How Companies can develop their ESG Strategy in 2023 – NordESG

How can companies develop their ESG strategy in 2023

It is 2023, ESG is still here to stay, and mandatory ESG disclosure is coming closer for some companies. But it is more than just regulatory or compliance: Peers are (further) developing their ESG strategies, and stakeholders demand transparent information about sustainability performance. So to provide adequate answers, companies seek to build their ESG strategy. So in this first blog post of 2023, we decided to cover one of the most requested topics and discuss how companies can develop their ESG strategy. 

ESG strategy? CSR strategy? Sustainability strategy?

What is the difference? We understand that a sustainability strategy can focus on some (e.g. environmental, energy, emissions) or all pillars of sustainability. In contrast, an ESG strategy will cover all sustainability aspects (Environment, Social and Governance). CSR and ESG are often used synonymously, so we assume that a CSR strategy will cover all pillars of sustainability too.

Developing an ESG strategy: A lot of ground to cover

Developing an ESG strategy is a challenging task and covers a lot of topics. This blog post lays out the steps required for companies that want to build an authentic and tailor-made ESG strategy. However, this blog post can only provide a first overview. Therefore, we added links to in-depth information in each section to keep this blog post as concise as possible.

The steps to build an ESG strategy

Before you even start developing your ESG strategy, consider the internal stakeholders that need to be involved in the process. That may include the c-suite, other top management representatives, and other internal stakeholders that can support the ESG team during the process. 

Talking of internal stakeholders: This may be the time to start the communication process with all internal stakeholders to ensure that everybody in the company understands the “why” of the ESG strategy development process. 

Setting the foundations

We propose to have a kick-off meeting that involves all internal key stakeholders and representatives of relevant departments. The kick-off meeting also ensures a common understanding of the relevance of ESG and the upcoming development process. 

Other initial steps include conducting a status-quo assessment and a (double) materiality assessment. While the status-quo assessment aims to establish the baseline (ESG-relevant data), the materiality assessment provides insights into what is material to a company and the priorities that derive from these factors. In addition, stakeholder dialogue is a part of the materiality assessment that helps to gain insights into their preferences, priorities and values. 

Data quality and availability 

Experience shows that data quality and availability will improve over time. Usually, not all data will be available or directly usable during the initial data capture process. One example is CO2 emissions. While Scope 1 and 2 emissions can be accounted for relatively easily, it is usually more complex to account for Scope 3 emissions and will require an intensive dialogue with partners along the value chain. As a result, it may take several iterations to arrive at reliable data for Scope 3 emissions. 

Action items and further information

• Ensure that the “why” is understood well – including why ESG is relevant to your company. 
• Understand the kick-off meeting as an opportunity to nominate an ESG oversight board.
• Spread the word about the upcoming ESG strategy process and how stakeholders can participate and contribute. 
• Communicate that the status quo assessment is necessary to establish the baseline. Speaking of the status quo assessment, capturing high-quality and reliable data is mission-critical. At the same time, it is also essential to identify missing data or data gaps against the ESG reporting framework that will be later used for sustainability reporting. 
• Consider a double materiality approach to capture what is material to your company from the outside-in and the inside-out perspectives. Conducting a materiality assessment offers the opportunity to verify the alignment with the overall business strategy too. 
• Plan for engaging with internal and external stakeholders to get insights into their values, priorities and opinions during the materiality assessment. That is also an opportunity to build an inventory of all relevant stakeholders and stakeholder groups. 

Further reading

• Our blog post on double materiality
• How to conduct a double materiality assessment?
• Scope 1, 2 and 3 emissions
• Accounting on Scope 3 emissions
• Reporting frameworks

Developing an ESG strategy, goals and initiatives that contribute to KPIs

The results of the status quo and materiality assessments, along with the stakeholder feedback, are foundations for developing an authentic and tailor-made ESG strategy. However, many companies will face the challenge that not all objectives formulated in their ESG strategy can be addressed simultaneously. Hence developing an ESG strategy also implies prioritising those topics that have the most impact on the corporation or will lead to fast results. That is where the hierarchy of strategy – goals and KPIs – projects and initiatives come into play: While the ESG strategy gives the overall direction, KPIs ensure that progress towards the goals becomes measurable. In contrast, projects and initiatives are the drivers towards achieving the KPIs. 

Action items and further information

1. The objective is to arrive at an ESG strategy that covers all ESG-relevant topics in the “Environment”, “Social”, and “Governance” domains. 
2. While the ESG strategy defines the overall direction, ESG goals and KPIs act like a funnel that helps to focus on desired outcomes. Finally, ESG initiatives and projects bring the traction needed to achieve these desired outcomes. 
3. Make sure to have SMART goals and include an overview of the resources required to achieve them. 
4. Prioritise those areas where ESG-related projects and initiatives can contribute the most. 
5. Integrating internal and external stakeholders in projects and initiatives can bring new ideas and viewpoints. 

Further reading

• ESG frameworks
• ESG goals
• ESG projects and initiatives

ESG reporting and stakeholder communication

ESG reporting brings together all information in a balanced, transparent, understandable and precise manner. That applies not only to the opportunities and risks in the ESG context but also to the progress already made. 

For ESG reporting, many companies will use a well-established reporting framework. Therefore, the structures specified therein can be a different orientation for sustainability reporting.

The stakeholder communication started during the materiality assessment can be taken further with ESG reporting that considers the demands of different stakeholder groups. The more precisely the information needs of the individual stakeholder groups are known, the easier it is to prepare content derived from sustainability reporting for those groups. 

Action items and further information

• Report balanced and transparent. 
• ESG-related topics can be a vital part of corporate communication. 
• Avoid greenwashing. 
• Thought leadership and stakeholder communication should focus on the demands of stakeholders and how they use ESG information. 

Further reading

• Reporting frameworks
• European Sustainability Reporting Standard

What is next?

We have outlined the steps to build an ESG strategy and are aware that this blog post has just covered the tip of the iceberg. If you are looking for advice on developing your ESG strategy, we will assist you in implementing the related processes. Use the contact form to book a free and non-binding discovery call with one of our ESG experts.