Top tips for creating an ESG strategy

When businesses are developing their sustainability and ESG strategy, the major obstacle lies in choosing the right reporting framework. It’s important to opt for the most effective reporting framework that aligns with the needs and goals of your business, while meeting the requirements of jurisdictions and stakeholders. In this article, we’ll take you through some of these key considerations to examine why they’re so relevant to your sustainability strategy and ESG reporting.

Types of frameworks

Many organizations have already published workable frameworks that businesses can adopt to report on their sustainability, such as the Integrated Reporting Framework from the ISAB and ISSB; Global Reporting Initiative (GRI); and the S1 and S2 United Nations Global Compact.  

However, these frameworks should only be considered foundations for reporting, as they will inevitably be missing specific factors businesses wish to track. In addition to covering all regulated areas, organizations may want to include other areas to report on to supply stakeholders with a comprehensive view of their sustainability.

Materiality

Not all framework elements will apply to every business – this is the core of materiality. For a materiality assessment, companies should consider the following: 

• The purpose of the report 
• Providing investors with comparable information on investment decisions 
• Allowing for access to capital 
• Providing a baseline for upcoming regulations

There are two main types of materiality:
 

Financial 

Financial materiality looks inward, evaluating the impact that the planet and people have on business operations.  

The standards were published by the IFRS Accounting Standards, stating that “information is material if omitting, obscuring, or misstating it could be reasonably expected to influence investor decisions.” 

This type of materiality encourages businesses to review their daily operations in light of new legislation, examining whether they need to alter their functions or production processes to comply with impending regulations. For example, new climate change legislation may enforce a change in their manufacturing processes.
 

Impact

Contrastingly, impact materiality looks outward, analyzing the impact businesses have on the planet and society.  

Adopted by GRI, impact materiality represents the “most significant impacts on the economy, environment, and people, including impacts on their human rights.” 

Impact materiality motivates companies to evaluate how their manufacturing process or waste management is affecting the environment. Further, businesses can use these insights to make necessary changes to their operations to be more sustainable.
 

Double materiality

It’s important for businesses to note that not all frameworks utilize both financial and impact materiality, but the Corporate Sustainability Reporting Directive adopts double materiality, making it mandatory for companies to consider both in their sustainability report. 

As external organizations scrutinize a company’s outward impact on the environment, businesses will need to start analyzing the financial impact of these discoveries.

How to build an ESG strategy

Every business is different, so their sustainability and ESG strategies will naturally need to be unique to them. That said, there are a few overarching points that any company will need to address when creating their ESG strategy.
 

Company goals

The first step to defining your sustainability strategy is to clearly map out your company goals in line with ESG:

What are you trying to achieve environmentally?

• waste management
• control emissions and pollution
• sustainable resources

What are you trying to achieve socially?

• health and safety systems
• diversity and inclusion
• training and skill development

What are you trying to achieve governmentally?

• supplier protection
• social investment
• tax strategy 

Using the three pillars of sustainability to devise your company’s long-term goals is a helpful tool to ensure your business ambitions align with regulatory compliance and stakeholder expectations. This also helps to communicate your brand’s sustainability goals with partners.

Select a framework

Next, define your framework. You can choose an existing framework from organizations such as the CSRD and ISSB. You can then add further detail to the framework by including the other elements your company wants to measure. 

Otherwise, create your own framework using the existing ones as guidance, ensuring you include all the goals you wish to measure for your sustainability report.

Incorporate materiality

Lastly, make sure you incorporate materiality into your framework, particularly as double materiality is becoming mandatory under the CSRD.  

Consider the impact your business has on the environment and people involved, looking inward at your operations (financial materiality) and outward at what your business processes are doing to the planet (impact materiality).