ESG Policy Guide for Business

ESG has recently become a catch-all phrase describing a firm's ethical considerations. However, the reality is more complex than it initially appears.

Key takeaways:

• ESG covers Environmental, Social, and Governance factors; it’s now essential for reputation, investment, and regulatory compliance.
• To build an ESG policy, you need to define scope, engage stakeholders, set measurable targets, assign governance, and communicate clearly.
• Measure and report ESG metrics using recognised frameworks; leverage technology for accurate monitoring.
• Common pitfalls include many companies failing to communicate policies internally, collecting reliable data, or setting formal Net Zero and diversity targets.

As businesses face increasing scrutiny from stakeholders, having a well-defined ESG (Environmental, Social, and Governance) policy is no longer optional. An effective ESG strategy not only enhances brand reputation but also drives sustainability, compliance, and long-term growth.

Creating an ESG policy

This guide consolidates the key aspects of ESG policy creation, reporting, and implementation alongside insights from Skillcast’s ESG Benchmarking Survey to help organisations navigate the complexities of ESG.

• What is ESG and why does it matter?
• Creating an effective ESG policy
• ESG reporting: Demonstrating accountability
• Supporting the ‘S’ in ESG
• Insights from Skillcast ESG benchmarking survey
• ESG policy FAQs

What is ESG and why does it matter?

ESG encompasses three critical dimensions of corporate responsibility:

• Environmental: Assessing a company’s impact on the planet, including carbon emissions, energy use, waste management, and biodiversity.
• Social: Evaluating how businesses support employees, customers, communities, and other stakeholders through diversity, equity, inclusion (DEI), and fair labour practices.
• Governance: Focusing on ethical leadership, compliance, transparency, and accountability in decision-making processes.

Stakeholders, including investors, employees, and regulators, increasingly expect businesses to take actionable steps towards ESG goals. Failure to address these areas can lead to reputational damage, lost investment opportunities, and regulatory penalties.

Creating an effective ESG policy

An ESG policy serves as the foundation for a business’s sustainability and ethical practices. It should align with the company’s values and long-term objectives while meeting stakeholder expectations. Here are the five key steps to developing a fit-for-purpose ESG policy:

1. Define objectives and scope

- Identify priorities across environmental, social, and governance dimensions.
- Tailor objectives to the company’s industry, size, and geographic footprint.

2. Engage stakeholders

- Consult with employees, investors, customers, and regulators to ensure alignment.
- Use surveys and focus groups to gather input and build consensus.

3. Set measurable targets

- Establish clear KPIs for areas like carbon reduction, DEI initiatives, and governance improvements.
- Align targets with recognised frameworks like the UN Sustainable Development Goals (SDGs).

4. Develop governance structures

- Assign ownership of ESG objectives to senior leaders.
- Form cross-functional committees to oversee implementation.

5. Document and communicate

- Publish the ESG policy in a transparent manner, ensuring accessibility for stakeholders.
- Regularly update and refine the policy based on feedback and changing regulations.

ESG reporting: Demonstrating accountability

Transparent ESG reporting is essential for building trust and demonstrating progress toward sustainability goals. Organisations must ensure that their reports are comprehensive, accurate, and aligned with regulatory requirements. The best practices for ESG reporting are:

Adopt recognised standards

Use frameworks like the Global Reporting Initiative (GRI), the Task Force on Climate-related Financial Disclosures (TCFD), or the Sustainability Accounting Standards Board (SASB). These frameworks provide consistency and comparability for stakeholders.

Measure environmental impact

Quantify carbon emissions, energy consumption, water use, and waste reduction efforts. Highlight initiatives like renewable energy adoption and circular economy practices.

Highlight social contributions

Include data on employee wellbeing, DEI metrics, and community engagement efforts. Showcase success stories that demonstrate social impact.

Ensure Governance Transparency

Report on board diversity, anti-corruption measures, and compliance with regulatory standards. Disclose executive compensation and alignment with ESG objectives.

Leverage technology

Use ESG software to streamline data collection and analysis and automate reporting to improve accuracy and reduce manual errors.

Supporting the ‘S’ in ESG

While environmental metrics often dominate ESG conversations, the social pillar is equally critical. Prioritising social responsibility fosters a positive workplace culture, strengthens stakeholder relationships, and drives long-term value creation.

Diversity, Equity, and Inclusion (DEI)

• Promote gender equality, racial diversity, and accessibility in hiring and promotions.
• Provide unconscious bias training and measure progress through regular audits.

Employee wellbeing

• Implement wellness programmes that address mental health, physical fitness, and financial stability.
• Encourage flexible working arrangements to support work-life balance.

Community engagement

• Invest in local initiatives such as education, healthcare, and environmental restoration.
• Partner with non-profits to amplify social impact.
  
  

  Human rights compliance

• Ensure supply chain due diligence to eliminate forced labour and unsafe working conditions.
• Uphold ethical sourcing and fair trade practices.

Insights from Skillcast ESG benchmarking survey

Skillcast’s ESG Benchmarking Survey (2022) highlighted key trends and challenges businesses face in implementing ESG initiatives. Here are some of the standout findings:

Rising adoption but poor internal communication

68% of surveyed companies have formal ESG strategies; however, less than half have communicated these with staff.

Challenges in measurement

Over half of the respondents struggled with collecting reliable data for ESG metrics with only 50% regularly collecting ESG-related data.

Sustainability goals

66% of responding companies measured their carbon footprint but less than half had adopted a Net Zero target.

Focus on DEI

Only 32% of organisations collected data on race, gender, sexual orientation, etc., in employee surveys.

These findings underline the importance of continuous improvement and the role of benchmarking in identifying best practices.

ESG policy FAQs

How do ESG policies differ across industries?

ESG priorities vary by sector. For example, manufacturing focuses heavily on emissions, energy efficiency, and waste management, while tech companies prioritise data privacy, employee well-being, and ethical AI governance. Financial services often emphasise governance, transparency, and responsible investment policies.

How should ESG policies integrate with supply chain management?

ESG policies should extend to suppliers and partners. This can involve setting supplier ESG standards, conducting audits, and including ESG criteria in procurement and contracting processes to ensure the entire supply chain aligns with your company's ESG commitments.

How can ESG policies be linked directly to financial performance?

ESG initiatives can reduce costs (e.g., energy efficiency, waste reduction), enhance revenue (through sustainable products or improved reputation), and attract investment. Tracking ESG KPIs alongside financial metrics helps demonstrate tangible business benefits.

Looking for more compliance insights?

Our Essentials library contains e-learning content designed to help organisations meet fundamental compliance requirements, including courses that help your staff understand competition law compliance. If you are looking for focused training, we have an ESG Training Packagewhich offers a complete solution for your compliance programme. Courses in this package include:

• Business Ethics and Integrity Training Course
• Code of Conduct Training Course
• Environmental, Social and Governance Training Course

If you would like to access leading insights and compliance tips, you can browse our free resources by topic to find guides, modules, compliance bites and more.