The Complete Guide to ESG Strategy | CleanHub (2024)

Environmental, social, and governance (ESG) strategy has become crucial in business over the last few years. Companies hold significant power in making a difference beyond profit, which has helped the concept of ESG evolve.

By covering environmental qualities, positive social impacts, and ethical internal management, ESG can help companies ensure they’re doing good. What’s more, 83% of consumers expect companies to prioritize ESG (PwC, 2021) — it’s also something a lot of employees look for from their employers.

At the same time, ESG is complex because of its broad nature. Ensuring sustainability, good governance, and positive social responsibility requires some juggling and a comprehensive business overview. Throw things like greenwashing in the mix, and complex jargon about what governance really means, and you can see why companies sometimes miss the mark.

Despite challenges, companies that want to demonstrate their positive output worldwide must take ESG seriously — and start doing that now. Those that don’t might be left behind.

What’s on this page?

What is an ESG strategy — and how does it work?

An ESG strategy is a framework businesses adopt to show they take the environment, social impact, and governance seriously. When done right and communicated properly, it’s something that business leaders apply across the business, from operations and decision-making to the broader company ethos.

A good ESG strategy can also be profitable, demonstrating that companies can do good and enjoy long-term success.

Although it was first identified in 2004 by the United Nations, most businesses have only started prioritizing ESG goals in the last decade.

However, the number of companies that have recently incorporated some degree of ESG into their frameworks shows that it’s working. According to KPMG, 96% of the world’s biggest 250 companies now report on sustainability or ESG matters.

ESG strategies can be tailored to unique company needs, meaning there are plenty of ways to get it right. At the same time, there’s often room for improvement because businesses rarely address the three pillars of ESG equally.

Most focus on the environment because it’s a topic that dominates headlines, and it’s easier to monitor with hard statistics. As a result, organizations can sometimes neglect social and governance factors.

The three pillars of ESG

An ESG strategy comprises three distinct areas:

1. Environment: This focuses on how organizations impact the planet, such as their carbon emissions and efforts to reduce waste. Companies implement strategies to mitigate short and long-term climate risks while allowing for accountability by reporting environmental progress.
2. Social: This examines how businesses interact with people and the wider community, such as employees and customers. Examples include developing a robust diversity, equity, and inclusion (DEI) program and supporting a positive workplace culture. It also reaches beyond the workplace to social issues that impact customers and the wider community, such as equal rights.
3. Governance: This refers to how a business is run (or governed), such as the structures in place and how business leaders make decisions. It holds business leaders accountable, helping to ensure integrity and transparency throughout business operations.

Do businesses benefit from ESG initiatives?

There are multiple ways that businesses can benefit from ESG initiatives — in fact, there are very few arguments for why companies shouldn't prioritize ESG right now.

Here are the main benefits of companies implementing an ESG strategy:

Improved reputation

On average, 88% of consumers are more loyal to brands that support environmental and social initiatives. Prioritizing ESG goals strengthens customer loyalty and helps boost your organization’s reputation in the global market. It can also help you stand out among competitors.

More access to funding

As well as attracting customers, ESG is also increasingly important for investors and lenders, so you can unlock more funding opportunities by prioritizing ESG. A 2022 report by PwC predicted that ESG investing could value $33.9 trillion by 2026. The report also adds that ESG investments can yield more significant returns to a business.

Helps reduce costs

A robust ESG strategy can deliver multiple short- and long-term financial imperatives. For instance, switching to renewable energy can reduce the overall costs of running your business, and retaining employees can lessen the financial burden of high turnover and training new staff.

Regulatory adherence

This year, more ESG regulations — such as the UK’s Sustainability Disclosure Requirements (SDR), the EU’s corporate sustainability reporting directive, and California’s new climate disclosure laws — will be enacted.

Other initiatives include the Extended Producer Responsibility (EPR), now gathering pace in developing countries like the Philippines, meaning companies are obliged to participate in plastic credit practices.

Alarmingly, just 25% of companies are ready to meet the incoming regulatory requirements of their respective countries. Having ESG practices and reporting protocols in place reduces the risk of facing financial penalties.

Happier workforce

According to Marsh & McClennan, organizations with the most significant employee satisfaction rates had ESG scores 14% higher than their competitors. A robust ESG strategy that champions the ‘social’ side helps attract the right employees and ensure staff retention.

Not only are staff happier in a company that cares for their wellbeing, community, and planet, but they’re also more productive.

Business security

It’s not just a feel-good factor that ESG provides organizations; it can help future-proof your operations from incoming climate challenges. Some business leaders are already prepping for extreme weather, with reports claiming climate change may cost them billions.

Focusing on a positive environmental impact contributes to a sustainable future and builds your operations' resilience.

How to create an effective ESG strategy

Implementing an ESG strategy takes time, patience, and a solid overview of business operations. Here’s our advice on how to get started.

Step 1: Conduct assessments

Business leaders first need to understand existing structures by assessing environmental, social, and governance practices and identifying risks and opportunities.

Recording current performance data in these areas can serve as a springboard when tracking ESG data. A materiality assessment — where you gauge the importance of ESG features to your stakeholders — can help identify what works best for your operations.

Step 2: Set up measurable goals

Based on your findings, start thinking about the ESG strategies you plan to implement. Examples can include aiming to reduce your plastic production levels by a set date, or wanting to improve the working conditions in your supply chain by partnering with an organization that supports fair labor practices.

Identify any ESG regulation that may impact your organization in the future and begin creating benchmarks against all three pillars.

Step 3: Create an ESG roadmap

Creating the perfect ESG strategy won’t happen overnight, so a roadmap can help each step fall into place seamlessly.

For example, you could start with environmental commitments, such as optimizing your workplace's energy efficiency or waste management, with the help of third parties like CleanHub. You could then move on to introducing improved diversity initiatives or implementing community projects.

Step 4: Deploy and report on ESG strategies

Now it’s time to implement your planning and track the progress. Reporting ESG data and communicating the results with stakeholders, consumers, and employees is a critical and ongoing process.

Tools and technology help organizations track and assess their ESG data, but it’s essential to ensure transparency by sharing this information through regular reporting like ESG disclosures.

Key things to consider

While implementing an ESG initiative can seem daunting, there's no set approach to getting it right. And it’s important to remember that navigating ESG goals takes time.

Moreover, cooperation from your boardroom to your supply chain requires collaboration. You need to clearly define what an ESG strategy looks like for your business and how the different parts of your company can work together to achieve a common goal.

Finally, ensure that initiatives complement other areas of your ESG strategy to create balance. This will help enhance the overall effectiveness of your organization’s commitment to ESG.

How to track and monitor your ESG strategy

Tracking and disclosing a vast array of ESG data can sometimes feel daunting. To make it easier, business leaders can leverage the help of third-party organizations and technology to collect, automate, analyze, and streamline data practices based on established KPIs.

ESG tracking and analytics

Plenty of ESG software-as-a-service (SaaS) platforms enables organizations to monitor data in real time and track the positive impacts of social and environmental initiatives.

• If plastic recovery is part of your ESG strategy, CleanHub’s trash-tracking technology can provide you with real-time data on how much waste you’ve prevented going to the ocean
• PwC's ESG Intelligence tool is a cloud-based platform that collects ESG data and provides transparent reporting against the 3 ESG pillars.
• Nasdaq Metrio is another end-to-end reporting program that calculates Scope 1, 2, and 3 emissions to track carbon output.
• ESGenius! is an automated platform that leverages AI to help companies share ESG-specific data and analytics with stakeholders and investors.

ESG reporting frameworks

While plenty of digital tools are available, being aware of reputable reporting frameworks can help organizations share their ESG data independently. These include:

• Global Reporting Initiative (GRI) standards provide industry-specific guidelines for a broad range of businesses wanting to report ESG data.
• The International Sustainability Standards Board (ISSB) is developing global sustainability standards to help organizations report environmental data.
• Carbon Disclosure Project (CDP) is a non-profit global organization that helps companies, stakeholders, and investors tackle environmental challenges through disclosure protocols.

Examples of successful ESG strategies

We’ve already mentioned that ESG has been around for over two decades, yet it’s only recently come into focus for most organizations. However, several leading businesses have implemented ESG strategies within this time and proven that they work.

Cisco

The communications company is regularly named one of the best organizations for its ESG strategies. The Cisco ESG Reporting Hub is accessible online, publicly sharing environmental data and demonstrating transparency to consumers and stakeholders.

According to their FY23 Purpose Report, 85% of their employees have participated in community initiatives, 91% of the electricity used to power Cisco facilities was renewable, and Fortune ranked it the number 1 company to work for in 16 countries — demonstrating Cisco’s commitments to all three ESG pillars.

Patagonia

In 2023, Patagonia was dubbed the “ESG Golden Child” due to its broader commitments to the environment and social projects.

Considered a leader in the sustainable fashion landscape, Patagonia has continued to break barriers with its innovative Black Friday campaigns and anti-consumerism business strategies.

As for corporate governance, Patagonia proved it was ahead of the curve when its founder, Yvon Chouinard, gave ownership to a non-profit fighting climate change.

Microsoft

Microsoft is one of the most profitable companies in the US and is well-regarded for its ESG credentials. Investors Business Daily gave the company an ESG score of 72.76, the highest rank on its ESG scoreboard.

According to the company’s corporate responsibility page, Microsoft invested in acquiring 1.4 million tons of carbon removal and diverted ​​12,000 metric tons of waste from landfills as part of its circularity goals.

Summary

ESG has become a crucial part of most successful business models in 2024. As global awareness of the environment grows and consumers demand more action from businesses regarding their social impact, ESG strategies will become even more critical.

In light of this, there has never been a better time for companies to start taking their ESG goals seriously. With a wealth of ESG-inspired tools at their fingertips, it’s also never been easier to make a difference and attract customers, clients, and investors that matter.

Not only is it a wise business decision, but focusing on ESG will help you connect with a global community while making the world just a little bit better.

At CleanHub, we’re committed to helping brands improve their environmental impact. Want to get involved? Get in touch with our experts today to learn about how you can reduce your business’s plastic footprint.