Learning from experience

In support of Bloomberg’s conclusion, global financial services firm Morningstar found that 51 of their 57 ESG-screened indexes outperformed their broad market equivalents in the first quarter of 2020. So, in order not to waste a good crisis, ESG professionals might take the opportunity to do some self-reflection in this time of remote working and social distancing. But how to sit back and assess?

Successful reflective observation requires thinking, feeling and watching, based on experience. With much at stake and a lot to learn, what better time than today to accomplish all three? Several flaws might might be uncovered. Some typical signs of frailties that ESG programs might be showing are:

• The Reporting Trap – sustainability and communication professionals can become overly occupied by the delivery non-financial reports and ESG indices and thereby lack the resources to fruitfully implement their projected improvements;
• Materiality Myopia – senior executives that are relatively new to the topic of integrated sustainability can become short-sighted and settle for an overly shallow analysis of material issues that impact the company, which results in losing focus and deteriorating performance of their sustainability program;
• A feeble link to the company strategy – sustainability programs are rolled out as discrete bodies that are poorly connected to the core of the company.

Unsurprisingly, today’s research indicates that 83 percent of C-suite leaders and investment professionals is expecting ESG programs to contribute more shareholder value in five years than today¹. All the more reason to accelerate the learning from past experiences and incorporate it into your sustainability program.

Four essential questions to raise your ESG game

In summary of the key findings from our recent book “Winning Sustainability Strategies”, transformational companies demonstrate a much higher sense of focus (Direction) and accelerate execution by embedding sustainability into their core businesses, not adding them as mere appendices (Speed). This effective combination of Direction and Speed is defined as “vectoring”.

Based on the research material for Winning Sustainability Strategies, a structure was formulated to examine and improve the fundamentals of sustainability programs. Finch & Beak's ESG Acceleration Scan allows you to perform the assessment for your own company. It contains the following four essential questions:

1. Purpose: How strong is your reason for being in business?
Look for business drivers in the value chain to help determine your company’s role in society. Find out in what ways the company purpose could connect to its sustainability program.

2. Direction: How focused is your sustainability strategy?
Identify your most relevant sustainability topics from a forward-looking perspective. After all, it is to be linked to the company’s long-term plan. Pinpoint your business case for sustainability in terms of impact, eco-efficiency, sales or others, including opportunities for industry-wide partnering.

3. Speed: How well are you executing?
Make sure the present set of KPIs covers your business case and differentiation focus well enough. Include clear, science-based targets where possible and look for senior management commitment to the objectives set. Check if the appropriate tools are available to implement the required changes within your company and towards your stakeholders. Is there a concrete multi-year roadmap for the implementation of the sustainability program and is it actionable enough?

4. Value Creation: What is the triple bottom-line contribution?
Determine the results of your sustainability program. An effective combination of Direction and Speed should deliver value for companies through a combination of risk reduction, brand increase, cost reduction and revenue growth.

Looking to improve your ESG performance?

For over 20 years, Finch & Beak has supported companies in accelerating sustainability by developing and leveraging the results from ESG benchmarks and ratings. If you are interested in learning more about how to advance the ESG performance of your company, contact Johana Schlotter at johana@finchandbeak.com or call  +31 6 28 02 18 80

¹ McKinsey (February 2020), The ESG premium: New perspectives on value and performance, online publication

^{Photo by Christian Wiediger on Unsplash}