Install a foundation for long-term success: five steps to get started.
It’s no secret that corporate ESG factors influence the perception of how your company runs. In a recent statement, State Street drew a straight line between ESG factors and long-term returns, signaling they would take major action at companies underperforming on ESG issues.
State Street is not alone.
In a similar letter to clients, CEO Larry Fink announced several initiatives at BlackRock aimed “to place sustainability at the center of our investment approach.” Fink said further that climate risk is investment risk and that he hopes their approach will help reshape investment finance.
Clearly ESG factors figure more prominently than ever. Make sure your company is ready for this changing landscape. Here are five steps to help you create a winning ESG roadmap.
STEP 1: Gauge your ESG numbers
There are myriad ESG rankings published and sold in the market. Many often conflict, emphasizing different factors in different contexts. As an example, the process of evaluating a company’s ESG attributes such as human rights requires judgment calls by the rating agencies as opposed to quantifiable metrics. However, among other things, rankings will help you:
- Determine the common attributes between rating agencies
- Measure transparency and reporting to stakeholders
- Identify areas that warrant attention
- See how you stack up to peers
You’ll also want to take special care to understand how various metrics are devised. For example, ESG metrics like MSCI measure a company’s social responsibility relative to their respective industry. So, if an industry generally underperforms on sustainability (e.g. energy industry), some companies in that category may still earn higher scores for outperforming peers.
STEP 2: Choose a standard framework
Instead of chasing every rating, it may be prudent to choose an index widely used by corporate issuers and investors. The Sustainability Accounting Standards Board (SASB) might be a good place to start. The index is US-focused, concerned with materiality, and has a sector-specific approach. Although no framework is perfect, the SASB index carries a lot of currency in the industry. Larry Fink endorses the index, saying it “provides a clear set of standards for reporting sustainability information across a wide range of issues, from labor practices to data privacy to business ethics.” Alternatively or in addition, the Global Reporting Initiative (GRI) is a good option too. It’s been around longer, has a stakeholder focus and brings a more global perspective.
STEP 3: Involve your board
Investors are looking for ESG oversight, so it’s important to get the board involved early. Consider officially assigning responsibility to an existing committee or even to the entire board.
Boards, for their part, should also look outside management to conduct their own ESG independent research. Some board even consign external ESG advisory support.
Invite the board to highlight activities that promote board diversification. Consider way to align aspects of executive compensation directly with ESG related activities. On this score, your people team can help create programs in the areas of diversification, pay equity, safety, data security, and community support.
STEP 4: Prioritize financially important ESG issues
The significance of ESG issues varies industry to industry, company to company. Try using the SASB Materiality Map. It can help you identify sustainability issues that are likely to affect the financial condition or operating performance of companies within an industry. Determining materiality will help ensure that resources you focus on your ESG program will have a meaningful impact on your business as well.
STEP 5: Decide what to disclose and which channels to use
Disclose your hard work and achievements in a clear, concise and transparent presentation. Ensure the content contains substance and is material to your company.
Start by making a PDF report available on your website. Then, consider adding an ESG page to your website. A dedicated landing page is extremely important as it communicates that you’re doing more than merely checking the box. As you progress, find ways to integrate sustainability information into all company reporting, including your proxy and investor day presentations.
Plus, don’t forget that ESG communications have appeal beyond your investor base. ESG messaging can build goodwill and loyalty among consumers and other stakeholders.
Let us help
You don’t have to manage ESG disclosure on your own. Tap into a wider network of people, technology and expertise.
Broadridge sits at the center of a vast proxy ecosystem, distributing more than two billion shareholder communications every year. Our team can help you create interactive proxies that will showcase your ESG achievements and help you stand apart.
