How to Build an ESG Strategy: Key Steps for Long-Term Success

In an interaction with Industry Outlook, Dr. Rashmi Ainapur, Principal Advisor, BhumiMithr, shares her views on building a robust ESG strategy. She emphasizes the need for aligning with global frameworks, setting realistic goals, and integrating ESG into corporate governance.

The ESG landscape is rapidly evolving, driven by regulatory changes, investor expectations, and market trends. How are current ESG trends shaping corporate strategies and what key factors should businesses consider to stay competitive?   

The force behind ESG compliance stems from multiple sources including regulatory requirements, investor demands, and the funding standards that banks now use to select sustainable companies. The present use of ESG as a penalty avoidance method will transform into an embedded corporate culture. Organizations that initiate ESG practices will maintain their commitment to ESG because it becomes a natural part of their operations.

Organizations should adopt both Indian BRSR which is mandatory for top 2000 listed companies and global standards GRI and TCFD integrated into IFRS to effectively handle this pressure. Such an approach will establish a competitive advantage for the organization.

A successful ESG strategy depends heavily on organizations establishing practical goals. Achieving net-zero emissions by 2070 requires Indian companies to set realistic targets based on baseline calculation results. Organizations that deploy this method will achieve success in the developing ESG market.

A strong ESG strategy begins with clear goal-setting and alignment with business objectives. How can companies define ESG goals that balance sustainability ambitions with financial and operational priorities?  

Sustainability and ESG practices often seem expensive to many organizations, which makes them question their operational feasibility. They question their ability to survive in the market while pursuing net-zero status and renewable resource transition since they need to understand the economic implications.

Producers who want sustainable products need to understand if using 100% sustainable raw materials is feasible for their operations. A proper finished product might require the use of a particular raw material category that is unsustainable. Strategies need to incorporate evaluation of these factors during their development phase.

The GRI (Global Reporting Framework) recommends conducting materiality analyses for goal-setting purposes or creating strategies in your company. The organization performs materiality analysis through external assessment of critical organizational factors alongside stakeholder participation. The analysis helps organizations understand their operating environment so they can establish practical performance targets.

The establishment of attainable targets represents a better approach than establishing unattainable targets. Our continuous monitoring of progress should include procedures that help prevent potential risks from developing.

Integrating ESG into corporate governance ensures accountability and long-term success. What governance structures and leadership commitments are essential for embedding ESG into business operations?    

ESG success requires integration into all aspects of operational business structures, frameworks, and business processes. The corporate governance structure is crucial because ESG reporting should not be treated as secondary. The lack of financial reporting in ESG makes many people question the value of focusing on ESG initiatives. A transformation in thinking is required to achieve ESG success.

The board should take an active role to monitor ESG initiative implementation throughout the organization. The board members must monitor ESG practices to verify that all instructions are executed correctly.

A new industry leadership position called CSO emerged during recent times. The implementation of a CSO position represents a beneficial organizational advancement for multiple businesses. A CSO brings immense value to an organization by managing ESG matters across multiple departments. The implementation of ESG requires continuous teamwork across different departments because the responsibility belongs to no single department alone.

The initial step in ESG report preparation consists of delivering training sessions to department heads. Efficient data collection and effective work become possible only through this approach.

Another system referred to as ESG-linked incentive pay exists in addition to other methods. The organization needs to maintain strict procedures regarding additional bonus payments for people who work on ESG goals. The implementation of ESG-related incentives will create substantial help for the company to meet its targets.

Stakeholder engagement is critical for ESG credibility and impact. How can organizations effectively communicate their ESG strategy and address stakeholder concerns?

Stakeholder engagement is an essential requirement because an ESG report begins with materiality assessments that involve stakeholder participation. The main question arises after we obtain stakeholder input regarding effective communication methods. The implementation of global frameworks serves as a solution at this point.

Stakeholders understand what occurs inside a business organization when an ESG report follows proper frameworks during preparation. Different companies now use press meets alongside digital media platforms to inform audiences about their sustainability practices through official press releases. Through these programs, stakeholders receive a better understanding of corporate ESG performance.

There are several important requirements that need to be emphasized. The ESG report creation process needs to be completed before requesting external third-party verification. Internal teams along with management prepare the ESG report during its creation process. The challenge of presenting trustworthy information arises during the internal preparation of ESG reports because stakeholders remain cautious about potential green-washing efforts.

Third-party assurance becomes essential to fulfill this requirement. The review process brings experts from the field who validate that all ESG report data remains both correct and trustworthy.

The process of third-party assurance leads to the next step being ESG rating agencies. ESG rating agencies offer multiple assessment services that result in different performance grades including platinum and gold awards together with A+ and AA+ ratings. The company achieves higher ESG maturity and builds stakeholder trust through these ratings because stakeholders can see that its ESG practices are authentic and transparent.

Measuring and tracking ESG progress requires selecting the right frameworks and metrics. What are the key ESG performance indicators, and how can businesses ensure accurate and transparent reporting?

To monitor our development, we need both reference points along with concrete assessment elements that allow us to measure our results. The progress we achieve with a 10% improvement during this year allows us to establish a 20% reduction target for emissions or other sustainability goals in the upcoming year. A precise set of metrics exists as the fundamental requirement to measure our advancement.

The three essential measurement groups identified within ESG standards are Environmental, Social, and Governance metrics.

The tracking of emission reduction compared to the previous year represents an example of an environmental metric. The efficient management of water resources should be assessed in areas with water scarcity particularly in mind. Companies operating in areas with water scarcity need to track their water usage intensively and establish methods to restore water levels to their natural state. Waste management protocols alongside circular economy model implementation during production must be tracked for accurate monitoring purposes.

Social metrics measurement relies heavily on the diversity of employees within an organization. The level of gender diversity in the workplace needs to match industry norms and what similar companies implement. The organization should track employee retention rate along with injury rate and facilities that support women employees particularly. Organizations must guarantee both secure work environments and satisfactory health facilities for all employees. The organization should conduct recurring training sessions and awareness programs to ensure staff members remain informed about internal trends that evolve.

Governance metrics help organizations achieve more transparent operations while removing all potential conflicts of interest. The significance of independent directors keeps rising in importance. A corporate governance structure becomes stronger when at least 40% of board members consist of independent directors according to current standards.

These essential metrics enable us to monitor both our advancement and performance results in ESG operations.