How can leaders implement ESG / Sustainability models into their business and what barriers still exist?

By: Jessica Kruger, LUXTRA

 

For many years ESG (Environmental, Social & Governance) were seen as a side line function for companies; the sad cousin, left to languish in the corner while the smart people got on with the “real” work.

Happily, for people and planet, this is no longer the case. Indeed, the first hit in a Qwant* search for ESG is from major consulting firm KMPG, which espouses that;

“ESG must be embedded in your strategy and form the overall narrative and purpose of your organisation. Every aspect of your business is in the spotlight [… ] It’s now clear, that having a clear purpose and positive impact on the planet and its people matters like never before.” – KPMG

Enough said.

So… how to go about this?

BEING SUSTAINABLE MEANS COSTS WILL RISE

There are many ways to implement more environmentally and socially sensitive practices, which we will address below, but one of the most important starting points is to realise that moving in this direction will very likely mean that costs will rise and profits will go down… at least in the short-medium term. This is a huge acknowledgement and I cannot labour this point enough. Investors, shareholders, and those generally in charge must get their head around this fact. I admit it’s a bitter pill to swallow. No one likes to see less money coming in, but it’s so worthwhile long term.

IMPLEMENTING ESG & SUSTAINABILITY

First and foremost, business leaders must decide if they merely wish to pay lip service to ESG and sustainability, or whether they see it as critical to the future of their company.

Assuming it’s the latter, top brass must to start by educating themselves. They need to learn the lingo and understand, on a macro level, why environmental and social issues matter generally, and specifically to their business. They must have more than a superficial understanding as sustainability is not an area to delegate so that you can “get on with your work”. Leaders need to realise the future of their companies will be fundamentally intertwined with how well they grasp, and get moving on, all things sustainability.

USE ONLINE RESOURCES

Get up to speed by reading through websites and blog posts from reputable organisations. Learn why “sustainability” is such a grey term, understand what the difference is between linear and circular economies, get up to speed with B Corps, and seek out industry reports on ESG risks to your specific sector. Make MOOCs (Massive Open Online Courses) your new best friend – and take intro courses to get you up to speed. The beauty of MOOCs is that they’re low commitment and super flexible.

Some good places to start are:

• The Ellen MacArthur Foundation – for all things Circular Economy
• EdX – for MOOCs and other courses on all things sustainability and ESG
• Coursera – again, for sustainability and ESG directed MOOCs

EXAMINE YOUR SUPPLY CHAIN

Once you’ve looked at yourself, you’re ready to look at your supply chain. Product based businesses will have a longer and more complex supply chain compared to service providers. Before diving in, you need to have a goal. What do you want to achieve? How can you measure it? Going in blind, without a plan, is a recipe for wasted time and resources.

Start at your HQ and work upstream through each of your tiers. Here is a non-exhaustive list of topics on which to gather data:

ENVIRONMENT

• Where do our raw materials come from?
• How are these raw materials manufactured?
• What about modern slavery?
• Who are our suppliers’ suppliers?

SOCIAL

• What is the multiple between the lowest paid person in our supply chain, and the highest? i.e. manual labourer on £12,000 vs. CEO on £1,200,00 = multiple of 100.
• How many women / people from minorities are in top management positions?
• Who makes our raw materials? Are any children involved in the process?
• What about modern slavery? (perhaps a note to self to read up about modern slavery, as it’s not clear cut)
• Do we take our suppliers at their word? Do we trust them?

GOVERNANCE

• Are customers demanding ecological and/or socially-aware solutions?
• If they aren’t now, will they soon start?
• How exposed are we to imminent changes in customer behaviour?
• How can we learn more to prepare ourselves?
• Is our business going to survive if conditions change?
• How can we ready ourselves?
• Do we see this as a burden, or an opportunity?
• Are we ready to see money spent on ESG as an investment?

This is a long list of questions, and there is no blanket process to ascertain the answers. The first step will always be to work out where your company is right now and from there you can work out a (realistic!) plan and get things moving.

BARRIERS TO IMPLEMENTING ESG & SUSTAINABILITY

When integrating ESG and sustainability into a “traditional” business model, the biggest hurdle to overcome is inertia and the status quo. Leaders, business owners and shareholders will have to come around to the idea that business cannot continue “as usual”. Given the stresses already caused by the pandemic, it’s not necessarily what most people will want to hear.

BUY IN FROM THE TEAM

Shareholders aside, every company’s team is made up of unique personalities – some will be rooting for sustainable practises and others will be die-hard cynics. Accept this, and steel yourself ahead of time and remember to manage your expectations. Humans are creatures of habit and generally dislike change, so be well prepared for the fact that your workforce may not share your enthusiasm. Keeping this in mind can help reduce frustrations.

That said, even small signs of change from sceptics can be remarkable achievements, so don’t lose heart. Sometimes people need to mull over an idea in their own good time before they’re ready to make changes.