Companies bear responsibility for society and the environment – and many of them have already made commitments. But, as the demand for sustainable action rises, so too does the pressure to have a more strategic approach.
In the 16th century, the merchant Fugger family of Augsburg was one of the richest in the world. In relation to the purchasing power of the time, their possessions equated to billions in assets in Europe today. However, the Fuggers are famous to this day for more than their success – they saw their profit as an obligation. Among other things, Jakob Fugger donated an entire housing estate for the poor, where tenants can still live today for an annual rent of less than one euro.
Back then, corporate citizenship was practically synonymous with philanthropy, and often rooted in religion. Half a millennium later, the situation is much more complicated. For businesses, responsible action for the community and the environment is becoming more of an existential question. Regulatory requirements are growing, for example through supply chain laws and rising CO2 pricing. Investors also have an interest in the social and environmental consequences of their long-term involvements in order to minimize risks. Consumers are similarly paying more attention to sustainable products and services. And last but not least, qualified employees are taking a closer look at where they work, increasingly opting for companies that reflect their own values or at least rests easy with their conscience. In fact, about half of the young adults born after 1997 prioritize socially responsible workplaces, according to a recent international study.
Companies today realize that donating money is no longer sufficient to prove good citizenship. Who doesn’t commit to sustainability and social fairness practices nowadays? And yet an honest assessment shows that the economy is still in the early stages of a major transformation. For example, a study by the German Council for Sustainable Development revealed that less than one percent of German companies operate “sustainably” according to their criteria (download report in German). The forthcoming change, the report says, is a long, multi-stage process, “starting with individual initiatives and progressing with corporate mission or even the transformation of entire business models.”
Taking a step-by-step approach to sustainability requires companies to scrutinize their existing measures, prioritize new areas of action and create structures that will enable them to implement their plans reliably. Planting trees, avoiding air travel or supporting educational projects are all great intentions, but initiatives must be implemented in a way that makes significant impact and optimal use of the company’s resources. It’s time for a self-critical reflection. Does an activity suit your business? Does it really make the organization more sustainable beyond just promoting your brand’s reputation?
To plan measures strategically and track progress, companies need an Environmental Social Governance (ESG) plan in place. It encompasses the three dimensions of environment, society and internal organization and provides the necessary structure for corporate action: What results do we aim for? Where do we currently stand now, and what are our next priorities? Company priorities can differ greatly. An automotive supplier, for example, will certainly rank their objectives differently than a trading company or an investment bank. As a guideline, many companies use the United Nations Sustainable Development Goals to goal-set and benchmark their objectives.
Not sure where to begin? No matter what level of engagement or impact a company hopes to achieve, the following three aspects should be given particular attention to boost the effectiveness of an ESG program at any level:
Create awareness. Top management must explain their strategy very thoroughly, provide regular updates, and repeatedly call on people to get involved. A town hall meeting is a good place to start, emphasizing the importance of ESG. The topic should then be promoted at all management levels and kept on the agenda, especially during the first few months.
Involve employees. The people who work with your company are among the key stakeholders of the sustainable transformation. They want their employer to act responsibly, and often want to experience and contribute to these positive effects. It is therefore absolutely essential to engage employees in the transformation. This could be by means of a suggestion scheme or by entrusting employees with various functions of the sustainability measures to infuse into their day-to-day tasks.
Build alliances. Suppliers and business partners, communities and neighborhoods, associations and NGOs are both stakeholders and potential partners in the transformation. As such, they expect transparency, and can contribute constructive criticism. The company’s action plan must therefore include initiating a dialog and exploring possible collaborations. Criticism should be explicitly encouraged, as this is the only way to resolve conflicts in the long term. To start a discussion, a company might invite stakeholders to a talk in a non-public space.
Despite its importance, ESG is undoubtedly one of the biggest and most complex challenges for a company to deal with. The topic is often postponed or neglected for this very reason. While most companies are generally open to change, they are limited by available resources and a clear implementation strategy. Fortunately, with purposeful intention and a good approach, progress can be made even with limited capacities and budgets. Companies can start with an action plan that spans a year and continue to build on it for the years to come.
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