How EHS–ESG convergence enables companies to get ahead
Businesses who keep EHS and ESG separate will only fall behind. Our CEO, Peter Schramme, shares how these two concepts are coming together as one change agent.
Over the last few years, we have seen increasing EHS–ESG convergence: a coming-together of environmental health and safety (EHS) compliance and reporting on environmental, social, and governance (ESG) issues. This convergence is happening for several reasons and in several ways—but that’s not what is really important. The most crucial aspect is that this convergence provides opportunities for forward-thinking companies to get ahead.
ESG and EHS convergence: What do we mean?
The first point to consider is what we actually mean by EHS–ESG convergence. This is about how the concepts of EHS compliance and ESG reporting are implemented in the corporate landscape. Typically, EHS compliance was seen as an operational matter – and often as a burden. It was ‘delegated’ down in the organization and organized at the regional/facility level. On the other hand, ESG existed only as an HQ-centric/corporate matter, often managed by the CFO’s office, because ESG reporting was seen as a way to get optimal corporate funding. Certainly, there is general agreement that ESG reporting requires higher-level engagement. We have said before that getting C-suite commitment is a crucial early step to getting ESG reporting right.
This reality, however, meant that EHS and ESG were completely separate concepts in operational terms. This segregation is clearly changing, partially driven by increasing ESG regulation and expanding mandatory disclosures. The need for compliance is therefore spreading into the sustainability world, and sustainability is becoming more embedded into all the operational aspects of the organization—and the end result is a gradually increasing EHS–ESG convergence.
How EHS–ESG convergence helps to predict future regulatory requirements
It is also fair to say that EHS compliance is the foundation of ESG reporting. From a practical point of view, EHS compliance gives you the granular data that you need to report on a lot of important ESG matters. EHS regulations are put in place because they protect and make sense for employees, the environment, customers, and the community. This is also why our society has expectations about ESG and sustainability reporting. Regulations exist because society wants to continue to operate without compromising the future of companies, future generations, and the world we live in.
In fact, EHS, in its purest form, is therefore all about sustainability in the broadest sense of the term.
I believe that regulation, and therefore compliance, is determined by the public opinion of the past, while sustainability and ESG are determined by the public opinion of the present. Let me explain this a bit more.
A cycle of EHS–ESG convergence
This EHS–ESG convergence provides a cycle of topics from outside the sustainability area feeding into the sustainability space—and then onwards into the compliance space. In other words, in current EHS regulatory requirements and compliance, you see what people considered important several years ago. When you look at sustainability and ESG reporting, you see what is considered important now: the issues that forward-thinking corporate institutions should be covering as best practice in sustainability.
From adherent to sustainability…
Most of the topics within the sustainability realm have started outside the mainstream, with a few early adopters thinking and talking about them. Over time, these ideas may enter the mainstream. Public opinion moves to consider that topic as important. It enters the realm of ‘what people think a corporate entity should aspire to do’—hence that topic becomes part of the mainstream scope of ‘sustainability’ and what a ‘sustainable business’ should entail.
From sustainability to regulatory…
If the issue continues to be considered important for long enough, the regulatory process will pick it up, but it will take several years before the respective regulatory bodies create the appropriate supporting regulation around it. As a result, current regulations are a reflection of what people found important in the past (meaning several years ago). On the other hand, sustainability typically covers topics that people find important now (or at least more recently), and these topics provide food for some confident predictions about what might be regulated in a few years’ time.
And over again
These drip-feed dynamics represent a life cycle of a given issue, which enters the sustainability realm after being picked up by public opinion and, if it receives consistent and widespread support within public opinion, eventually moves into regulations.
We’ve seen this happen in several areas, including #MeToo, gender equality, equal pay and child labor. They all started off as niche topics and then became part of public opinion and best practice, before becoming regulatory requirements. We can, therefore, see a symbiotic relationship between EHS compliance, ESG reporting, and sustainability. This is likely to lead to closer EHS–ESG convergence over time.
Interesting to note is that not only does this process run at different speeds for different topics but is also geographically differentiated. What is regulated in one jurisdiction can be part of the overall sustainability context in another one or even not yet being on the radar screen in yet another jurisdiction.
These continuous dynamics – this perpetuum mobile – are the context in which businesses have to operate and thrive.
Growing connections between EHS and ESG
Understanding this cycle of EHS–ESG convergence allows corporates to be sensitive to and potentially predict areas that are likely to be subject to regulation within a few years. However, it also provides ways to make connections between the different corporate programs. It, therefore, creates a bridge from compliance to sustainability and vice versa. Consider it like this: your finance team is working on ESG reporting as a way to get cheaper funding. Your PR team is making claims about sustainability because that is expected to play well with customers (public opinion, you know) —even though a recent study suggests that two-thirds of consumers do not believe the sustainability claims made by brands. Your operational team, however, has the tools and capacity to bridge this gap and make it all real.
Let’s take this one step further with one final area of connection. ESG is not a standalone topic. Almost all of the E and 75% to 80% of the S have been covered for years already by EHS compliance. Your EHS experts are probably your best starting point for ESG reporting because they know what data you are currently collecting, and they understand the regulations. They can, therefore, help you to repurpose existing content and intelligence, break the barrier and connect the dots across those symbiotic areas, and build on existing best practice to address aspects such as changing requirements for reporting on the social aspects of ESG.
Harnessing EHS–ESG convergence to support best practice
The bottom line here is that EHS–ESG convergence offers an opportunity for corporates to reconsider their thinking around both concepts and emerge stronger. The reality is that EHS and ESG are not separate. They are part of a continuum of concepts. It makes sense to address them through a continuum of effort. As Yoda informed us, “already know you, that which you need.” The wisdom you seek is in the knowledge you already possess.