The Design, Implementation and Monitoring of an ESG Strategy
Integrate sustainability into the organization
With stakeholders’ growing concerns, companies are driven to redefine and reassess their success beyond the profit generated by their business.
The current paradigm of consumer trends encompasses environmental and social issues, as well as the company’s approach to key economic challenges.
The transparency regarding the impact of organizations on the environment, and on the world, is assessed by consumers who seek the incorporation of sustainable solutions in the strategic vision of companies.
In 2021, 49% of consumers claimed to have paid 59% more for products marked as sustainable or socially responsible. Consumers’ willingness to pay more for a given product is a sign of the urgency of integrating sustainability into organizations.
Despite the incremental market demand for sustainable solutions, the concept of Environmental, Social and Corporate Governance (ESG) is managed, in the vast majority of cases, as an isolated initiative. More traditional sectors tend to view ESG policies as concurrent to business management which results in disorganized execution and slow progress.
The need to integrate sustainability into corporate strategy comes from stakeholders’ demands for evidence concerning the environmental and social efforts of companies.
The maturity diagnosis and the evaluation of the life cycle of organizations are fundamental for the design of a roadmap for the integration of sustainable measures with an impact in the medium and long-term.
4 Steps to ensure the implementation of an ESG strategy
For the integration of a sustained ESG strategy in the medium and long-term, four fundamental steps are suggested:
I. Review and plan the business strategy
The lack of integration of sustainability in strategic planning, together with the definition of short-sighted objectives in a limited vision, are the main challenges that lead companies to reassess their strategy.
The solution involves a detailed analysis of the company by identifying its presence in current and potential markets – both qualitatively and quantitatively. It also requires the reflection of the organisation’s performance to date as well as the incorporation of lessons learned.
The focus of the analysis should include identifying, listening to and prioritizing stakeholder needs. The opinion of all stakeholders regarding the impact of the organization and the opportunities for value creation should be assessed so that the strategy to be designed adds value.
The analysis of the company’s current situation also involves identifying the main change drivers – both globally and per sector of activity. This identification allows the company to manage resources and needs, so that the strategic objectives are achieved.
After evaluating the business, the market, and the needs of stakeholders, it is necessary to concretely define the maturity level of the organization in relation to the processes of continuous improvement and sustainability.
This process is followed by the listing of the most promising strategic opportunities and their testing, followed by the design of the strategic vision – What Winner Looks Like – to be achieved in a period of 3 to 5 years. At this stage, the company must create an ambitious, yet achievable strategy.
It is necessary to define a strategy supported by conviction that distinguishes the organization from its competitors, and that is meaningful to stakeholders, resonant in the marketplace, and aligned with organizational purpose.
II. Deploy the strategy to the point of impact
The creation of an ESG strategy in organizations tends to be accompanied by a public statement of the organization’s sustainability goals, but without a specific roadmap.
Strategy execution also tends to be focused on senior management which can contribute to a lack of understanding of the strategy by key elements in the organization.
Also, strategic guidelines and initiatives that are too general and over-communicated can cause disorientation. These challenges create demotivation in the organization leading to a situation where strategy becomes a secondary priority for employees.
For the strategy to reach the point of impact, it is necessary to select the strategic opportunities that need a deep dive such as core value streams and areas of greater materiality.
Diagnostic workshops – Value Streams Analyses (VSA) – should be held to define the roadmap towards carbon neutrality as well as the annual objectives and priorities.
After carrying out the diagnosis, the top X Matrix is designed in which the deployment structure is defined, points of impact are identified, and the organization’s capacity to implement the strategy is assessed.
Based on the defined strategic initiatives, roadmaps and business cases of the VSAs, the matrix is broken down following a catchball process, and the strategy report is developed with the matrices and action plans at each level. Once the report has been developed, it is possible to formulate the sustainability goals to be communicated publicly.
Without action plans, there is no strategy.
It is at the point of impact that the strategy becomes tangible with objective indications of “What?”, “When?”, “How?” and “How much?” the company intends to achieve.
III. Implement disruptive strategic initiatives
At this stage, lack of coordination and marginalization of strategy implementation efforts is common. This is due to the lack of capacity and objectivity to implement the defined vision. The lack of internal resources with the capacity to carry out breakthrough projects in the field of continuous improvement, sustainability and digitalization is another challenge in the implementation phase of the strategy.
It is necessary to develop each strategic priority with clear targets and multidisciplinary teams. The process should include an ESG improvement framework to implement breakthrough projects such as:
- Supplier development
- Reduction of transport emissions
- Energy efficiency
- Increase of material yield
- Empowerment of people
- Improvement of employees’ energy and motivation
- Re-engineering of products
- Customer experience improvement
It is critical to follow a structured approach to ensure the success of breakthrough improvements, maximize results, and ensure their sustainability and perpetuation into the future.
IV. Monitor results and implement countermeasures
The focus of organizations on strategy implementation is not always accompanied by the monitoring of results. Failure to monitor the progress of strategic initiatives at the right pace and frequency, as well as overly complex and out-of-touch reporting, undermines the long-term performance of the strategy. With priority management based only on tracking and reporting results, the company may miss opportunities to optimize the process.
In the monitoring phase, strategic review meetings (bottom-up) should be defined, and a Mission Control space should be established to visualize the execution of the strategy.
Monitoring the degree of achievement of objectives through bowler charts and assessing their financial benefit, as well as defining countermeasures for deviating indicators using structured problem-solving tools, will address the challenges associated with the strategy’s implementation.
The holding of biannual retrospective sessions, and the preparation of a sustainability report summarizing the main initiatives and results allow the company to keep abreast of the results, improvements and challenges to be taken into account when defining the next strategies or optimizing them.
Sustainability reports should faithfully reflect the organization’s ongoing efforts to achieve its sustainability priorities and goals.
Do you still have questions about the definition of an ESG strategy?
What is sustainability?
Sustainability is the characteristic or condition of a process or system that allows it to remain, in a certain way, for a certain period of time. This concept has been associated with the use of natural resources to satisfy present needs without compromising the satisfaction of the needs of future generations.
What is corporate sustainability?
The ability of a process or company to be able to persist or continue, while avoiding the long-term depletion of natural resources.
What is ESG?
ESG is the acronym for Environment, Social and Governance criteria. ESG is the measurable outcome related to a company’s overall sustainability performance.
Who are the stakeholders?
Stakeholders (or interested parties) are all those who should be in agreement with the corporate governance practices carried out by the company. They may be shareholders, customers, suppliers, creditors, partners, employees, and all those directly or indirectly linked to the company.
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