How to set ESG goals guide
ESG goals are company-wide objectives that help an organization meet environmental, social, and governance business needs as per the standards set in the ESG framework.
In this Green Business Bureau article, we introduce the concept of ESG goals. We exemplify the type of ESG goals your company should set based on the United Nations’ 17 Sustainable Development Goals (SDGs). You’ll then learn how to set ESG goals using our 5-step process. But before all of that, let’s first cover the basics, what is ESG and why is it important?
- What is ESG and why is it important?
- What are ESG goals?
- Your 5-step process to set data-driven ESG goals
What is ESG and why is it important?
“ESG ratings impact profitability – regardless of what industry your company is in. People like to know that the companies they interact with and buy from are companies that do good in the world.” – Hendrith Vanlon Smith Jr, CEO of Mayflower-Plymouth
The initialism ESG stands for Environmental, Social, and Governance. Companies that adopt ESG principles will define a vision, mission, strategy, tactics, and values that consider, measure and report on a business’s sustainability performance.
The ESG framework evolved from the sustainable business model as financial institutions recognized the need to invest in purpose-driven organizations. The problem was business sustainability as a concept lacked actionable advice and specific measures. To remove ambiguity around what it means to be sustainable, financial institutions drew their own set of standards known as the ESG framework.
Investors use the ESG framework to consider a company’s environment, social and governance capabilities when making investment decisions. These investors will do their own research on the ESG aspects of a business, or they may turn to third-party ratings from companies like:
- FTSE Russell
- S&P Global
Standards within the ESG framework include (but are by no means limited to): Reducing an organization’s carbon footprint (environment), implementing an effective waste management system (environment), introducing strong equality and diversity policies (social), meeting strong ethical standards (governance) and transparent stakeholder engagement (governance). As you can see, guiding principles are provided which go hand-in-hand with boosting a company’s sustainability performance.
For more information on ESG and how ESG relates to sustainability, read the following articles:
- ESG vs Sustainability: What’s the Difference
- ESG and Sustainability: Your 101 Guide for Understanding Corporate Sustainability
The expectation for companies to meet ESG standards has heightened in recent years. Increasingly, investors demand businesses perform well across environmental, social, and governance facets. For instance, investment firm BlackRock led the charge when the company’s CEO Larry Fink announced plans to integrate ESG metrics into the firm’s portfolio by 100%.
Following suit, 91% of investors state that non-financial measures have played a part in their investment decisions over the past 12 months. Plus, 75% of investors find value in robust climate risk planning.
Yet it’s not just investors that are demanding ESG compliance. 71% of job seekers prefer to work for an environmentally sustainable company, and 54% of consumers are willing to pay a premium for sustainable goods.
Due to ESG’s relation to corporate sustainability, the benefits of introducing effective ESG goals go hand-in-hand with the benefits of business sustainability. That is, a sustainable business model:
- Creates business value.
- Meets the needs of your customers.
- Meets investor demand.
- Attracts and engages top talent.
- Slashes business costs.
- Improves a brand’s reputation.
- Leverages new opportunities.
You can read more about these business benefits in our article Why Is Sustainability Important in Business?
Topics include Laying the Foundation, Launching the Program, Environmental Initiatives, Social Responsibility Initiatives, Embracing Accountability, Celebrating Success, Completing a Certification, and Creating a Marketing Plan.
Environmental, social and governance goals are objectives set within a business to help the organization effectively manage its impact on society and the environment. These goals evolve around the three categories of ESG as discussed above. ESG goals define an organization’s vision, direct strategy, and hold the company accountable.
Organizations recognize a need to set goals against ESG criteria. Showcasing this movement, a recent report by Sustainable Brands questioned the Fortune 50 Companies to see how they were adopting ESG standards. The average company surveyed had 17 ESG goals. These goals included developments to reduce business greenhouse gas emissions, increase workplace diversity, invest in sustainable energy, and provide transparent financial practices.
Hence, it’s apparent that setting and attaining ESG goals is necessary for a 21st-century business that wants to be competitive.
As a guide to help organizations set ESG goals, the World Economic Forum recently published its draft ESG metrics which aligned with the United Nations sustainable development goals (SDGs). This draft looks set to become the global standard for ESG reporting.
- SDG 13 – climate action: Develop a net zero carbon emissions goal and implementation strategy by 2022. Measure, record, and report business scope 1,2 and 3 emissions. Reduce scope 1,2, and 3 emissions on an absolute basis by 30% by 2030.
- SDG 7 – affordable and clean energy: Switch to a green tariff, purchase renewable energy certificates and off-site power purchase agreements, or/and install your own renewable energy source on-site.
- SDG 6 – clean water and sanitation: Reduce water use across business operations by 20% over 10 years (2% annually).
- SDG 12 – responsible consumption and production: Install recycling bins throughout offices. Seek waste materials for production processes to implement a circular economic model.
- SDG 3 – good health and well-being: Provide a health benefits package to employees that exceed the national cross-industry benchmark.
- SDGs 8 and 10 – decent work and economic growth and reduced inequalities: Meet or exceed the minimum living wage.
- SDG 5 – gender equality: Achieve an employee gender balance of 50% female and 50% male across the organization. Maintain or exceed 30% women on the Board of Directors.
- SDG 11 – sustainable cities and communities: Achieve LEED Silver or better on 100% of new building developments. Evaluate the cost and feasibility of LEED certification for all new developments.
- SDG 8 – decent work and economic growth: Cut business costs by 15% by 2030 through efficiency improvements.
- SDG 17 – partnerships for the goals: Devise an effective stakeholder engagement strategy for collaboration to address key sustainability issues.
- SDG 9 – industry, innovation, and infrastructure: Reduce product processing time by 20% over the next five years.
Below we lay out our five-step process detailing how to set ESG goals for your business.Step #1: Conduct materiality and baseline assessments
Before you set your targets, you need a thorough understanding of how your business is currently operating. This means conducting thorough materiality and baseline assessments to determine your current performance against key ESG criteria. You can use the results of these assessments to track progress toward your sustainability goals.
Take a look at what data you currently have in place to decipher if there are any data gaps to be addressed. Ask yourself: What data do you need to start tracking progress toward your ESG goals? The type of data to be collected includes carbon footprint measures, energy bills, the volume of water consumed, and business landfill waste by weight. Data availability and obtainability are important considerations in defining your ESG strategy as this will determine how you’ll track progress. Yet, don’t limit your goal setting completely around this.Step #2: Use the SMART framework for goal setting
Using the SMART criteria will help you establish attainable ESG goals within a predetermined timeframe. We explain each step of this framework below:
- Specific: What needs to be accomplished? What steps need to be executed to achieve this goal? Clearly define exactly what you’re going to do and how you are going to do it.
- Measurable: How are you going to track your progress? How will you know you’re succeeding? Incorporate measurable and trackable data.
- Achievable: Think of this step as a reality check for your business. You need to make sure your goal is achievable. How will you implement the goal? You want to avoid corporate greenwash and the setting of aggressive goals for PR value only.
- Relevant: Does the goal connect to your overall business objectives? Why are you setting the goal you’re setting?
- Timely: Define a timeline with an end date for when you’ll achieve your goal. You need to ensure your team is on the same page about when the goal should be reached. Build time-bound parameters into your ESG strategy.
If you need inspiration, take a look at the goals set by other industry players.Step #3: Collect quantitative and qualitative data to track progress
You need to be using the right platforms to internally track ESG data and measure your organization’s progress. ESG data will also give supporting evidence to back your brand’s ambitions while also helping you set intermediate goals to keep the momentum high.
Back up your quantitative data with qualitative data. For efficiency here, you want to use a tool that tackles both the environmental and social facets of ESG, and in this sense, acts as an effective governance agent. The Green Business Bureau is one such tool, with over 500 initiatives that focus on both environmental and social performance.
Using GBB’s online EcoAssessment you’ll decipher the level your business is currently operating at by recoding which environmental and social initiatives you’ve completed. You will then store this qualitative information in the cloud. From here, using GBB’s EcoPlanner, you can then set your intermediate and long-term targets. All relevant and recorded information is accessible to key stakeholders via your online EcoProfile. Transparency and accountability are championed.
For each ESG goal, you’ll need to collate multiple metric measures. For instance, let’s come back to our ESG goal “reduce scope 1,2, and 3 emissions on an absolute basis by 30% by 2030“. To track progress toward obtaining this goal you’ll need carbon emission data, the percentage change in carbon intensity as a percentage of revenue, and the percentage change in fuel efficiency. These metric measures are called Key Performance Indicators (KPIs). Each ESG goal will be associated with a number of specific KPI measures.
Next, combine quantitative KPI measures with qualitative measures as short-term and defined goals, e.g. “switching to a renewable energy provider“.
Be sure to obtain feedback on your ESG goals, your KPI metric measures, and your qualitative targets. This will give your team – and those outside of your organization – a sense of ownership and commitment to your ESG goals.Step #5: Share and announce your ESG goals
Now is the time to be transparent and publicly disclose your ESG goals, and where you’re at in terms of your progress toward obtaining these goals. Being transparent will boost accountability and credibility meaning customers can see where you’re at on your journey.
When sharing this information, you need to:
- Share how and why your company has chosen the specific ESG goals your business is working towards.
- Disclose the KPI measures you’re using to assess progress toward your ESG goals.
- Define what processes are in place to track and measure progress toward your ESG goals.
- Clarify your brand’s mission and vision which should align with your ESG goals. This will communicate to stakeholders what your brand stands for.
ESG goals are critical if you’re to succeed in becoming a purpose-led organization. Use the UN’s Sustainable Development Goals to categorize your business targets and to structure your goal-setting process. Next, implement your business-specific ESG targets using our given five-step process.
Obtaining green business certification with the Green Business Bureau will act as your guide to help you achieve your intermediate and larger ESG goals. With..
* This article was originally published here