Sustainable finance series: Driving credible ESG actions

Sustainable finance series: Driving credible ESG actions

Wed 15 Mar 2023

Implementing credible environmental, social and governance (ESG) actions requires successful enablers. So how can firms identify these enablers and, crucially, remove barriers to implementation? If we take our latest C-Suite Sustainability Barometer, we can see that out of the over 1,100 businesses accounted for in the survey, 75% are planning to increase their investment in sustainability issues. While this is encouraging, responses also indicate that utilising and prioritising investments made remains a challenge for the C-Suite.

Navigating sustainability barriers

According to the barometer, funding (52%) and complexity (51%) are the top two barriers to ESG investment. As sustainability cuts across so many parts of organisations, the volume of funding required itself can prove a barrier. This makes it important to employ resources efficiently to maximise impact. In terms of complexity, ESG can mean different things to different firms, since there is no one size fits all. As a business, you need to be clear about what ESG means to you and what areas to focus on. Other key challenges we see when incorporating sustainability into the business model include, data gaps, resourcing challenges and choosing what to prioritise.

So, what can firms do to navigate these challenges and ensure they structure and coordinate actions to demonstrate tangible sustainability progress? 

Are you asking the right questions?

Whether you are just starting or in the process of developing your ESG strategy, you should be clear about the position you are targeting as this will influence actions to take. Every company’s journey is unique, so it is important to determine what works best for you as a firm. We can break the target positions down into three levels:

  • “Minimum compliance” which focuses on achieving compliance with rules and regulations;
  • “Listen, learn and follow” which centres on anticipating future regulatory developments and benchmarking against peers;
  • “Lead the way” which involves undertaking ESG activities to transform the business model and engaging externally to shape the industry’s ESG journey. 

Asking the right questions will help define where you want to get across these three levels. Additionally, it will also help assess where partnerships are needed to fill gaps in expertise on, what for most, is a road less travelled. 

Planning your journey 

A good starting point for any ESG journey is a materiality assessment that involves engaging with internal and external stakeholders to evaluate which ESG drivers are relevant and assess significant risks and opportunities these drivers bring to your firm. This assessment will help determine follow-up actions to adapt your business model, determine sector policies or strategies, calibrate your risk appetite, allocate capital and even identify opportunities around your product offering. While there are different ways to conduct a materiality assessment, what is essential is that you document the basis of your analysis, the thresholds you have used, outcomes and what systematic review process you have in place.

Governance and organisational structure are vital parts of the process that oversee an ESG strategy. For many, it is about developing new functions and evolving roles to focus on sustainability. At a granular level, it is about incorporating ESG considerations into your selection criteria for governance committees, recruitment, accountability procedures, and remuneration. It is then about  building the action plans, policies, and targets that will make your ESG strategy go live. Once strategies are up and running, mechanisms and associated indicators must be established to track and report progress.

Turning ambitions into actions

Implementing your ESG strategy should involve being deliberate about building internal capabilities. There should be continuous communication initiatives around ESG and a plan for upskilling people across all levels. Though data remains a big hurdle for a lot of firms, it is important to clearly identify where data gaps exist, use proxies where appropriate and update data quality arrangements to cover newly sourced ESG data to be integrated into IT systems.

It is only through finding ways to navigate challenges, asking the right questions, producing robust plans, and developing internal resources that firms can be better positioned to turn sustainability ambitions into credible actions.