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How to come up with a successful ESG strategy


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Over the past 20 years, there has been a huge cultural shift in the business world. The elements that have always been considered essential for business success (e.g., strong value proposition, product-market fit, and sound financial planning) are still relevant, but they are still relevant. not enough anymore. Today there is a new essential ingredient: the right environment, society and governance (ESG) strategy.

Pressure on companies to measure ESG comes from all fronts — regulators, customers, investors and even their own employees. In the early days, a business can still prosper without thinking too much about ESG, but as it grows larger and time goes on, this will become less of a problem.

Businesses that look down on ESG will face more challenges in raising investment capital and cultivating a positive public image, especially when compared to competitors that may have a solid ESG track record.

Start with a self-assessment

Effectively ESG Strategy must begin with honest self-assessment. Since there is no single, comprehensive measure of ESG performance, companies should ensure that they focus their resources on what matters most and do not try to track as many relevant metrics as possible. .

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These include areas such as corporate carbon footprint, gender pay gap, boardroom diversity, compliance with national and supranational regulatory frameworks (e.g. EU). , The power of network security infrastructure and labor practices of companies in its supply chain.

Once reliable measures have been taken, the results should be compared with projected baselines to assess the weakest of the business. Companies should not rush to take sweeping actions before completing this assessment. Overall, ESG strategies should not be seen as quick, one-time fixes or tick-box exercises, but as long-term processes that require ongoing refinement, monitoring, and effort. .

Accurate and thorough measurement of a company’s current position doesn’t remedy all of its shortcomings, but it’s a great place to start. Start by pinpointing the gaps that allow a company’s ESG efforts to be as impactful as possible going forward.

How ESG concerns change as companies grow

Several factors may fall under the umbrella of the relevant ESG, regardless of the size of the company. For example, all companies must comply with labor laws wherever they operate. They should provide reasonable written contracts (including IP clauses) for all employees, pay equal wages for equal work and do not pay less than minimum wage, and have at least a basic health and safety policy.

By the time a company grows to 50 employees, for example, it should also have a handbook for all new employees, with clear instructions on what behaviors are expected of them, procedures they should follow if they get stuck, etc. ABOVE. Health and safety requirements also become more stringent as companies grow.

As a company has grown further, with more than 200 employees, it becomes even more important to think about hiring a dedicated ESG specialist to ensure that the company is achieving its goals. Having someone in an ESG-focused role can free up a lot of time for others in the company as this expert can let each department determine how to best use the time they spend on ESG. and significantly streamline the ESG compliance process.

Emissions and supply chain

One caveat to keep in mind is that as companies expand, their supply chains and emissions grow exponentially. Since the footprints and practices of all suppliers influence a company’s ESG metrics, careful selection of business partners is important. Just asking potential suppliers if they meet certain standards and trusting that is not enough.

It is the responsibility of every company to independently verify that its suppliers are following ethical and legal guidelines. As well as environmentally friendly standards (such as not causing reckless damage to fragile ecosystems or causing pollution), this includes ensuring that they do not use child labor or engage in in other exploitative activities. Habits that cause small increases in emissions when a company is small will be magnified as it grows, resulting in emissions that skyrocket over time. This is another reason why, as mentioned, companies should take ESG seriously before they “have to”.

For example, a new company with only a few employees should still establish a rule whereby data is transferred only when absolutely necessary. At first, this may only make an absolute small difference to a company’s environmental impact, but will have a noticeable impact if this norm is maintained as the company grows, such as 50 times the number of employees. It is much easier to maintain standard work practices than to change the culture of a multinational organization.

The future of ESG

ESG is here to stay. Not a fad, environmental and ethical concerns are only becoming a priority as the 21st century approaches.st century continues. This is true in a broad cultural sense, in terms of legislation, and when it comes to investor decisions.

Over time, there will be increased cooperation among a variety of investor groups, decision makers, and leading business figures — especially in the face of pressure from investors and Limited Partnerships (LPs). ). This will enable a move to common, standardized frameworks for ESG, with clear guidelines on which metrics should be assessed and expected baselines for these measurements. As a result, companies will find it much easier to self-assess and identify their deficits.

Measurements will also become easier in areas that are not currently available. For example, in the current situation, it is difficult for a company to give an exact figure on its greenhouse gas emissions. In the future, companies will have more precise numbers and accessible measurements to calculate whether specific actions related to ESG have the desired effect, and it will only grow. from that.

That is why startups should create a basic ESG strategy today instead of catching up with their competitors in the years to come.

Patrik Backman is a General Partner at OpenOcean.

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