As summer comes to an end, many organizations are eagerly anticipating this year’s CSA and CDP results that will be released from fall onwards. This time of the year is an excellent opportunity for organizations to reflect on the lessons learned from participating in the assessments and to incorporate these insights in a way that accelerates the sustainability program and closes ESG performance gaps.

Main challenges observed in this year’s Corporate Sustainability Assessment

Following the close of the 2022 CSA cycle for Groups A and B, we at Finch & Beak reflected on some of the main challenges that our clients encountered in the assessment process and share key observations below.

Weak governance system for sustainability management

As a foundation for success, companies with a strong governance system for sustainability management are more likely to be successful in the implementation and execution of their sustainability strategy across the business and with the management of the goal-setting and reporting processes – both of these contributing to a strong ESG performance. The success of sustainability management could on the other hand be hampered by the limited availability of ESG-related incentives, the lack of engagement of board- and executive-level individuals on sustainability topics, and not using relevant tools to inform the design and implementation of sustainability strategies.

Limited relevance or scope of policies

Clients found both S&P Global’s sharpened requirements for environmental management, occupational health & safety, and biodiversity policies and CDP’s new biodiversity questions to be quite challenging this year. In some cases, policies are in place, but they do not necessarily make provision for the whole spectrum of the organization’s impacts and associated risks, or only provide options to report on parts of the business.

With regards to biodiversity, ACCIONA leads by example with its strong biodiversity policy and commitment to biodiversity management where the standards and principles influencing the organization’s practices regarding biodiversity conservation and responsible use of natural heritage are fixed.

Blind spots in the risk management function

Risk management functions are slowly moving towards integrating ESG risks when compared to financial matters. However, in order to identify emerging risks as well as extend risk horizons further into the future (beyond 2-3 years), some thoughtful efforts are still required. Emerging risks of an environmental, geopolitical, and societal nature appear to be tough to crack.

Bureau Veritas leads by example with a structured organization and approach to risk management (see pages 336-351). This means that teams from all across the organization, from the board of directors to the operating managers, are involved in the process and regular risk mapping is performed to ensure careful consideration of emerging risks.

Gaps in public disclosure

In line with increasing reporting requirements, organizations are getting more and more transparent about their corporate strategies, principles, and practices. While public disclosure is one of the main contributors to an organization’s CSA score, organizations still often lose points because of their limited level of transparency on certain matters, particularly about tax strategy, emerging risks, and policy influence.

Some organizations, set themselves apart through their commitment to transparency. AXA is one of these examples, publishing an annual tax transparency report. This report discloses information about the organization’s tax footprint in its key geographies, tax figures disaggregated by the countries in which it operates, and the key principles of its tax policy.

Taking your ESG performance to the next level
 

1) Identify your organization’s main ESG gaps and determine what is required to address them

Obtain and use the feedback from your performance in the CSA, CDP, and potentially other ratings and analyze the results. Finch & Beak’s ESG Program Canvas will help your organization identify gaps in current programs and practices. The canvas is available as a download at the top of this article.

After identifying the gaps, validate which actions are required to work on them in alignment with the issues identified as material to your company through a materiality assessment. Each relevant action identified should be assessed based on its impact and feasibility to determine its level of priority. From then on, engagement with topic experts across the organization is needed to better translate potential actions into a concrete action plan.

2) Reinforce risk management and policies

Strengthening risk management to identify emerging risks can be done over time by applying the double materiality principle. Specifically for climate-related risks, it can be helpful to start out on the Task Force for Climate-Related Financial Disclosures (TCFD) journey and to include scenario analysis. The outcomes of this assessment should then inform your enterprise risk management approach.

As for policies, to ensure their clarity and coherence, an organization should first make sure that all the impacts that it has on the topic of the policy are identified, assessed, and prioritized in order to structure its policy accordingly and center it around material aspects. For instance, when formalizing a biodiversity policy, the recommendations from the Taskforce on Nature-related Financial Disclosures (TNFD) framework can be a useful tool to evaluate nature-related dependencies and impacts and inform the principles and standards that should be set in the policy.

3) Build a strong governance system for sustainability management

Re-think and re-evaluate your organization’s governance approach for sustainability in general, considering the management of material impacts up to data collection and reporting. Is the Board of Directors sufficiently involved and are members trained on ESG issues? Does executive management have the right incentives in place to deliver on the organization’s sustainability targets? And is your approach sufficiently covering subsidiaries, joint ventures, and value chain partners?

Again, the TCFD framework can be very helpful for climate-related management, in particular for, providing excellent guidance to improve and strengthen climate management. By following the recommendations on the implementation of climate governance at board level and assigning climate-related responsibilities to different management positions is an excellent way to build a strong governance system for climate management.

Ready to accelerate your company’s ESG performance?

With over 15 years of experience in ESG Benchmarking support including the CSA and CDP, Finch & Beak is one of Europe’s leading experts in improving our clients’ sustainability programs and ESG performance, including support on double materiality, sustainability governance, and TCFD implementation.

If your organization is looking to accelerate its sustainability performance, please contact Johana Schlotter, at johana@finchandbeak.com or call +31 6 28 02 18 80.

^{Photo by Austin Ban on Unsplash}