Evaluating Materiality as Corporate Culture Integrates ESG
No matter what industry you work in, there’s a growing expectation for organizations to be good corporate citizens. More and more, stakeholders and investors are demanding transparency, and regulations are being developed worldwide to hold organizations accountable when it comes to the biggest issues of our day: climate change, sustainability, inequality, social justice, and human rights.
While ESG-related issues are clearly important, they don’t always seem urgent. That can make it all too easy to put off addressing ESG in favor of more pressing business concerns. Moreover, clear requirements have not yet been defined, so it may be tempting to wait and address these issues when formal guidance is available.
Taking a proactive approach now will certainly serve you better than trying to deal with the consequences of inaction later. Research has shown that robust ESG policies make a business more resilient to future challenges. As these risks continue to grow, developing solid, data-driven ESG policies can help your organization make better decisions and build stronger stakeholder relationships. Addressing these changes may feel overwhelming when it seems like no one has the answers, but it also offers an amazing opportunity to rethink your business!
The Role of Business is Changing
In recent years, we have seen dramatic cultural changes. These include growing activism around environmental and social issues, and a significant increase in political polarization around the world, on top of an ongoing global pandemic. Both internal and external stakeholders are pushing organizations to stand for something while ESG risk affects how shareholders invest or devest in companies. Given the tremendous uncertainty and shifting priorities, it’s virtually impossible to carry on as we did before. The internal cultures within organizations and the international business community are evolving quickly for a number of reasons.
As the field of public and stakeholder relations evolves, there’s a growing need to professionalize stakeholder engagement practices. This really hit home during the early days of the pandemic, when the sudden shift to remote work created unexpected challenges. Organizations need to modernize and digitize their processes, improve data management practices, and adopt fit-for-purpose tools. Creating cross-functional structures to align ESG, Communications, Finance, Public Affairs and Government Relations teams will assure consistent messaging, coordinate efforts, and provide discipline and structure. Professionalization will help ensure business continuity, improve efficiency, and build better stakeholder relationships.
Loss of Public Trust in Traditional Institutions
Many have lost faith in traditional institutions like government, religion, and media. Younger generations also tend to view these organizations with suspicion. People seem to be turning to corporate America to fill this role, but they remain skeptical. Increasing demands for transparency and accountability suggest that for organizations to maintain this public trust, they will need to back up their words with action.
Acceleration of Global Threats
Many of the ESG issues we face today have been building for decades. As older generations retire and new ones take their place, cultural norms and values evolve. Unfortunately, we’ve reached a point where climate change has become an immediate, existential threat. The effects are visible all around us, and urgent action is necessary. Companies are under significant pressure to engage in ways that help solve crucial environmental and social problems to create sustainable change.
Introduction of Financial Ratings around ESG
Investors are taking ESG seriously and as a result, it has grown increasingly important to credit ratings. Companies with strong ESG scores have demonstrated a better ability to respond and adapt to the changing demands of stakeholders, the environment, and the economy. Reporting and disclosure are becoming key tools in addressing the climate crisis, as well as other sustainability issues. Investors need comparable information to evaluate trends and judge the progress that companies are making. As a result, investor-lead initiatives like Climate Action 100+ and the Equator Principles seek to help financial institutions identify, assess, and manage environmental and social risks. Financial accounting and sustainability disclosures are now included as part of standard frameworks such as SASB, GRI, CDP, and TCFD.
A Much Shorter Engagement Cycle
Thanks to the Internet and social media, we’re more connected than we’ve ever been. The incredible amount of information at our fingertips has led to greater social awareness, but it also means that responding quickly to stakeholder concerns is imperative. Organizations used to have weeks or months to explore issues and engage with stakeholders before deciding how to respond, but expectations have changed. It’s not uncommon to receive calls late at night demanding a response to an evolving situation. The speed at which we need to react can be incredibly challenging, and it’s virtually impossible without the right tools and readily accessible data.
Materiality – How to Prioritize Your Approach to ESG
ESG is a challenge for all industries and trying to figure out how to adjust your operations and business functions is no easy task. You will need to evaluate the potential impacts on your business to prepare for these changes and understand what they mean for your future success. Let’s look at some things you can do right now to get ahead of the long-term risks.
Pay Attention to Developing Regulations
We know that regulations are coming even though so far nothing has been finalized. Organizations have a choice to make: you can wait to get informed until the rules have been established, but if you want to have influence, you need to be part of the conversation. Sitting on the sidelines can be risky. Make sure that you:
- Identify which topics will impact you from an ESG perspective.
- Find out where you stand on material issues in relation to your peers. You may have a different perspective than others in your field.
- Share your insights with industry associations about what is feasible (and what isn’t) for your organization.
- Pay attention when they ask for comments about proposed regulations. It’s important to hear from many different perspectives to ensure that policy implications are considered from a variety of angles.
Identify Issues that Align with Corporate Values
As you review existing policies to identify areas for improvement, it’s important to understand what your company values are and put those at the front and center. You don’t need to take a stance on every issue; just be authentic and look for ways to use your influence in areas that truly matter to your business.
- Identify strategic areas where ESG materially aligns with your objectives.
- Rank these issues in terms of their importance and the potential impact they will have on your organization, then choose the areas you will prioritize.
By focusing on what is most important to your business and your stakeholders you’ll be able to take a more proactive approach to ESG, instead of reacting as situations arise.
Engage with Your Stakeholders
Once you know which areas you want to address, you’ll need to connect with your stakeholders. Proactive engagement will help you find areas of agreement and work out reasonable compromises.
- Reach out to a variety of different stakeholder groups to be sure you understand the various sentiments about your current positions and any changes you’re planning.
- Ask for feedback. Listening to your stakeholders will help you understand what is most important to them and build a true dialog and trust.
- While it can be incredibly hard to balance diverse stakeholder interests, remember that it’s important to be consistent and authentic about your position on the issues.
- Establish key objectives to keep discussions on the right track and maintain objectivity when engaging on hot-button issues.
Establish Your Position Across Your Organization
Once you know where your organization stands on material issues, you’ll need to identify opportunities to build resilience and combat the effects of change, then commit resources in areas that fit.
- Manage your ESG initiatives with the same discipline you would use for any other aspect of your business.
- A cross-functional approach is key. In the past, sustainability was often viewed as its own silo, but if you want to achieve meaningful outcomes, these efforts need to reach across the entire organization. (For example, financial teams can offer insights into reporting and provide the cost and value of the sustainability efforts. Public affairs and government relations teams can help monitor what’s going on in jurisdictions where you operate, lead engagement with policy makers, and make your voice heard.)
- Be sure everyone is on the same page. Coordinate your efforts and be sure there’s common understanding and agreement about how to address material issues across the organization.
- Consistent messaging will help you demonstrate transparency, and in turn, build a solid, trusted reputation with stakeholders.
Publicly Disclose and Report on Your Initiatives
As you move forward, be sure to keep stakeholders up to date about the progress you’re making on these material issues. This is especially to investors, who are seeking greater transparency.
- Regularly report on your initiatives to create a traceable record and show that your efforts are making a difference.
- Be sure to use the right tools for the job. While corporate sustainability reporting has been around for a long time now, reports aren’t always as complete, reliable, or useful as they should be. The companies that benefit from the highest ESG scores are those who successfully report their efforts, so having the right tool to track and report ESG measures can make all the difference.
Digital Technology Brings Greater Transparency
How Borealis Can Help
While much of this may be new to public affairs and government relations professionals, our clients in other sectors have needed to work with similar regulations and requirements for decades. Government regulation does not automatically instill trust (or social license); each organization has to build it with their own stakeholders. Our fit-for-purpose software helps our clients do just that.
Borealis software evolves continually based on industry best practices and feedback from our global client base. The platform helps users:
- See a clear, big picture view of stakeholders (including roles, sentiments, etc.)
- Create proactive strategies to gather information
- Plan engagement strategies for each relevant stakeholder group
- Break down information silos to coordinate efforts between departments
- Structure data in a centralized, accessible, and secure location
- Work with stakeholders on a map to help guide engagements
- Standardize the approach to reporting
Create an engagement plan around X, create a stakeholder add-in system for mapping, prioritize who you need to engage with, simple way of aggregating and analyzing info and historical data to learn how your stakeholders feel about a current situation or issue
While ESG issues continue to evolve, taking steps now to assess what is material to your organization can help you improve your processes, relationships, productivity, and outcomes. Find out how you can take your stakeholder engagement practices to the next level. Talk to an expert today >