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Environmental, social, and governance (ESG) goals are a necessary part of a company’s initiative toward sustainability and equality. ESG is gaining traction, with 91% of business leaders admitting that they think they are responsible for addressing ESG issues. These issues include carbon emissions, climate change, anti-corruption, water use, community development, and human rights.

Changes in behavior and society are driven by incentives that are primarily financial, and this is why sustainable finance is critical to tackling these issues. Companies can incentivize customers to make eco-friendly decisions and invest in companies that are on a journey toward Net-Zero (or are already there). This is all a part of their ESG framework, which tracks, plans, and reports on an organization’s actions.

 

How To Build an ESG Strategy

Any ESG strategy has to be tailored to fit the company’s goals and requirements moving forward. A unique ESG solution (that works) incorporates three main factors.

1.  As touched on above, the various aspects of an ESG strategy will have to align with stakeholders’ expectations and interests. Shareholders will have a lot of interest in the effect that ESG issues have on financial performance, while regular employees and the community will be more concerned with the impact of the business on the local area. Stakeholders need to see the company making an effort to align its ESG goals with community and professional expectations.

2.  All stakeholders are not equal, and companies must choose who to prioritize and what ESG requirements will have the most significant impact on the organization.

3.  The ESG strategy can’t go against what the company stands for and its future goals as a business. This avoids greenwashing and ensures that while some ESG measures may reduce revenue slightly, the company’s reputation and revenue are not significantly impacted.
The goal here is for companies to increase their activity on ESG issues while acknowledging that they can’t lead in all categories and remain competitive in areas they deem not as critical.

 

Top 5 ESG Frameworks and Indexes

While incorporating the above factors into an ESG strategy is a good start, the strategy itself doesn’t have to be built from the ground up by every company. Some systems give companies guidance in creating their strategy, measuring their effectiveness, and sharing their progress.

There are many different measurement methods referred to as frameworks, rating, disclosures, or rankings. Disclosures are what a company openly shares with interested parties, frameworks organize disclosures into a set standard, and ratings and rankings are scoring systems that analyze and evaluate systems in terms of performance.

These frameworks and indexes have a lot of overlap; however, they all have their place in the ESG world.

 

1.  CDP

Focuses on:

      • Climate Risk
      • Greenhouse Gas Emissions
      • Forests (CDP Forests)
      • Water Stewardship (CDP Water Security)

 

2.  DJSI: Dow Jones Sustainability Index

Focuses on:

      • Industry-specific environmental, social, and economic information that investors are interested in

 

3.  GRI: Global Reporting Initiative

Focuses on:

      • Corporate Social Responsibility (CSR) with an equal focus on ESG factors

 

4.  SASB: Sustainability Accounting Standards Board

Focuses on:

      • The industry-specific material effect of an organization’s sustainability
      • Bringing investors and companies together on the financial impacts of ESG

 

5.  TFCD: Task Force on Climate-Related Financial Disclosures

Focuses on:

      • Guidelines and strategies for climate-related opportunities and risks
      • Giving helpful information to investors for decision-making around transition and physical risks

 

There is a huge movement to standardize ESG frameworks, so it is a good idea for companies to align themselves with future requirements now. This is especially prevalent in the energy sector.

 

ESG for Energy Companies

To reach their ESG goals, energy companies must specifically focus on the environmental metric. Factors include reducing greenhouse gases, controlling flaring, and navigating the new tighter regulations coming into place. These regulations will require companies to start tracking environmental metrics, which they can then turn into tax credits/benefits down the line.

This will force energy companies to lock down their ESG metrics, including GHG emissions and flaring, no matter how hard they are to record. A company’s carbon footprint will now be compared to its partners and competitors, so they must prepare for the coming regulations by getting a grip on new controls that will allow them to track (and reduce) these metrics.

 

Sirius Solutions’ ESG Strategy

Sirius Solutions’ ESG strategy has included presenting our best practices and cross-pollinating but are increasingly turning to technology to deliver value. We have realized the value of Salesforce in their ESG efforts and find that it is the most efficient way of riding the incoming ESG wave. We have addressed ESG concerns by incorporating several differentiators into our ESG space:

  • We possess deep industry knowledge of the ESG space, from investors to governmental regulators and company verticals.
  • We also have deep industry knowledge in the energy space and its relation to ESG strategy.
  • We are experts on implementing Salesforce and utilizing it for our ESG strategy.
  • We are a trusted Salesforce energy partner.

 

Joshua Ibarra, Senior Innovation & Technology Leader – Sirius Solutions

 

Contact Joshua Ibarra at JIbarra@Sirsol.com to learn more about our client successes with ESG Measures & Strategy and how to get started on the right path with your own measures.

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