From a talent perspective, how should organizations approach defining the roles and responsibilities needed to effectively execute sustainability initiatives?
Weigert: The foundation is leadership commitment. With this commitment, the structure can be tailored to fit the organization while delivering on a few themes: dedicated responsibility to tangible material impacts; incentive alignment for delivery and innovation; clear reporting; and communication expectations. All of this should be supported by clear governance to ensure accountability across the organization. Internal ownership also opens the door to external partnership, which then expands the pool of people who can help drive impact.
Farrell: Currently, there is broad diversity in practice in terms of ownership of sustainability initiatives. Regardless of where that person sits, it is important to simply identify a leader—someone who is focused on this initiative, invested in its success and will collaborate cross-functionally. One of the first challenges this person will face is to identify a team that will be responsible for collecting information on the ESG issues and metrics that are informing the company’s strategy. Given the increasing importance of sustainability information and reporting to stakeholders, including shareholders, investors, and financial institutions, it is critical to have the office of the CFO engaged, even if the finance function does not oversee ESG for the organization.
As regulators continue to provide updates to the ESG landscape, many companies are thinking about ESG through a compliance perspective. However, what long-term value can ESG provide? How can organizations embed ESG into company strategy to drive long-term value?
Stickler: The right ESG strategy will be critical to a business’ long-term survival. Embedding ESG into company strategy requires businesses to consider where sustainability can drive value by reducing risks and costs, improving its reputation with key stakeholders and creating new growth opportunities. Sometimes initiatives can achieve all three. For instance, investing in new circular business ideas can lower the cost of capital, improve investor and employee perceptions and open up new high-growth markets.
Weigert: Compliance is essential, but it is the floor not the ceiling in terms of impact. The organizations that do this best align their financial and ESG goals so that financial success is rooted in strong and healthy partnership with employees, suppliers, partners and communities. Delivering on integrated goals is increasingly a proxy for a well-run organization. More and more people are choosing their employer based on an alignment with the core values and mission.
Farrell: Organizations that choose to integrate ESG considerations into their near-term strategies and long-term vision give themselves the opportunity to drive innovation and differentiate their brand for customers, employees and investors. Embedding an ESG lens into long-term planning may also help an organization uncover new opportunities to establish an even stronger market presence or perhaps penetrate new markets. When a company merely focuses on compliance from an ESG perspective, it risks losing out to a competitor already envisioning and enacting a strategic approach to ESG.
How can business leaders make sense of the emerging regulations of reporting standards and frameworks? How does one best determine which to adopt?
Weigert: There is no clear standard set of disclosures or metrics for ESG today. A critical starting point is to go back to the fundamentals of the core business and where an organization can have the greatest impact. From there, the company can determine which audiences it is trying to reach through the framework. A great deal of analysis, advocacy and information exists on many ESG elements in most industries so organizations can move faster by learning from others.
Farrell: Although it can be confusing to try to sort through, it is important for each organization to spend time educating itself on the more widely adopted climate-related standards and frameworks, including Sustainability Accounting Standards Board (SASB), Task Force on Climate-Related Financial Disclosures (TCFD) and Global Reporting Initiative (GRI). The next step is for a company to examine its organizational and ESG strategies and determine which framework aligns best with its desired positioning. For example, an organization more focused on the impact of ESG on its financial performance from an industry-specific perspective should consider SASB.