The meaning of integrating ESG

ESG has become the new black of corporate business. On the backdrop of the latest IPCC report from the UN, weather disasters during the recent months and with COP26 in Glasgow coming up in November, many executives and boards are grappling with how to anchor strategic thinking on climate change and sustainable business more broadly in their existing governance set up.

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, cascaded across the organisation into R&D, production, quality management, training, remuneration, Corporate Finance, etc. And finally, 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 100%, or fail

ESG could be compared to digitalisation that emerged as the big new theme for boards and business executives 10 years ago. Just like ESG, digitalisation 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%, or else it will fail.

Where to anchor ESG governance

These days one of the hot topics 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. Other companies are adjusting the annual wheel to ensure that more time is allocated on the main board to dig into ESG issues.

Each of these solutions might work very well, depending on the nature and strategy of the company.

The main point 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 alfa and omega of this is if the company – at its highest level of governance – has decided to go for a 100% full integration of ESG – or not. If yes, you’re all set to go.

Read the full article on LinkedIn here.