By Maureen Wolff, Chief Executive Officer
With a record $20 billion+ flowing into ESG oriented funds in 2019 in the US alone there is no denying that a compelling Environmental, Social and Governance (ESG) platform has become a critical component of investor relations programs and overall communications for corporations of all sizes. Investors, proxy advisory firms and debt rating agencies are demanding it. And, other stakeholders including employees, customers, strategic M&A suitors and suppliers are increasingly considering ESG practices in deciding where to work and with whom to conduct business.
ESG can fundamentally make an organization stronger, more resilient and more attractive to key stakeholders, while helping to mitigate long-term risks. At the same time, the lack of an ESG strategy and sustainability narrative can leave a company exposed and at risk on several fronts.
ESG data is being used on every public company today, whether the companies have released ESG information or not. As BlackRock CEO Larry Fink stated in his 2019 Letter to CEOs, “In the absence of robust disclosures, investors, including BlackRock, will increasingly conclude that companies are not adequately managing risk.” Additionally, BlackRock along with State Street and other institutions have committed to vote against directors at companies that do not demonstrate a commitment to ESG.
The events of recent months -- including the global COVID-19 pandemic and the racial justice movement -- have further amplified the need for greater corporate focus on a range of ESG initiatives, including risk oversight, supply chain security, IT infrastructure, employee safety, talent management and diversity and inclusion.
While doing nothing on the ESG front is clearly no longer a viable option, implementing an ESG program can seem overwhelming -- particularly if publishing a full-scale sustainability report that meets GRI or other standards would not be feasible for your company right now.
The good news is that ESG is a journey, not a sprint. By taking a few strategic first steps to put a stake in the ground, you can establish a strong ESG foundation to build upon over time and earn tremendous credit from investors, employees, customers and the society at large.
We’ve guided many companies through this “walk before you run” approach. Here is where we suggest you start:1) Identify key ESG material issues, opportunities and program gaps – starting with the SASB materiality map. An effective and scalable ESG program should begin with a thoughtful analysis that identifies the key material risks for your industry and company, validates where your strengths lie and uncovers where there may be gaps in your existing ESG communications, disclosures and practices.
This analysis can include:
- Leveraging SASB’s materiality map to identify material issues and disclosures for your company’s industry and classification. While there are several disclosure standards to consider benchmarking your ESG program against, we recommend SASB as a starting point for public companies given its focus on financial materiality and the investment community.
- Reviewing existing ESG scorecards on your company from the likes of ISS, Glass Lewis, MSCI and/or Sustainalytics to identify commonly cited ESG areas for improvement, ESG strengths to highlight and/or misperceptions.
- Assessing peer ESG practices and communications to benchmark how your existing policies and practices stack up to your peers.
- Taking an internal audit to identify existing ESG initiatives within your organization. Often companies discover that there actually are value-driving ESG programs underway internally that are just not being viewed or communicated externally as such.
- Conducting Materiality Assessment & Stakeholder Interviews. For a more extensive analysis you can seek input directly from key stakeholders such as investors, employees, customers, partners and the community.
2) Start to develop a compelling ESG messaging framework and narrative. The foundation of a successful ESG program is a compelling ESG messaging framework that considers where your vision, mission and purpose overlap with your ESG strengths and the material ESG focus areas identified through your analysis. At the heart of the messaging framework will be your ESG narrative and ESG pillars that give investors and other stakeholders a clear understanding of your ESG strengths and aspirations.
3) Bring your recommendations to the executive team, board and cross-functional ESG team. Effective implementation of ESG initiatives requires integrating sustainability more fundamentally into your existing processes and practices, which requires board-level engagement, executive sponsorship and cross-functional participation. For this reason, presenting findings from your analysis and a proposed ESG narrative to your executive team and board is an important step. At this stage, if your company does not already have a core cross-functional ESG team in place, your leadership will want to form one with representation from different parts of your organization -- including investor relations, communications, legal, HR, finance and each of your business segments.
4) Bring your ESG narrative to life -- starting with your corporate website. Building toward an ESG report that meets GRI or other standards is an excellent goal, but it is not always feasible or required in year one. In most cases, an effective place to “put a stake in the ground” with your ESG communications is with a sustainability (“CSR” or “ESG”) section on your website.
Whether you have an existing sustainability site that you can improve or are starting anew, you will want to be strategic in thinking about the messaging, content and organization to ensure you are making it easy for investors and other stakeholders to gain a clear understanding of your company’s ESG program and find supporting data.
Some tips to consider:
- Leverage the sustainability landing page to establish your ESG narrative. ESG content can be dense, which is why it is important to maximize the impact of your landing page by clearly establishing your ESG narrative and featuring key ESG metrics.
- Use an ‘outside-in’ ESG website architecture. Organizing data, policies and content within well-defined Environment, Social & Governance sections allows investors and ratings agencies to easily drill down into the information they are looking for and give you full credit for your work.
- Start with the relevant content you have available now and build from there. To immediately enhance your standing in the eyes of ESG investors and rating agencies, you should publish or highlight existing content uncovered during your analysis that addresses ratings agency “red flags” and standards’ guidelines. This may include reorganizing content currently on your website or repurposing internal-facing data, policies or other content for external audiences.
- Incorporate video to make your message compelling. Short videos can clearly set the tone for your ESG program, draw attention to metrics that matter most for your company and humanize your ESG mission. Videos also can be leveraged across your social media platforms as well as in internal and external presentations.
- Make ESG content easily digestible with a downloadable ESG fact sheet and/or ESG highlight report. Investors are looking to easily understand the heart of your ESG program. An ESG Fact Sheet or highlight report that captures ESG program components, goals and measurable metrics is an extremely effective vehicle for succinctly communicating your ESG program.
- Take a holistic approach to communications and leverage your website messaging across your investor materials. For the companies that are doing it right, ESG is an integral part of their long-term strategy, not an afterthought -- and this becomes apparent when you see a seamlessly integrated ESG narrative across all communication platforms. An effective way to achieve this is to repurpose your website content in other investor communications like your earnings calls, standing investor decks and annual or integrated reports.
- Engage your employees. Now that you have begun the work of defining your company’s ESG platform, you should integrate ESG messaging into internal communications to educate and motivate your employees. This may include announcing your new ESG website through an internal employee email from your CEO, featuring employees in ESG stories on your website or beginning to share ESG metrics and ‘wins’ in ongoing employee touchpoints such as All Hands Meetings.
5) Drive Stakeholder Engagement. Begin to proactively market your ESG story to investors. This may include holding ESG Investor Briefing Calls, organizing virtual ESG non-deal roadshows and conducting targeted outreach to ESG integrated and ESG impact funds.
6) Set your sites on what’s next. A best-in-class ESG program is built over time and having a clear roadmap in place that identifies your near-, mid- and long-term priorities and goals will ensure you are aligned across the organization and positioned for success. The roadmap should include data collection, reporting and communications milestones– and clearly identify ownership within the organization.
With ESG investing here to stay, the urgency for companies to develop an ESG-driven strategy and communications plan has never been greater. By taking these first 6 steps to put a strategic, informed foundation in place that you can build upon over time, you can launch an ESG program that delivers value for your company and key stakeholders for years to come.
Sharon Merrill employs a proprietary and systematic approach to build a strategic ESG platform for you. Please visit the ESG Engagement section of our website for more information.
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