Everywhere I go there seems to be unanimous consensus that the answer to how to anchor ESG is integration: Fully integrating ESG in the business model of the company and ensuring that environmental, social and governance issues are considered across the board.
But the devil is always in the detail, so the question is what it really means to integrate ESG across the business. There might be many answers to this question, but in my mind, there is only one efficient way forward, which is a full and complete integration.
ESG starts with strategy, not with reporting
ESG must be anchored first at the strategic level in the purpose, governance and corporate strategy of the company. Next, it must be cascaded across the organization into research and development, production, quality management, training, remuneration and corporate finance, etc. Finally, it must be layered into stakeholder activities such as reporting, marketing and partnerships. Producing an integrated ESG report is great, as long as it is the means to the end — and not the other way around. Start with strategy, not with reporting.
Go for it fully or fail
ESG could be compared to digitalization, which emerged as the big new theme for boards and business executives 10 years ago. Just like ESG, digitalization does not work unless it is fully integrated into strategy, operations and company culture. Companies will not get return on investments unless full integration has succeeded. Top management needs to fully go for it 100 percent or else it will fail.
Where to anchor ESG governance
These days, one hot topic is how to best anchor ESG in the governance model. Some businesses are establishing a specific board sustainability committee; others are integrating climate change and sustainability into existing board committees such as the audit, nominations or governance committees, which is how a company such as Sanofi has decided to anchor the agenda.
Other companies are adjusting the annual wheel to ensure that more time is allocated on the main board to dig into ESG issues, which is the case for Aker Horizons in Norway, a planet positive investment company with an ambition to invest $117 billion in the energy transition before 2025. Companies including Unilever, Nike, Danone and Equinor that have had board sustainability committees for years are being followed by many other companies such as Covestro, which want to ensure that significant focus is spent on the sustainable business agenda.
Each solution might work very well, depending on the nature and strategy of the company. The main dilemma is to ensure that each company makes an informed choice and selects a model that is truly able to help drive the sustainability transformation of the business in the right direction fast.
The alpha and omega of this is whether the company at its highest level of governance has decided to go for a 100 percent full integration of ESG. If yes, you’re all set to go.
Read the article from GreenBiz here.