In a year of unprecedented disruption, supply chains have been stretched to breaking point and entire industries have been shaken to their foundations. But one thing that has remained ever-present is the need for environmental, social and corporate governance, which you may know better as ESG.
Indeed, the pandemic has seemingly sharpened focus on environmental and ethical issues, applying ever greater pressure on organisations to take stock of their corporate responsibilities. Whether that’s gender equality, workers’ rights, environmental concerns, or responses to civil unrest and current affairs – never before has taking a proactive approach to ESG been so critical and formative.
However, as anyone who has ever overseen an ESG strategy will know, having the right attitude, ethos and ideas will only get you so far – particularly when it comes to quantifying ESG-related activity. Measuring your ESG efforts, and ensuring they align with financial performance and business growth, is another matter entirely.
In this guide, we’ll explore the topic of measuring ESG performance in greater detail, with expertise and insights from Paul Hale, Business Development Consultant at Perivan – a corporate marketing and communications specialist.
Why measuring the success of your ESG activity matters
ESG activity has gone beyond simply being seen to be doing good and acting ethically. In the face of global issues like climate change, rising inequality and cultural movements like Black Lives Matter, consumers demand more from the brands they buy from and advocate – so much so that shareholders are taking notice.
Ethical investing – when shareholders invest in brands with a sound approach to ESG – is on the up. And, just like consumers, these shareholders are keen to hold brands to account when it comes to their corporate responsibilities.
On this, Paul comments: “There is a growing stakeholder theory that business and ethics decisions are intertwined, but the relationship of sustainable supply chain management with corporate financial performance is an immature one.
“Integrated sustainable supply chain management, jointly including social and environmental supply chain management, is positively associated with corporate financial performance measured by return on assets and return on equity, though these positive effects can have a time lag.”
In simple terms, this means that businesses stand to benefit from measuring their ESG efforts, with interest from ethical investors encouraging a growing number of organisations to take a more proactive approach to their ethical, social and corporate decision-making.
Recognising the Challenges of ESG Measurement
We’ve established why measuring ESG activity is important, but doing so effectively presents its own unique challenges.
Firstly, consider the range of challenges contained within the ESG framework. Environmental, social, corporate – these are huge, multi-faceted issues, each with a myriad of different responses and actions that, when combined, come to define an organisation’s reputation and what it stands for.
Measuring and extracting value from each of these areas would be nigh-on impossible. That’s why businesses need to focus on what their shareholders and consumers are looking for, and what best defines them as a brand.
Secondly, and compounding the issue set out above, is the fact that efficient ESG has no real industry benchmark or set of best-practice guidelines. With this type of governance strategy still in its infancy, organisations can find it difficult to assign the appropriate metrics and KPIs to ESG measurement – meaning they run the risk of overlooking key ESG activity that would have been of value to stakeholders and brand advocates.
Measuring ESG: Key things to consider
Measuring ESG effectively can be difficult, but it’s not impossible. Here are some essential tips to help you get it right.
- Develop an ESG intelligence strategy
The cornerstone of effective ESG measurement is having the right system in place to rank and score related activity, including online and offline content, news reports, and social media posts. Your strategy should offer consistency and reliability, providing both an accurate way to benchmark activity, and a basis for reporting to key stakeholders.
- Analyse current processes and practices throughout your supply chain
ESG isn’t simply a matter of attracting interest from ethical investors in the hope of capital gains. It’s something you can use to foster business growth and ensure a healthy, ethics-led culture. That’s why analysing current processes and practices throughout your supply chain, and measuring the success and pain points of each, is a great way to steer your ESG measurement strategy.
- Look to the future and stay abreast of changing trends
When it comes to ESG, many firms take an inward-looking approach, focusing on their business’s reputation in the here and now. But there’s value in looking ahead, recognising that changes need to be made, while considering broader trends and themes. Doing so can help you define goals and objectives, and set feasible KPIs for your ESG measurement strategy.
As consumers and shareholders alike look to brands to express a purpose beyond maximising profit, ESG will play an increasingly significant role in corporate strategy-making in the future. That’s why formalising a system of measurement is so important – ensuring that your efforts are rewarded.