ESG sustainability transformation strategy
One of the greatest and fundamental transformations in the perception of modern-day economy has been brought by ESG. The quintessence of ESG undeniably created a sense of prudence in ‘business-operation’, amongst companies, consumers, investors and other stakeholders in the world of economy while questioning strategies most companies have traditionally been opting for in order to be sustainable. ESG, which is intrinsically premised upon the notions of risk, compliance and due diligence, has essentially changed the traditional business approach of being sustainable that would hardly consider non-financial factors. The mandatory incorporation of non-financial factors into the sustainable strategies of businesses is indeed revolutionary. Despite having numerous ESG guidelines at national and international levels, the materialisation of the transformation proposed by ESG as regards the inclusion of the non-financial factors in the sustainable strategies of businesses is still not crystal clear to many especially when it comes to the quantification of the non-financial metrics of businesses. In an era where data-driven technologies are rapidly advancing, such quantification of both financial and non-financial factors of businesses is crucial. Such quantification is also necessary for ESG reporting, where the latter in Switzerland is an obligation for companies of public interest as it has been enunciated in Article 964a 1 (2), (3) of the Swiss Code of Obligations that ‘undertakings shall prepare a report on non-financial matters each year if together with the Swiss or foreign undertakings that they control, they have at least 500 full-time equivalent positions on an annual average in two successful financial years; and together with the Swiss or foreign undertakings that they control, they exceed at least one of the following amounts in two successive financial years: a) a balance sheet total of 20 million francs, b) sales revenue of 40 million francs.’ However, the above legislative requirements do not apply to undertakings controlled by another undertaking as mentioned in Article 964a 2 of the same legislation.
It is evident that the integration of non-financial factors into business operations and planning which can also be termed as sustainable strategies of businesses, ESG reporting and ramping up sustainable investments are interrelated. A three-pronged strategy could be adopted by the business organisations in order to achieve sustainability in other areas beyond just financial performances, and they are:
- getting the facts right
- robust and effective business planning in place
- compliance with the relevant legislations and legislative frameworks as regards businesses’ non-financial factors at both national and international levels.
Having businesses’ accurate and flawless information about the metrics of non-financial performance indicators is indubitably pivotal. Business organisations through different statistics, the employment of AI, engagement of their employees as well as third party engagement can collect all the relevant information and data that are necessary to measure metrics of different non-financial performance indicators. Another important factor of this aspect will be to gather environmental information in terms of getting prepared as to how to deal with various facets including but not limiting to pollen information, air quality, solar, of environment. On 29 August 2023, Google has launched three new APIs from Google Maps Platform that help businesses to map environmental information. These APIs include the solar API that provides information about the solar potential of a roof, the air quality API provides information on pollution which includes pollution heatmaps, details of the pollutants etc., the pollen API entails information about the most common allergens in over 65 countries.
Prior to gathering information and data, the responsible individuals or teams within a business organisation will need to identify non-financial performance indicators that are pertinent to their business organisation. It is important to highlight that non-financial performance indicators differ from one business organisation to another.
Regarding the second aspect, following the compilation of all the relevant information and data concerning non-financial performance indicators, the business operations team will formulate a clear plan outlining how to integrate indicators into their business strategy blueprint. This blueprint will distinctly outline the goals, strategies and modi operandi required to accomplish them. Their plan for non-financial performance indicators must explicitly mention the key indicators which will aid in prioritising them. This prioritisation will be achieved through analysis and assessment of the information and data, followed by appropriate actions. Their comprehensive business planning will encompass various aspects, including underscoring the nexus between non-financial performance indicators and financial aspects of businesses and accomplish their work initiatives accordingly.
Business operations often appear to be neglecting to prioritise the creation of awareness about the environmental challenges amongst the mass which the world business leaders are taking into their utmost consideration at present. Recently Toyota has made a commitment of $100,000 grant which will be used over 2023-2024 to help catalyse Roots & Shoots youth community-service projects and conduct four events – some with Toyota team members. All these projects and events will be undertaken ‘with the goal of preserving and restoring wildlife habitat and inspiring action on behalf of the natural world we share.’ Initiatives like this surely help business organisations to elevate their overall scores of non-financial performance indicators.
The third aspect of the proposed strategy, focusing on compliance with the relevant legislations and legislative frameworks as regards businesses’ non-financial factors at both national and international levels, is the most challenging task among all the outlined aspects. Business operations must consistently ensure that they adhere to the applicable legislations and legislative frameworks concerning non-financial factors, in order to attest that they fulfil all the legislative requirements with regard to the outlined aspects a) and b). Only a limited number of legislations related to ESG set out explicit and unequivocal guidance for business organisations. It is therefore crucial to employ individuals, who possess a solid understanding of ESG and experience in the sector, within the team responsible for ESG compliance.
We can assist businesses in implementing the aforementioned three-pronged strategy to achieve sustainability in non-financial areas expeditiously in a cost-effective manner.