scope 3 emissions. Additionally, legal frameworks around funds and sustainable finance are driving capital toward sustainable projects. Capital is looking for a greener home and to be rewarded for doing so.

Jobanputra: There is an unequivocal expectation for businesses to develop and convey their commitment to ESG outcomes. While the economic models of prior decades may have emanated from Milton Friedman – where profit was the fundamental measure – they are now shifting toward increased social responsibility. This means the focus on positive ESG outcomes is only accelerating and fast becoming a key metric to measure future success. These expectations are held by all key stakeholders, from investors, suppliers and customers to employees and regulators. Bodies like the United Nations (UN), as well as governments and regulators across the world, expect businesses to play an active role and take responsibility for social good. It is my view that creating a more equitable world should be incorporated, and intrinsically linked, to health and wellness. The future sustainability of companies will be closely linked to ESG outcomes, hence having a focused strategy is fundamental and needs to be part of the business model and not something that sits separately – every area within the business needs to own it.

Huijbrechts: The drivers for accelerated ESG action are increased compliance and statutory reporting requirements coupled with strong stakeholder expectations. These are driven by the visible signs of climate change everywhere. There is an increased demand for ESG elements across all levels – from asset owners to team members to consumers. For example, a Booking.com 2023 survey found that 76 percent of travellers want to travel more sustainably and 86 asset owners representing $11 trillion in assets have united in the UN-convened ‘Net Zero Asset Owner Alliance’. ESG mitigates risk, ensures long-term success and survival of the company, reduces costs and is now increasingly proven to drive revenue. Ambitious and concrete action is being taken, starting at the executive level.

Hegemann: Values are shifting. People are more focused on the impact organisations have on society. And with the advancement of technologies, we can now access and analyse data that allow us to make better decisions. With more data, we can add a value to our impact, enabling investors to make impact investment decisions. There is also an increase in regulations and mandates by governments, agencies and society about what they expect from organisations. Bold commitments are no longer enough for shareholders and stakeholders – they want organisations to be held accountable, show clear plans and take concrete actions. This is about having a business plan that is sustainable, defining ESG ambitions and creating a roadmap to getting there.

Green-Mann: Increasingly I hear senior colleagues and business leaders say companies are implementing ESG strategies because it is the right thing to do, which is encouraging. But there are pressures coming from various directions, whether that is through increasing regulatory requirements, competitor pressures, business customer demands, shareholder investment criteria, and increasingly the race for talent, noting current skills shortages and attracting the next generation. There is also an opportunity in terms of differentiation, building organisational resilience and accessing specific investment funds, as well as developing products and services in new areas of growth.

FW: What considerations should be made when integrating ESG principles into existing business frameworks and operations? How important is it to align these ESG goals with business objectives – both short and long term?

May: It is essential to align ESG goals with business objectives both in the short and long term. Governance is one of the key areas for consideration when businesses are seeking to align their ESG management with commercial and operational objectives. Corporate reporting structures need careful consideration and integration of key stakeholders is essential if businesses are to speak with one voice. Professional ESG management will involve a number of skills including from legal, compliance, procurement, operational management, PR and communications specialists. Oversight from non-executive and therefore independent board members is also useful. It is essential that any statements about the company’s ESG performance is backed up by independent and verifiable data where possible and that companies do not overstate their performance in order to avoid allegations of greenwashing and regulatory enforcement.

Jobanputra: ESG requires a deliberate focus to become an integral part of an organisation’s culture, meaning it should not be treated as just something to comply with or a nice to have. For long term business success, this requires an integration of ESG goals and business objectives – any divergence could cause friction and impact efficiency. To do this you need consistency and a clear understanding of what ESG principles are, and thankfully these have been helpfully defined by several frameworks, such as the UN’s Sustainable Development Goals (SDGs). Frameworks like this allow for a greater degree of consistency across a business’s structure, particularly as these continue to mature. Importantly, setting clear metrics and targets that are regularly reported and linked to business goals and remuneration is becoming increasingly common. There may be a need to deploy the application of any principles with a transitional mindset to allow flexibility in the short term but to work toward longer-term solutions, though this should not be used to delay change. There can additionally be great opportunities in adopting ESG goals to drive positive commercial advantage.

Huijbrechts: ESG presents an opportunity and a necessity for every company’s future and survival. As such, it should be a driver for business strategy and ESG goals need to be 100 percent aligned with mid and long term business objectives. The magnitude of investment flow into sustainable investments and initiatives such as the EU taxonomy to define criteria for sustainable investments shows that ESG is a core driver for economic success. Research shows that a strong ESG proposition typically correlates with a company’s higher equity returns and employees are motivated to perform better for sustainable businesses. A study by Deloitte shows that companies with an inclusive culture have a 27 percent higher profitability and a 22 percent greater productivity. Sustainability also reduces costs and can affect operating profits by up to 60 percent, according to McKinsey & Company.

Hegemann: To create impact in the short and long term, organisations need to engage in discourse and find ways to align business objectives and societal impact with the expectations of shareholders and stakeholders. Understanding ESG topics that matter most to them is essential. These ESG topics should be connected to the company strategy and integrated into operations, making it ‘business as usual’. Finally, it is necessary to understand the value an organisation creates, which should inform decisions. To define material ESG factors, companies should conduct materiality assessments to understand how their social, economic and environmental impacts are perceived, and how they translate into risks and opportunities. Companies can also conduct impact valuations to measure the net effects of their activities and their impact on society, which also informs their strategy.

Green-Mann: Authenticity and materiality are critical to having a meaningful and impactful approach to ESG and to leveraging the benefits that ESG has to offer, which is ultimately about driving a more commercially successful and sustainable business. ‘Ticking the box’, taking a mere compliance approach or overstating will not ‘cut the mustard’ long term and will carry risk as things like ‘greenwashing’ get increasingly called out. Businesses face constraints in terms of budget, resource and time, so decisions must be made where and when the biggest return is going to be made – applying an ESG lens across core product and service offerings makes sense and can help avoid a potential ‘Kodak’ moment. There is also a balance between the short and long term. Returns are important today to invest in tomorrow and similarly without a sight on tomorrow you run the risk of being left behind or woefully unprepared for the demands and opportunities ahead.

Baum: To optimise the benefits of an ESG strategy, the integration process is best approached as an opportunity to enhance the organisation’s brand and identity rather than a ‘check the box’ compliance exercise. Companies should strive to align their actions and investments with their vision and purpose, weaving sustainability into their corporate identity in a way that is both authentic and aligned with the organisation’s DNA. That is why the integration of ESG principles into corporate strategy looks different from company to company. And those that do it well, do it seamlessly, and are strategically poised for profitable, sustainable growth and resiliency. Building sustainable operations is a long-term game. While there are short-term wins to be had, such as capitalising on clean energy credits and incentives, return on investment and value are best measured over a longer timeframe. Integrating sustainability principles into existing frameworks does not happen overnight, and similarly the benefits follow a longer-term trajectory.

FW: Could you provide an insight into some of the common challenges that companies might expect to encounter when implementing an ESG strategy? How should these problems be addressed?

Jobanputra: It is important to have a commitment from the entire business to ensure a thriving focus on ESG delivery. Ultimately, all areas of an organisation must work together to embed ESG in the fabric of its work culture. Achieving cross-company buy-in requires ongoing focus, training, awareness and alignment with the business model. This can, however, require several trade-off decisions that balance commerciality against wider ESG outcomes. So, companies will also likely have to factor in the weight of short-term versus long-term considerations. It is important to recognise that these trade-offs will arise, and it would help businesses to develop a framework and a set of principles to support the decision-making process. A mindset that I often refer to is to allow for the ‘real cost’ of doing business, which would include the impact on societal externalities.

Huijbrechts: There are a couple of key challenges when it comes to ESG strategy definition and implementation. One of the biggest challenges is resistance to change. Many companies span different countries, continents and suppliers, and the challenge is how to go about getting buy-in from all stakeholders, as well as ensuring buy-in from the top and across the whole organisation and value chain to effectuate that change. The second is speed and scale. If companies have not yet defined a strategy, they are very late to the party and need to do so now. The speed and scale of the changes required to move any company to net zero are enormous and require major investments by a company, before the paybacks become visible. The Global Financial Markets Association and the Boston Consulting Group state that an estimated $100 trillion to $150 trillion in investment is needed worldwide by 2050 to transform the global economy and limit global temperature increases to 1.5 degrees Celsius.

Hegemann: Many organisations still see ESG from a compliance perspective, not from a strategic perspective. Some struggle because employees do not see the connection between ESG and their company strategy, or they lack resources. To address this, it is necessary to connect the core purpose of an organisation with its ESG goals, so that employees and all stakeholders across the value chain can see how the organisation’s efforts create value. This will enable the organisation to both direct its efforts and allocate resources to the areas that matter.

Baum: We often see companies deferring technology decisions until they acquaint themselves with the formats, complexity and volume of ESG data requirements. While using spreadsheets to manage ESG data can work temporarily, it is not effective for managing environmental initiatives and reporting. Selecting ESG software can be challenging as the proliferation of solutions in the market has created a confusing landscape to navigate. Exploring modular solutions may be a good first step, as they enable an organisation to build out its ESG data sets at its own pace. In addition, many organisations are already taking actions that fall under the ESG umbrella, but they are not sure which activities are accretive to a sustainability strategy. Best practices include developing an ESG integration and reporting roadmap that establishes clear objectives and procedures. And, as always, strong project governance and buy-in from the board and from top management are key to programme success.

Green-Mann: Firstly, it is important to address language and ensure everyone is on the same page. The term ‘ESG’ can mean different things to different people. It is useful to define a framework for the organisation and refer to good practice guidance. ESG covers a plethora of issues so it is important to focus on priorities and where the organisation can make a real tangible impact, so undertake a materiality assessment. Once priorities are understood, ambition must be set. This can be a challenge. Getting people on board and striking a balance between the need for something that is feasibly achievable while having ambition takes engagement, influence and ideally leadership from the top. Then perhaps the biggest challenge is measuring progress and impact. Key performance indicators (KPIs) can be hard, both to define and to collect. However, progress is being made toward more standardised reporting frameworks. The important thing is measuring what you can, referring to good practice guidance, using technology to assist and if necessary turning to external expertise for help. Seeking external data assurance and verification will also improve reporting processes and data quality.

May: Establishing the right governance framework is an essential building block for integrating ESG management. Having an independent analysis of strategies at the outset to ensure the framework aligns with the company’s ESG strategy may be useful. One of the greatest challenges companies are reporting is collating all relevant ESG data from their suppliers. This can often involve gathering data from many differing sources, many of which may use different metrics or indeed may not have information in easily identifiable formats, such as where energy supply is arranged in multiple occupancy buildings or for multinational companies where large numbers of offices and many overseas jurisdictions are involved which may not have easily accessible data in appropriate reporting formats.

FW: What key performance indicators (KPIs) or metrics can companies use to measure the success — or otherwise — of their ESG initiatives? How can the method of capturing ESG performance affect a company’s credibility, considering the growing demand for accuracy and authenticity?

Green-Mann: Good quality reporting involves using recognised KPIs and standards, where possible supported by external assurance and verification. This should also be supported by qualitative information, stakeholder voice and brought to life with case studies that are current, current enough or truly historic in terms of impact. Impact and outcomes are the best focus of reporting, albeit these are more challenging. Sometimes KPIs may need to be crafted, but when KPIs are reported they should be accompanied by an explanation of how they are calculated and what they relate to. Reporting should be focused on what stakeholders want to know about and information should be placed in the public domain and challenged by those stakeholders. For authenticity, report the bad, the weak and the mistakes, as well as the good, and be willing to be held to account against public commitments and ambition. Also, whoever is representing the company should talk about what they know and where their passion or experience lies. This is particularly relevant given that ESG expertise is still relatively immature, and often individuals from other disciplines end up with overall leadership responsibilities. Even for specialists, given the breadth of the agenda you cannot expect a single person to cover all of ESG in detail. But overstating, reading from a crib sheet or not fessing up when you do not know will not instil confidence or convey authenticity to the audience.

May: There are many options for companies determining KPIs for their ESG reporting and performance. Companies that set themselves net-zero targets, for example, have established metrics and data for measuring and reporting, such as those for carbon reduction. Metrics can also include reduction of consumption in supply chains, circular economy measures and social impacts. Set KPIs should be meaningful in the context of the company’s operations and deliver clear and verifiable results using accepted and established terminologies or standards. Clearly, companies need to avoid exaggeration or performance which they cannot substantiate, or setting unattainable targets. Stakeholder activism is on the rise with investors challenging corporate ESG reporting and strategies. Additionally, customers and employees will scrutinise claims and may take their business and support elsewhere if they lose confidence in corporate credibility in ESG performance.

Baum: Although progress toward sustainability looks somewhat different across industries, one common theme holds true: companies cannot manage what they cannot measure, or cannot measure accurately. Inadequate data collection processes and controls can reduce the reliability of a company’s sustainability disclosures, threatening its credibility. ESG KPIs are dimension-specific, meaning success is determined in relation to a chosen goal. For example, companies measure their carbon reduction by comparing their carbon emissions and conservation programmes against that baseline. Further, greenhouse gas (GHG) calculations are often complex; they can be activity, spend or revenue based – each with varying degrees of accuracy and use of estimates. Like financial metrics, diligence and care must be taken in developing meaningful and reliable KPIs to measure ESG performance. Other KPIs, such as diversity, equity and inclusion (DE&I) metrics, can be comparatively easier to measure since they rely much more on existing data that companies have historically provided to regulators and various financial filings.

Hegemann: Many investors and organisations have been relying on ESG rating agencies, and ratings will remain important for the foreseeable future. We also see a shift from voluntary disclosures to regulatory mandates. However, there is a need to rethink ESG performance, to create a standard for measuring and capturing that. Success is often measured in profits and with the growing focus on value, organisations need to start measuring its impacts in monetary terms and reflect that alongside profit.

Huijbrechts: It is important to prepare for the predominant ESG regulatory and statutory reporting frameworks, such as the Task Force on Climate-related Financial Disclosures (TCFD) and the forthcoming Taskforce on Nature-related Financial Disclosures (TNFD), the Sustainability Accounting Standards Board (SASB), the International Financial Reporting Standards (IFRS) guidelines and the EU Corporate Sustainability Reporting Directive (CSRD). Although the acronym soup is mind-boggling, the process to define relevant KPIs is called a double materiality analysis in all these frameworks. Double materiality goes one step further than ‘single’ materiality, which focuses only on the impact of sustainability issues on a company and its outlook, and instead calls for companies to also report on their impact on the wider world, such as the climate, biodiversity and society. As these frameworks come into play, the process to set clear, relevant and transparent ESG KPIs will build trust among the various stakeholders.

Jobanputra: With the increased focus on reporting and disclosure, there is now a great opportunity for businesses to lead on their ESG commitments. Reporting will include a company’s climate commitments and actions toward decarbonisation, its focus on driving greater DE&I, and how it contributes to wider society. In addition to this, health and wellness should feature strongly to support a robust society. There is also a growing trend for public reporting through rating agencies and other frameworks, such as the Carbon Disclosure Project (CDP), the Global Resource Initiative (GRI) and others that provide extensive information about ESG measures. These measures are becoming ever more important as stakeholders are choosing business partners based on these. There is an acceptance that the data, systems and tools for measuring ESG outcomes are continuing to evolve and that these will mature over time.

FW: In terms of transparency and reporting obligations, what steps should companies take when communicating their ESG strategy to various stakeholders, including investors, employees, customers and communities? What risks need to be factored into this process?

May: Companies should ensure they speak with one voice through a central reporting channel to ensure there are no inconsistences between internal and external reporting. Reports should be consistent and comprehensible, and in compliance with any applicable standards or taxonomies. Where there are regulatory requirements, companies should ensure that their reports meet those standards. Care should be taken to avoid exaggeration or claims of best in class as this heightens the risk of challenge and overambitious targets can easily be missed. Companies should also ensure that they have budgeted for any changes that need to be implemented to meet targets to ensure that budgetary control is not cited as a reason for failure. Companies may need to seek legal advice in order to ensure their reports meet compliance standards. This has the benefit of attaching legal privilege to draft reports, preventing disclosure until legal advice has been obtained.

Baum: Every stakeholder group has unique interests, and companies should carefully craft a narrative that accurately conveys their overall strategy and approach to sustainability. Though admirable, management should avoid attempting to address every ESG-related matter they may encounter, particularly those that are tangential to their business or key stakeholders, and stay focused on risks and opportunities that are material to the organisation. Incorrect, unreliable or inconsistent reporting could give rise to claims of ‘greenwashing’ or ‘greenwishing’, which can pose their own risks to a company’s reputation. Whatever topics a company chooses to prioritise, transparency and clarity are best practices to effectively communicate a company’s sustainability journey. It should tell the company’s story, providing specific examples of both achievements and lessons learned – and how those learnings have informed future decision making. What matters most is conveying effort and progress, not perfection.

Hegemann: The starting point to communicating strategies and performance is identifying the right information to disclose to the right people, on the right channels, at the right time. Organisations need to make it simple for their audiences to find information. The transparency landscape is rapidly evolving, and organisations need to keep up. These obligations have caused a shift from traditional reporting to impact measurement and valuation, which is being used by investors in corporate evaluations. Building trust with society is a strategic priority. Reporting is a central part of commitment and companies should aim to report comprehensively and transparently.

Huijbrechts: An increasing range of stakeholders rely on company reported ESG data to help assess investment opportunities, select suppliers and inform other important decisions. This reliance on ESG disclosures and the associated evaluation challenges are driving reporting to become much more detailed and comprehensive. Communication with clients and employees, however, needs to move beyond technical regulatory compliance and should focus on engaging storytelling to attract talent and provide trust to consumers. We increasingly see that talent is attracted to a company’s sense of purpose and clear ESG targets.

Jobanputra: The world of ESG reporting is ever evolving and we are seeing emerging global standards through things like the International Sustainability Standards Board (ISSB) for TCFD. These help to ensure comparability, transparency and consistency. It is important that reporting conveys more than just a compliance mindset and provides decision-useful information for investors and, additionally, information that is digestible for its audience. It can be very easy to lean on jargon and technical information, but this adds little value, potentially hindering people’s understanding and complicating an important issue. The other key point I would stress is to ensure the authenticity of messaging to avoid greenwashing risks. Disclosure and reporting are going to be used by regulators to help drive positive change. The UN is leading some great initiatives in this area, helping to support the business community with considered frameworks developed by industry practitioners.

Green-Mann: There must be a focus on the ‘why’. Why is this relevant? What is the rationale? Why is the organisation committed and what is it aiming to achieve? Do not be shy about referencing the business benefits too, otherwise it will elicit scepticism. Thought should also be given to how this impacts stakeholders and what is important to certain stakeholder groups, so messaging can then be finessed accordingly. Risks include inaccurate information, inadvertent or advertent greenwashing, lack of ambition, failing to cover issues of interest or importance, and a perception that claims are disingenuous or not realistically achievable. Perhaps the biggest risk is that what is being said does not tally with a stakeholder’s experience of the organisation. Things may need to change and improve, so be honest and be accountable. Risks can be minimised and averted by taking a good practice approach to setting ESG strategy, reporting, formal stakeholder engagement and where possible co-creation for improvements with relevant stakeholder groups. Also, good communication is about dialogue, not just disseminating information.

FW: Are you seeing companies making efforts to extend their ESG principles to their business partners throughout the supply chain? What criteria can be used to align ESG efforts between a company and its third parties?

Green-Mann: Extending ESG principles throughout the supply chain has traditionally been one of the hardest things for companies to address in a meaningful way, particularly for smaller businesses that do not necessarily have the leverage or bargaining power to assert influence with their suppliers. However, it is one of the areas that really is accelerating as more businesses demand ESG credentials from their suppliers, and with the investment community applying pressure downstream. We have seen both a growth in business customers requiring their own standards and reporting criteria to be met, as well as greater use of collaborative approaches, such as the Ethical Trading Initiative, Sedex and the EcoVadis assessment. Collaborative approaches work best when being mindful of the burden bespoke reporting places on an organisation and when considering the infeasibility of every single customer wanting to conduct an on-site audit. There is also more collaboration between suppliers and customers undertaking joint initiatives, as well as collaborations at a sectoral and pan-industry level. We have seen this particularly with the net zero and climate agenda.

Hegemann: Organisations are increasingly being held accountable – not just for their direct actions but for actions across their operations, which in the case of large organisations are often performed by third parties. Indeed, organisations are accountable for the impacts – positive and negative – of all their activities. Therefore, it is imperative that organisations extend their principles across the entire value chain. Organisations can promote and encourage the adoption of the UN Global Compact and UN Guiding Principles on Business and Human Rights to their third parties.

Huijbrechts: Even before Scope 3 footprints were a focus, big brands were already being held accountable for their entire supply chain up to Tier ‘N’. Examples such as the backlash against fashion brands after the Rana Plaza disaster, or companies like Toyota being linked to deforestation in the Amazon rainforest to graze cows for the leather used in car seats, made this painstakingly clear. Transparency legislation like the UK Modern Slavery Act already required companies to have data and report transparently on full value chain actions to prevent slavery. Today, the focus on Scope 3 targets and actions, including the supply chain footprint, brings the value chain centre stage from a carbon footprint, and soon from a biodiversity, point of view as well. Companies need to map out their value chain, set policies, audit where possible, and perform in-depth evaluations of their suppliers and their ESG performance.

Jobanputra: We are seeing an increasing interest within the supply chain and beyond on all issues related to ESG. Businesses are now expected to play a leading and active role in enhancing ESG outcomes, and this is very apparent when you look at the expectations being set by governments and regulators. This is well evidenced when you look at the ‘E’ and the essence of Scope 3 emissions and beyond the value chain measures. Our experience indicates that business partners are all on the same journey, meaning we are seeing a much-needed positive collaboration being fostered. This collaboration, and the pervasive view that we are in this together, suggests that soon we will likely see scenarios where businesses define ‘red lines’ as to their threshold expectations in dealing with suppliers and other partners. This will drive commercial opportunities for businesses that commit to good ESG outcomes and means that those starting now will be in a much stronger position down the line.

Baum: Larger companies with established sustainability programmes and reporting are pressuring their major suppliers to measure their GHG emissions and report their goals for reducing their carbon footprint in support of the company’s environmental remediation programme. Other supply chain criteria can include labour practices, health & safety issues and responsible sourcing. While a company’s unique sustainability goals will determine how and whether to extend ESG principles to third parties, organisations should consider conducting a comprehensive supply chain mapping exercise to assess the risks and opportunities buried in their value chain. To be sure, global emissions regulation will impact both public and private companies. Private companies should remember that their public company customers will be beholden to data disclosure requirements – and privates will need to procure their share of that data. And of course, public companies will pressure their private partners to adhere to or align with their sustainability goals.

May: The requirement for Scope 3 reporting is extending requests throughout the supply chain as companies rely on data from their suppliers in order to meet and establish their own ESG targets. This is increasingly common and will drive the ESG agenda into most supply chains. This is of course the intention. Companies are sending ESG questionnaires, and some are conducting interviews with their supply chains and imposing reporting templates in order to ensure they obtain information in a uniform manner and in a way they can use for their own ESG reporting. Companies wish to align their supply chains with their own stated ESG principles and goals, as well as for data collation purposes.

FW: Looking ahead, do you expect ESG strategy to continue climbing the corporate agenda? How are these issues likely to evolve and expand over the months and years ahead?

Hegemann: While it is hard to predict the future, ESG will gain momentum. Investors are starting to see the potential of impact valuation and understand how organisations create profit and impact. That will undoubtedly lead to growth in organisations that are sharpening their focus on both sustainability – how ESG is embedded in their operations – and impact: the net effect of their activities on society. This will enable organisations to effectively optimise not only risk and return, but also impact. Senior leaders should have ESG targets in their annual objectives and their governance framework should support sustainable financial performance and long term value creation. ESG is a dynamic environment, so all organisations should be preparing for this, building resilience and future-proofing their organisation ahead of upcoming regulations and standards.

Jobanputra: The ESG agenda has grown in importance across big businesses globally, and this focus is continuing to grow at an incredible rate. Organisations that authentically execute and integrate ESG into their business model could end up with a competitive advantage. The intent of the UN through initiatives such as the SDGs and the annual Conference of the Parties (COP) events is applying appropriate pressure for businesses to have a strong societal purpose alongside a commercial drive. Additionally, the drive from key stakeholders is applying focus and pressure for ESG outcomes to be measured with targets. We see this trend growing, through rating agencies, gross domestic product, GRI and other frameworks. These will be used by investors, customers, employees and pressure groups to hold businesses to account. This means it makes sense for businesses to embrace ESG as a way of doing business to be a force for social good.

Huijbrechts: Around the world, the challenges related to climate change, inequality and food security are obvious and intensifying. It is a matter of essential business sense and risk mitigation to integrate ESG as part of a company’s core strategy. The same need is reflected in regulatory action, with new ESG regulations coming into effect for companies, and this urgency will only intensify in the coming years with some markets like the European Union leading the way. ESG strategies, actions and communications need to be truthful and real. Large companies are facing an unprecedented level of scrutiny on ESG performance. The growing importance of a company’s ESG performance driven by investors, consumers, the workforce and regulators has heightened the focus of senior executives and has put ESG at the top of the corporate agenda.

Baum: Building sustainability into a business is becoming both a strategic expectation and a licence to operate. As organisations find themselves traversing more complex regulatory, activist, legal and commercial landscapes, dexterity in managing a broader set of stakeholders and risks is becoming imperative. While specific approaches to ESG strategies may evolve, the market’s commitment to addressing sustainability and ESG risks is here to stay. Effective ESG strategy and risk management are increasingly becoming criteria for debt and equity investment, and we can expect to see regulation continue to increase across all jurisdictions as governments seek to drive meaningful change. Increasing demands for accuracy and transparency may also evolve into mandatory rating, audit and certification processes. Much like Sarbanes-Oxley in the US, sustainability is becoming institutionalised around the globe, and the practice of engaging a wider set of stakeholders and risks will become just another part of doing business.

May: Notwithstanding challenges in certain parts of the world and issues from the energy and cost of living crises in the EU, it is clear that ESG metrics and reporting are here to stay. While for some this is not welcome for most companies, and of course for public opinion, it is recognised that sustainability and social governance measures are imperatives if we are to address the climate crisis as well as the business opportunity. Those who adapt well and align their business will reap the rewards.

Green-Mann: ESG strategy is already well established on the corporate agenda, but I think it will further deepen and embed going forward. For example, there are still gaps in terms of really integrating it into executive remuneration, which, in some ways, is dependent on improvements required for standardised and quality ESG reporting. Undoubtedly, the topical issues will continue to be in flux, as we have seen with things like addressing modern slavery risk, the focus on DE&I and the application of artificial intelligence. The climate issue will undoubtedly become more pressing, and biodiversity continues to gain more attention. There is certainly work to be done to integrate ESG issues better and fully into things like the corporate risk register. I think there will be increasing scrutiny around products and services and calls for accountability, and potentially more legal claims lodged, for negative social and environmental impacts. More legislation will undoubtedly come, as well as clearer standards and expectations in terms of best practice. There will be more requirements too, not only for large, listed companies but increasingly for small and medium enterprises. The importance of recruiting the right people with the right skills to deliver this agenda cannot be overstated. When hiring into this space it is important to properly assess what core skills and experience are truly essential and what can be developed with the right training and support.

Karen Baum is an accomplished strategic adviser with over 35 years’ experience. She leads BDO’s sustainability and ESG services, co-leads global sustainability services development and has led various innovation and market leadership initiatives. As a corporate finance professional, she knows the importance of balancing impact and investment working with investors, lenders, and public and private companies to inspire and design practical, value enhancing sustainability solutions for organisations beginning or advancing along their ESG journey. She can be contacted on +1 (214) 243 2928 or by email: kbaum@bdo.com.

Kirsty Green-Mann, MBA, FCIPD, FIEMA, FICRS is responsible for informing, guiding and collaborating on the strategic direction of ESG within the Hays global business, as well as leading on the group’s ambitions for net zero. She has a wealth of experience in shaping strategy and working on a variety of ESG issues as a senior corporate sustainability professional. She has gained her experience from within a multinational corporate environment, a UK commercial law firm and multi-stakeholder not-for-profit organisations. She can be contacted on +44 (0)333 010 5517 or by email: kirsty.green-mann@hays.plc.

Caroline May is co-head of ESG at Norton Rose Fulbright and the firm’s first sustainability partner. She has been a practising specialist environmental lawyer for over 35 years and is listed as a Tier 1 individual in Chambers Directory, the Legal 500 Hall of Fame and the Guide to the World’s leading environmental lawyers. She advises international clients on environmental risk and regulatory issues and on ESG strategy, policies and implementation. She can be contacted on +44 (0)20 7444 3251 or by email: caroline.may@nortonrosefulbright.com.

Dr Lutz Hegemann leads the Novartis Global Health unit and is responsible for integrating environmental, social and governance (ESG) matters into the core of the company’s business, with a special emphasis on innovation and access. The Global Health unit focuses on transforming health in low- and middle-income countries with programmes targeting malaria, neglected tropical diseases and non-communicable diseases such as sickle cell disease. It also represents the company’s business in sub-Saharan Africa.

Inge Huijbrechts is global senior vice president of sustainability, security and corporate communications for Radisson Hotel Group (RHG). She develops the sustainability and safety & security programmes in the group’s 1100-plus hotels in operations & development in 95 countries around the world. Together with her team, she leads the group’s net-zero transformation based on approved science-based targets and keeps employees around the world engaged in everyday responsible business actions. She can be contacted on +32 (2) 702 9200 or by email: responsiblebusiness@radisssonhotels.com.

Deepak Jobanputra is chief sustainability officer at Vitality, an actuary with over 30 years’ experience in the life insurance industry across a range of life companies and reinsurers in the UK market. He joined Vitality at its inception as one of its first employees back in 2007 and led the design and delivery of its innovative products. He can be contacted on +44 (0)20 7133 8783 or by email: deepak.jobanputra@vitality.co.uk.

© Financier Worldwide

THE PANELLISTS

Karen Baum

BDO

Kirsty Green-Mann

Hays PLC

Caroline May

Norton Rose Fulbright LLP

Lutz Hegemann

Novartis

Inge Huijbrechts

Radisson Hotel Group

Deepak Jobanputra

Vitality