Many companies, small or large, public or private, have struggled to get on their ESG journey. Boards and Senior Management have more questions than answers and are unsure how to get on the ESG bandwagon. They are uncertain where to start, what framework to use, what kind of goals to set, what their competitors are reporting, and what the report should include. These are all valid questions, as there is no standardized template or framework on what and how to report. Every company is on a unique journey, and it can be challenging to know where to begin, as there are many factors to consider. Our view is that all companies, regardless of size or industry, will need to get on the ESG journey sooner or later, as various stakeholders have started to expect more transparency, and the regulatory demands are rising to provide appropriate sustainability-related disclosures. To demonstrate that companies are on their ESG journey, they must measure and report in an accurate and complete manner.
Where Should a Company Begin its ESG Journey?
- ESG Strategy Integration: An ESG-focused strategy can improve business performance, enhance competitive advantage, and lead to cost savings. If a company is embarking on its ESG journey, the first step is to integrate ESG into your overall organization’s corporate strategy. To do so, an organization should consider doing the following:
- Materiality Assessment: Conduct a materiality assessment that will help you inform your ESG strategy and determine the most material and relevant priorities and issues for your business and its operations.
- Stakeholder Identification: Stakeholders have a diverse set of interests, so it is critical to identify all your relevant internal and external stakeholders beyond your shareholders and investors, such as vendors, customers, and employees. It is also important to ensure each of their interests has been considered.
- Peer / Competitor Evaluation: Companies need to research and assess what type of goals their peers in their industry or competitors have published and what metrics they are tracking to measure progress toward their goals. Most corporate sustainability reports also mention which framework(s) they are aligned to. Measuring their ratings and score from established rating agencies is helpful to compare your journey with your competitors.
- Goals and Metrics Identification: Defining specific goals and related metrics that are action-oriented and measurable are essential to ensure they meet all the key stakeholder expectations. This also informs your data management and governance strategy.
- Framework Selection: Based on a company’s industry and competitor analysis, a company should select which frameworks will align its goals, metrics, and action plans. Currently, there are a few frameworks to choose from with the convergence of these standards and frameworks on the horizon.
- Risk Assessment: It is important for a company to appropriately identify and assess ESG risks and opportunities prior to defining and publishing its goals.
- ESG Program Development & Implementation: Once the ESG strategy is integrated into the overall business strategy, a roadmap towards establishing a sustainable ESG program needs to be developed, and a detailed project plan towards implementation is crucial.
- Current State Assessment: Assessing current state policies, programs, and metrics are important to formally track and identify gaps against established goals.
- Governance Structure: Formal roles & responsibilities need to be defined at the Board level and executive management. Management’s compensation should be tied to successful performance towards ESG goals.
- Policies, Processes, and Controls: Inventory and defining policies aligned with strategy and established goals are critical. Establishing/refining processes and implementing internal controls to ensure data reliability will remain important for a sustainable ESG program. ESG should be embedded within the entire operations of the business to allow for tracking and measuring business performance.
- Systems Implementation: Implementing a system to connect various data sources, cleanse data, and track metrics toward goals will be important for annual reporting and measuring performance.
- Program Management: A leader of the ESG program should report directly to the CEO as the responsibilities toward tracking, measuring, enhancing, and reporting involve working with many departments across functions.
- ESG Program Maturity Assessment: ESG is a process, not an outcome. Regularly assessing the program both inside and out is important. Stakeholder expectations and regulatory requirements are evolving and so is the organizational process. Therefore, evaluating the program in a holistic manner is always a good process.
- Benchmarking: Ongoing benchmarking your program with your competitors to ensure your organization is not falling behind.
- Rating Agencies: Continually measure progress in terms of your score improvement year-over-year.
- Independent Assurance: Preparing and obtaining independent assurance over your published reports, disclosures, and data reliability will add trust to your data in the published reports.
- Internal Audit (IA): Ensure your IA team is evaluating your program via a review of established policies, processes, and controls and their alignment with its strategy.
- Best Practices: Establishing/refining processes and implementing internal controls to ensure data reliability will remain important for a sustainable ESG program. Reassessing your system and data needs will be crucial given the changing regulatory environment.
Companies need to ensure they have a trusted partner to implement their ESG program and jumpstart their ESG journey successfully. Ongoing education and training on ESG concepts, frameworks, standards, policies, and regulatory requirements at the Board level, as well as management, is essential.
How Centri Can Help
Centri’s ESG Advisory team is uniquely qualified to assist you on your ESG journey. And, while each company’s ESG journey will be different, ensuring you have a trusted advisor to support you is essential. Whether your business has an ESG program in place or is in the process of developing an ESG strategy, Centri’s experts offer a range of ESG services that are tailored to your needs at the moment and in the future.
Mihir Jhaveri, CPA, CIA, CISA, CFE, CITP, CGMA
Managing Director | ESG Practice Leader
Mihir is a Managing Director and ESG Practice Leader at Centri. He has over 15 years of experience helping large Fortune 500 publicly-traded and private companies drive process improvement, minimize company risks, and enhance corporate governance. He has significant experience managing audits and advisory projects, including Sarbanes-Oxley (SOX) 404 Compliance, financial, operational, IT, and system implementation reviews.
About Centri Business Consulting, LLC
Centri Business Consulting provides the highest quality advisory consulting services to its clients by being reliable and responsive to their needs. Centri provides companies with the expertise they need to meet their reporting demands. Centri specializes in financial reporting, internal controls, technical accounting research, valuation, mergers & acquisitions, and CFO and HR advisory services for companies of various sizes and industries. From complex technical accounting transactions to monthly financial reporting, our professionals can offer any organization the specialized expertise and multilayered skillsets to ensure the project is completed timely and accurately.
For more information, please visit www.CentriConsulting.com
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