In recent years, environmental, social and governance matters, known as “ESG”, have gained an important place in business conversations. However, for many organizations, the real challenge is no longer understanding the meaning of ESG, but rather answering two much more concrete questions: Why is it relevant to my business and where do I begin?
Companies often approach ESG because they consider it is a “Must-Have”, either because a client begins to request information or because the market seems to demand it. However, implementing an ESG strategy does not entail immediately adopting major environmental commitments or developing a complex plan. The starting point is rather much simpler: understanding where the company stands today, identifying which matters are important to their operations, and gradually moving forward.
Begin by getting to know what is already had.
A good first step is to conduct a diagnostic regarding the practices that are already in place. Many companies discover that they have been carrying out ESG-related actions for years, without labeling them as such, for example: labor policies, ethics codes, training programs, anti-corruption controls, safety measures, waste management, energy savings or supplier evaluation procedures.
The opening question, therefore, is not necessarily “what new policy do we need?”, but rather “what are we currently doing? How are we doing it and what can we prove?”
From there, the following step is to prioritize. Not all companies face the same challenges, nor do they have the same priorities. For a manufacturing company, for example, energy and water consumption, worker safety or waste management, can be particularly relevant. For a service company, on the other hand, data protection, labor practices, enterprise ethics and talent retention, might have a bigger impact.
And what does this have to do with the business’ value?
This may be one of the most frequently asked questions. ESG is not to be seen solely as a matter of social responsibility. The way in which a company manages certain environmental, social, and corporate governance risks can have economic consequences.
Consider everyday examples: a bank assessing the risk of extending financing; an international client that evaluates their suppliers; an investor who analyses where to allocate capital; or a prospective buyer that carries out a review of the company prior to acquisition. In all these cases, having clear policies, reliable information, designated responsible parties, and evidence of sound practices can become a material factor in decision-making.
Precisely for this reason, sustainability information is becoming increasingly structured. In Mexico, the Sustainability Information Standards (NIS by its Spanish acronym) provide a framework for identifying and disclosing certain environmental, social, and governance information. Rather than viewing these standards merely as a reporting obligation, they can be used as a practical reference for asking some very simple questions: What information do we have? Who generates it? Is it reliable? What are we still missing?
Small steps matter.
A company beginning its ESG journey does not need to solve everything within a single year. It can start by selecting a few priority topics, assigning responsible parties, establishing a base line, and setting realistic goals for the following twelve months.
Measuring an indicator for the first time, documenting a process that was previously informal, reviewing an internal policy, or beginning to assess certain risks in the supply chain may seem like small steps. Yet it is precisely these small steps that make ir possible to build a strategy capable of growing and maturing alongside the business.
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Jesús Bueno
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