EconomyFinancialESG Criteria For Dummies: Six Answers For Those Who...

ESG Criteria For Dummies: Six Answers For Those Who Don't Know Where To Start

Virtually no company that relies on public or private investment can today ignore ESG criteria , the acronym in English that refers to environmental, social and governance criteria. Although these three letters began to be heard several decades ago, in recent years they have become the reference when it comes to investing in a company, and are increasingly resonating with other company stakeholders , such as investors, customers and employees.

Endeavor Mexico points out that today most companies see ESG criteria as a “shortcut” to more and better investments, brand benefits, reputation or customer and employee loyalty. “Today, brands that do not have a purpose have much less capacity to attract and retain talent, investments -BlackRock, for example, no longer bet on brands that do not prove to be sustainable in the full sense of that term-, or loyalty of users and customers, who prefer more conscious brands”.

Although the benefits are quite striking, the challenge companies face in putting ESG criteria at the heart of their business model is to create a culture that allows them to be transparent and measure the positive impact they generate with their actions.

“Don’t do it to have one more stamp on your corporate Linkedin or to get a note in the media. Do it because you really have the conviction to do it”, says Vincent Speranza, General Director of Endeavor Mexico, in an interview. “There needs to be a real understanding that this is for the good, not just for the company or for future profitability, but that (companies) really do it out of awareness,” he adds.

Where to start?

Adopting the three verticals within the business may be complicated, therefore, the Endeavor manager recommends “double-clicking” on each of the criteria and starting with the one that makes the most sense for the business model.

La E of Environmental

It encompasses the effect that the activity of companies has on the environment, directly or indirectly.

The S is for Social

It includes the impact that a certain company has on its social environment, on the community.

The G of Governance

It refers to the corporate governance of the company, for example, to the composition and diversity of its Board of Directors, the transparency policies in its public information or its codes of conduct.

For example, if the company decides to focus on the “E”, because your company belongs to a business vertical that directly affects the environment, either because its production processes, transportation or even its products -such as cars- generate high volumes of emissions, you can start by checking that your suppliers meet environmental responsibility criteria. For example, that their trucks be electric or hybrid, or at least be efficient with their routes so as not to waste combustion, among various actions.

On the other hand, if the company decides to start with the ‘S’ because it sees that its reputation is suffering some damage and what it wants is to be able to demonstrate that its brand contributes social, economic or environmental value to the world, it can start by strengthening those points in its branding, in its narratives, in its public relations, in its online and offline content. You can rely on your communication team to be able to tell that story, which of course must be based on real data to avoid falling into bad practices such as pinkwashing or greenwashing .

Should a new position or an entire area within the organization be created focused on ESG?

Endeavor’s recommendation is that there be at least one person to follow up and measure the effectiveness of the programs. There are also cases in which the monitoring of actions is outsourced through agencies that measure, for example, carbon footprints or impact on social issues, as well as those who accompany from outside, with a “fresh and experienced” look, on issues governance, transparency, inclusion, diversity, among other issues.

How to make these criteria known to the rest of the organization?

There is no single strategy to communicate ESG issues, this will depend on the size and needs of each company: they can range from internal communications, to all-hands meetings ( virtual, regular and structured) , off-site organizational culture or simply, circulation of results reports.

“What matters here, beyond how it is communicated, is that as many people as possible are involved in the entire process of action on ESG issues so that the people who are part of the company really become aware of and take ownership of it. of the causes and positive impacts that they drive through their work,” recommends Endeavor.

How to make progress known to stakeholders?

The company can set up a specific area within its company that includes various representatives. For example: someone from

institutional communication to be in charge of putting together the report, someone from human resources to add the main milestones of the employer brand, such as benefits, diversity, inclusion; someone from logistics who adds the criteria to choose suppliers and someone, if applicable, in charge of monitoring governance processes or budget application in social impact. These areas, together, must put together the puzzle to present historical results and future projections about the company’s ESG plans.

How to measure progress?

Impact measurement is one of the most complex and challenging issues for companies. “Unfortunately there is a lot of speculation and misinterpretation of what these acronyms represent, which gives way to bad practices such as greenwashing -to be perceived as sustainable-, pinkwashing -to be perceived as progressive, modern and tolerant- and all washings , under which companies “inflate” numbers or causes without hard evidence,” says Endeavor.

There are companies that claim to be aligned with ESG criteria just for giving employees a day off to support a social cause, reforest or organize a donation once a year. “It is not that this is serious, this is preferable to not doing anything. However, this type of thing does not help the ESG issue to be taken with the seriousness and depth that it deserves”, adds Endeavor.

To avoid these bad practices, one can be implemented through the application of success metrics presented for each case. For example: if the core of the strategy is diversity and inclusion, it is necessary to establish metrics on the percentage of people who join the teams, real opportunities for influence and growth in their careers; products or services designed for that population, and make evaluation cuts every certain amount of time.

It can also be done externally through agencies, consultants and people who are specialized in measurement that can help put together efficiency evaluation methodologies according to the needs of companies.

Are ESG criteria suitable for all companies?

There are some that, due to the nature of their spin, might not seem suitable to implement them. However, says Endeavor, any company can adopt ESG criteria regardless of their size or line of business. “Those with controversial products can work on making their production and logistics chain in the most humane, inclusive, sustainable, diverse and fair way,” he recommends.

Endeavor says that in Latin America it is already beginning to be seen that startups that have ESG guidelines are preferred by stakeholders , compared to those that have the same business model and line of work but do not have ESG. “We are still in a factual stage – that is, without the support of official actions for tax benefits or legal incentives – but the arrival of a law or more generalized pressure for companies to take these guidelines into account is imminent.”

In Spain, for example, the new business figure of the Societies of Benefit and Common Interest, now legally recognized, has just been approved, “a giant step” in the jurisprudence to promote B Corp companies (certification of companies that have relevant social, environmental or governance impact standards), also known as purpose-driven companies.

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