Environment, Social, and Governance (ESG) planning has become a major part of purpose-led businesses keen on having a positive impact on their community as well as the environment they operate in. At a base level, Deloitte defines ESG as capturing “all the non-financial risks and opportunities inherent to a company’s day-to-day activities”, or finding ways of improving all three pillars of ESG within and adjacent to an organisation’s operation [1].

However, ESG was until recently a voluntary action. Spurred by the increased awareness of shareholders and consumers on key sustainability issues such as gender equality, diversity on boards, environmental behaviour and fair practices throughout supply chains, ESG has become a more prescient force within businesses’ decision-making.

In late 2022 the European Parliament voted to report on ESG data for small, medium and large businesses to make corporations publicly accountable [2]. From 2027 onwards, on top of their financial reporting, firms must now declare other important indicators of internal sustainability, including but not limited to the number of women in managing positions, their CO2 emission and offsetting, their waste management or impact of supply chains. Financial reporting no longer suffices.

This shift to become a purpose-led business is creating new opportunities that provide a comprehensive, positive impact to both companies and the community they operate in and serve. It is a holistic value creation including creating jobs, increasing tax revenue and raising standards of living to mention a few. These goals are part of a co-creation with the community rather than an ESG “box-ticking” exercise. [1, 3]. 

What are the community-building opportunities with the ESG framework?

Purpose-led organisations consider the impact of their operations beyond the financial bottom line. An ESG framework requires companies to review their engagement within their community on several levels. It provides them with the chance to actively involve themselves and collaborate with local communities, consider their needs, perspectives and aspirations. Corporations with larger scopes and size get involved with governments, civil society and other stakeholders to collaborate and generate positive impact on a larger scale. Large or small, some key principles are to be respected in all scenarios:

1. Purpose

Before engaging in activities and collaboration, the company needs to have a clear purpose defining the impact it wishes to have. The purpose will define what’s important for the company and its community to engage in, helps to define the values of the organisation and will gain engagement by its employees, when defining the purpose, companies need to include the social and environmental development on top of economic growth.

2. Inclusivity and community engagement

Inclusivity is a must for a successful business. As the consultancy firm Gartner rightly stated [4]: “Teams that are diverse in gender and highly inclusive perform 50% better than teams that are only diverse.” Inclusive behaviour starts with including all stakeholders in collaboration and decision-making despite their backgrounds, cultures and socio-economic statuses. For employees this could mean offering hybrid work environments and support for working parents in managing their work-life balance. Another example is including frontline workers in white-collar projects and using multiple communications channels as not everyone has access to a computer or mobile device.

3. Transparency

With collaboration and communication, transparency has a big part to play. Transparency allows not only to develop psychological safety for employees and partners within community projects, but it is also important to build your reputation.

Good stewards of capital and values, purpose-led organisations communicate about their data and report on their sustainable progress today. Shiny statements and bold declarations no longer suffice – there must be reporting and accountability.

4. Partnerships and community development

To address and contribute the society’s most pressing issues, companies seek to collaborate in partnerships to find solutions for specific matters.

For example, to upskill talent within their communities, some organisations create training programmes or offer scholarships. This can help the company address shortages in skilled personnel, but also creates jobs in the local community.

5. Long and short-term perspectives

Every strategy addresses long and short-term perspectives. Short-term perspectives are often of a financial nature. Social progress requires more time and is considered long-term. When establishing an ESG framework for your company, community development and engagement require careful planning, structuring of operations and monitoring of impact versus community needs can take years to implement. The benefit to stakeholders may take longer, but the impact can be profound.

Developing the Right Solutions

“Every corporation has the potential to favourably impact specific groups of people,” explains Sabrina El-Chibini, CEO at the Collaboration Vector [5], “Social impact can be evaluated through the collection of quantitative and qualitative data that together paint a full picture.  It encompasses an increasingly interrelated set of employee and community indicators that extend beyond amount of money and time invested, towards an understanding of the overall value generated. This supports a hypothesis that company performance correlates directly with value generated for people.”  

What this means is that the best to implement ESG is to collaborate with your local stakeholders within your community. Listen to their needs, identify the gaps you are able to address in the short medium, and long-term either with your own means or through collaboration with other entities in the area, build an ESG policy that takes into account the community you directly impact on top of the consumers and employees you seek to attract. With an increasing number of consumers aware of sustainability issues across a range of sectors and the active transition to responsible operations, ESG provides your business with an opportunity to develop the right solutions for yourself, your clients, your community, and the world at large. 

“Today, responsible businesses and savvy profit-seeking ones know that if they wish to attract high calibre employees, business partners and customers they must walk the walk and not just talk the talk about the environment,” notes Linda Todd [6].

Considering the positive effect of ESG on a purpose-led company’s bottom-line, the argument is two-fold: enabling sustainable development is popular with clients, employees, and local communities. Firms of any size can have a positive effect on society, ESG policies are not limited to the Deloittes and McKinseys of the world. Small and medium-sized enterprises are often times in a better position to have an impact on their local community than many realise [7].

Have you thought about how your ESG policies could be maximised impact on your business and your community?

View our latest video in this subject: https://youtu.be/65YEv6d52kE

Key Takeaways:

References:

[1] Deloitte, 2021, “#1 What is ESG?”
[2] European Parliament, 2022, “Press Release – Sustainable economy: Parliament adopts new reporting rules for multinationals”
[3] Witold Henisz, Tim Koller, and Robin Nuttall, 2019, “Five ways that ESG creates value”, McKinsey
[4] Christy Pettey, 2019, “Embrace Gender Diversity in Security and Risk Management Roles”, Gartner
[5] Sabrina el-Chibini, 2021, “The Social in ESG: aligning corporate, community, and investor interest through a common framework.”, LinkedIn
[6] Linda Todd, 2022, “ESG – not simply a box ticking exercise”, LinkedIn
[7] Wai-Shin Chan, 2022, “The importance of ESG for SMEs”, HSBC