Despite stakeholder pressure, only 36% of UK senior decision makers list Environmental Social and Governance (ESG) as a business priority for this year, according to a recent survey by enterprise software provider Advanced. While still relatively low, ESG is rising up the priority list as only 21% of respondents considered it a priority in 2020.
- Nearly 1 in 4 respondents don’t believe their organisation is open and transparent about its ESG goals and achievements, and 28% note they couldn’t provide tangible evidence to support its ESG progress.
- 69% of respondents say they aren’t working with suppliers to lower emissions.
“Given the extent of the many problems confronting the globe and the growing severity of environmental risks for businesses, the E component of ESG has gained increasing relevance.” says Daniel Docherty, Director of Strategy at Advanced, who has over 18 years of experience in core business and finance solutions, working with customers from a wide background of industries and scale. “As enterprises with strong ESG credentials draw modern investors, it is paramount for CFOs leading the finance function to understand the potential of ESG and learn how to put it into practice.”
Here, Docherty breaks down the key environmental standards in finance:
Select benchmarks relevant to your industry
“Businesses should not strive to accommodate all dimensions when creating ESG policies. Instead, choose three to five quantifiable ESG criteria that matter to your company and audiences and match them with your corporate strategy. For instance, fracking oil and gas companies should assess water and waste management and its effects on precious natural resources.”
Calculate your carbon footprint
“Companies can now assess their carbon impact using computerised technologies built for this purpose. These tools provide spaces for inputting all possible company activities, and they may determine their carbon footprint for each given action, as well as the total environmental impact.”
Implement double materiality
The concept of double materiality describes how corporate information can be important due to both its implications about a firm’s financial value, and about a firm’s impact on the world at large – particularly with regard to environmental considerations.Daniel Docherty notes, “corporations should address the ESG concerns that affect their business as well as their impact on society and the environment.”
Create an exclusion list
“The financial department might create a list of initiatives it will not support due to environmental issues or other concerns of the business or its shareholders. Excluded activities may be governed by national ESG regulation or international agreements, restrictions, and best practices.”
Contextualise the information
“ESG data does not exist in an informational vacuum and requires suitable contextualisation for clarity. This context may partly derive from the firm’s relative performance (having as benchmarks firms in the sector or historical performance).”
“Businesses that handle ESG challenges under the direction and participation of the CFO are better equipped to produce enterprise value, while fulfilling ESG legislation reporting requirements and wider stakeholder expectations for responsible risk management,” Daniel Docherty concludes. “Now more than ever, the CFO ESG dichotomy should be united, and for any CFO, sustainability should become a key criterion for corporate success.”
A more in-depth guide on ESG and sustainable finance can be found on the Advanced website.