More and more companies are aware of the long-term opportunity offered by developing effective ESG management (Environmental, Social and Governance). Better access to capital, talent and new business opportunities are just a few of them, according to an article published by Harvard Law School.
But many are finding it far from easy to create an action plan. To navigate the complex and evolving ESG landscape, companies need to avoid misguided approaches that lead to missed opportunities. These are the most common mistakes that are commonly made. At best, these failures lead them to miss their objectives, but they can be very high risks.
1. Excessive focus on ratings
Some companies confuse the improvement of their ESG management performance with a better rating by rating agencies. Such positioning can create a distortion by focusing on meeting requirements rather than developing a tailor-made strategy for the company.
2. Treat ESG as a communication effort only.
Communication can help amplify messages, but it cannot be a substitute for a powerful management system that is aimed at controlling real risks. Investors and stakeholders may detect inconsistencies in what is communicated and what actions are actually being taken. This is often referred to as "greenwashing"This exposes the company to greater risks.
3. Lack of vision on the part of the management
Some companies delegate ESG activities to individuals or departments within the companybut without the involvement of top management. However, ESG management strategy should be positioned as a core part of the company's vision and values. It is therefore imperative that top management not only oversees, but also drives and defines the ESG strategy, aligning it with the rest of the company's strategy.
4. Disconnected from business strategy
A ESG strategy cannot be conceived independently to the rest of the company's business strategy. An ESG strategy that does not take into account the company's strategic objectives and does not inform corporate strategy is failing its purpose. Such a disconnect may be due to misperceptions about the ESG programme, lack of vision of the management team or failure to conduct a thorough materiality assessment.
5. Compliance-oriented approach
Some companies present their ESG management programmes by making reference to the compliance with rules and regulations , this approach may be perceived as reactive and indicate a reluctance to go beyond minimum requirements.
To position themselves as leaders, they should proactively demonstrate that they have excellent programmes that exceed minimum requirements as a deliberate part of an ESG strategy.
6. Company-wide inconsistencies
As a result of the lack of a coordinated strategy, some companies end up adopting different standards in different divisions without a clear business rationale for such discrepancies. Such approaches leave significant gaps in companies' ESG management programmes, creating high potential risks.
Creating a cross-cutting map of your policies and programmes for each business unit and harmonising efforts to achieve a single, consistent approach are some of the recipes to avoid making this mistake.
7. Lack of assessment and monitoring
Data and information collection to measure compliance with ESG programmes. This is a huge challenge for companies in implementing these policies. The lack of effective monitoring prevents them from making progress and receiving support for their initiatives through reporting.
Setting up the mechanisms and methodologies to collect the right information and monitor it can be a significant effort at the beginning. However, this process can become a key instrument for the success of the programme.
In addition to the review of the data, the measurement should include a ongoing assessment of the effectiveness of ESG management programmes Find out more about ESG at our blog!