Three Critical Areas to Consider When Building an Environmental, Social and Governance (ESG) Strategy

Companies are being held accountable, more than ever before, by investors, employees and clients to act as responsible corporate citizens and focus on creating positive impacts for the environment and communities in which they operate.

The path to an effective ESG strategy, although, remains undefined. Companies often find themselves rushing into or skipping important steps as they launch into this new business operation standard. To maximize the value and impact of an ESG program and avoid common pitfalls, companies should keep the following three critical areas front of mind.

1. Start with stakeholders

When we assume that we know what key stakeholders’ want, we could be ignoring the most important issues. To ensure a meaningful ESG strategy, engage stakeholders at the beginning of the process to collect feedback and define the range of possible focus areas and current standards that could pose the biggest risk to the continuity of your current or future business operations and strategies. Initial stakeholders may include employees, clients, investors, suppliers, government agencies, local communities and trade associations.

When engaging stakeholders, it’s important to design an effective strategy for collecting feedback. Newmark uses a variety of tools to identify what stakeholders prioritize, and tailor our approach based on those interests.

Employee perspective is captured through an internal survey that measures the material environmental and social interests of the group. Employees are asked to evaluate topics such as Professional Development & Education, Diversity Equity and Inclusion, Environmental, Community Involvement, Health and Well-being, Occupational Health and Safety.

For client feedback, we analyze data and requirements in RFPs to gather perspective. An internal platform was created and integrated into our business development process to gather client sustainability requirements and to create a database of information for use in our risk assessment process.

To collect investor feedback, we conducted a NASDAQ audit, which assessed Newmark’s scores across multiple rating agencies and took into consideration the recommendations proposed.

These strategies give us a clear sense of what our stakeholders care about, and which ESG efforts to prioritize based on the risk to current and future business operations.

2. Prioritize based on risk

Once you have a picture of your stakeholders’ material interests, it’s critical to prioritize efforts and resources to address the most pressing issues. The most effective way to prioritize ESG focus areas is to conduct a risk assessment, which will help you determine the risk of not pursuing certain strategies.

For example, the lack of a Diversity, Equity and Inclusion strategy could pose multiple risks to a business, as many companies and professionals are increasingly looking to partner with progressive organizations that share the same culture and vision.

RFP inquiries into the DEI practices of companies are at an all-time high. Effective DEI practices can support the attraction and retention of top talent. Conversely, however, lack thereof can be a dealbreaker. According to Glassdoor¹, one in three candidates will not apply for a position at a company that lacks diversity, as candidates want to understand the policies, programs and opportunities in place to ensure that inclusion, diversity, equality and access thrive in the organization.

Additionally, a publicly traded company that does not have a published DEI strategy could be less attractive to investors and increase reputational risk to the company.

Considering the various levels of risk that exist, while building out an ESG strategy, will ensure resources are dedicated to the highest impact areas and allow companies to efficiently communicate and explain the logic of initiatives to key stakeholders down the line.

3. Secure support from leadership

Developing an ESG strategy is a significant change management process. Focusing business around new priorities requires internal and external communication, data gathering and analysis, transparent processes and, most importantly, securing support from those at the top of the organization.

C-suite leadership should be involved from the very beginning of the company’s ESG planning process to ensure the correct level of focus and a clear path forward for approvals is established on initiatives. Reinforcement from company executives will ensure the plan is executable and has essential champions throughout the organization to have a real impact.

Prioritizing these three critical areas when building your ESG strategy can assist companies in creating a plan that reflects stakeholders’ values, ensures risks are analyzed and prioritized and certifies actionable objectives.

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Sources:

¹https://www.glassdoor.com/employers/resources/hr-and-recruiting-stats/