Once your organization has determined its environmental, social and governance (ESG) priorities, made public commitments, or decided on an approach to data collection and disclosure, ESG is (or should be) the responsibility of everyone in the organization. Many companies will make an ESG hire, but the recruit must work closely across functions to meet ESG goals and make ESG a core part of the business.
Operationalizing ESG likely is not a matter of starting from scratch; aspects of ESG may already be baked into your organization’s values and existing programs or policies. Regardless of where you are in the process, there is always room for upleveling accountability across ESG areas to ensure everyone at your organization is involved in moving the needle.
The following are a few ways that organizations are implementing ESG in their programs, policies and processes across teams.
Whether your organization offers manufactured products, professional services, or software, there are opportunities to consider the social and environmental impact of those products. How are your products and services supporting customers in minimizing or reducing their environmental footprint? What materials are used in the creation of your product? What does the product’s lifecycle look like? Is the product built in a way that allows its materials to be reused later? Does your organization take back its products when customers are done with them? Does your software consider its cloud-related energy use and emissions? Do your services or software solutions have features or capabilities that address social responsibility or environmental sustainability? How does your organization integrate ethics into its products and services?
Known for ambitious goal setting, Salesforce is simultaneously committed to reducing its own impact on the planet and creating products that allow others to do the same. The company first announced its sustainability product in 2019, achieved net-zero across its supply chain in 2021, and has since continued building out its product’s environmental capabilities. Now known as “Net Zero Cloud,” the Salesforce product features tools for carbon accounting, supplier data collection, scenario planning, goal tracking and reporting.
There is growing interest in and accountability for managing sustainable and ethical value chains, ranging from vendors used for employee lunches to manufacturing facilities abroad. In addition, organizations are beginning to commit to diversifying their value chains to build more inclusive businesses and empower their local communities. How is your organization tracking its vendors? Does your organization have a supplier code of conduct that includes social and environmental standards? What percentage of total dollars spent go towards minority-owned vendors? Do you have auditing processes in place to ensure the accuracy of the information provided by vendors?
As part of PayPal’s diversity, inclusion, equity and belonging commitments, PayPal launched its supplier diversity program in 2019 and has been tracking its spending for both Tier 1 (PayPal suppliers) and Tier 2 (PayPal suppliers’ vendors) suppliers. The company requires vendors to be certified as diverse by a third-party agency that confirms that they are at least 51 percent minority-owned, operated, managed and controlled. In addition to this, PayPal assists its suppliers in the process in such areas as diversity certification, accelerating the onboarding process, and providing ongoing education.
Integrating and legitimizing ESG in an organization requires full involvement from the finance team, including the chief financial officer. Some public companies are beginning to release their environmental data with their financial accounting in annual reports. With the upcoming climate-related disclosure mandate from the U.S. Securities and Exchange Commission, companies will be expected to demonstrate awareness of their emissions and action in climate risk mitigation. Are your finance teams and leaders equipped to have conversations about environmental data? Are they tracking ESG data and progress? Do you have systems in place, led by or in collaboration with the finance team, to report ESG data publicly? What insight does your finance team have regarding ESG performance since they are already tracking data related to the supply chain, customers and sales? How is ESG incorporated into your organization’s financial planning?
Etsy, in the fiscal year 2018, was one of the first public companies to release an integrated report, including carbon accounting with their financial accounting. Rachel Glaser, Etsy’s Chief Financial Officer, strongly advocates for climate impact and transparency, and moved ESG reporting responsibilities to the company’s accounting team to embed ESG into traditional business functions and drive accountability.
Facilities are so often an understated component of an ESG strategy, as it involves operational efficiency, as well as inclusion and belonging in the workplace. To what extent is efficiency a key consideration in decision-making in the office? Are there sustainability considerations in new office expansions? How is your organization ensuring that your office is inclusive? Do you offer lactation rooms? Prayer rooms? What are the energy management strategies in your office spaces? What kind of energy, renewable or non-renewable, do your facilities use, including data centers?
Walmart has made great strides toward its sustainability commitments, many of which require extensive effort from its facilities teams. A few of their facilities-related commitments include transitioning to 100 percent renewable energy across facilities by 2035; shifting to low-impact refrigerants for cooling stores, clubs, data centers, and distribution centers by 2040; and reaching zero-waste in its global operations by 2025. These commitments drive decision-making for Walmart’s facilities teams, ensuring efficiency strategies are at the center of both new facility construction and existing facility retrofitting.
The implementation of ESG requires both grassroots, employee-based efforts and leadership accountability. Do your leaders address ESG in organization-wide communications? Are they on the frontlines of these conversations and efforts? Is executive leadership collaborating closely with managers to work towards your organization’s ESG commitments? Does your organization tie executive compensation to its ESG goals to ensure a top-down approach that embeds ESG in performance reviews and bonus plans, and hold everyone accountable for their roles in execution?
At the beginning of 2022, Chipotle announced that the company would begin tying executive compensation to ESG goals, impacting officers’ 2022 annual incentive bonus by up to 15 percent. These executives are accountable for Chipotle’s goals related to the use of organic and local ingredients, advocating for policies that support farmers, employee diversity, employee development, and greenhouse gas emissions reduction, to name a few.
These examples only scratch the surface of operationalizing ESG across an organization. Every department has a role to play in ESG management and accountability. Please contact us if your organization is ready to incorporate ESG within its strategies, policies and key performance indicators.
Disclaimer: The examples outlined above are for illustrative purposes only.