Building an ESG Strategy

ESG has become a buzzword; however, its importance in the business world cannot be understated. Environmental, Social and Governance (ESG) is an umbrella that encompasses all the essential company considerations.

These are the standards used to evaluate a company's ethical behaviour. As such, ESG has become a major factor in corporate decision making, building an ESG strategy has become critical for businesses.

We unpack what ESG entails, why this holds weight in modern business and how to incorporate it into your business strategy.

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ESG strategy

How to move towards an ESG focus

At Skillcast, we specialise in compliance management across ESG and aim to lead by example. This guide provides a fundamental level of understanding of ESG, why it is important and how it affects both firms and society as a whole.

We explore ways your firm can integrate ESG into its strategy and succeed in its ESG initiative. Our mission is to help companies achieve the highest ESG scores they can. This roadmap aims to pave the way towards reaching this goal.

What does ESG mean?

ESG stands for Environmental, Social and Governance. These three criteria evaluate a firm's ethical impact, social responsibility and sustainability. All in all, it is a measure of a company's dedication to making the world a better place.

As the world strives towards a sustainable future, these key factors indicate how a company's vision aligns with this global mission. Each factor has its own set of standards and practices, which are, collectively, of interest to clients, regulators, investors, employees and other stakeholders.

Integrating ESG into your business strategy and ESG reporting has become fundamental in building business integrity.

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Why is ESG important?

First and foremost, a company's commitment to ESG ensures that the business is socially responsible. This is an indication that your company aims to mitigate risks and generate sustainable long-term outcomes.

ESG has become the gold standard on which a company is assessed. In recent times, there has been a movement towards ESG investing. Socially responsible investors prioritise ESG as a consideration when making investment decisions.

In January 2020, the world's largest asset manager, Blackrock, pledged to come down hard on firms that failed to deal with the climate crisis appropriately. The company said that it would vote against them at annual shareholder meetings. This is just one example of how ESG considerations have become significant in conducting business.

Essentially, ESG has become how a company defines its purpose and, in return, the measure on which it is evaluated.

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PwC compliance study findings

  • 98% of senior leaders said they were committed to compliance and ethics
  • 67% of firms had a process to identify the owners of compliance and ethics-related risks
  • A third of firms had an officer in overall charge of compliance and ethics
  • 56% of companies didn't have a Chief Ethics Officer
  • 20% of corporate boards had formed separate ethics committees
  • 82% of leaders communicated ethics with staff, but 46% in meetings or by email

You can read the full results on the PwC website.

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Environmental impact

Environmental criteria focus on a company's impact on the planet. Apart from climate-change initiatives, this category includes energy usage, pollution outputs, water management, and other environmental impacts. To help businesses and other organisations reduce their environmental impact, the International Organisation for Standardisation (ISO) designed ISO 14001.

ISO 14001 is the International Standard for Environmental Management Systems (EMS), which any business in the world can implement. This framework helps companies reduce the cost of waste management and improve resource efficiency.

How we focus on environmental impact

Skillcast has long been committed to protecting the environment, and we have consistently maintained our ISO 14001 certification since 2010. This certification is a credible way to demonstrate that your company meets environmental expectations.

Our focus has been to help our clients reduce their environmental impact through digital learning. On that note, our environmental awareness training course helps train employees on a range of environmental issues and explains how to reduce your company's carbon footprint. We are also a strong proponent of recycling and reducing our consumption as a business. 

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Social purpose

The social aspect of ESG hones in on the way a company treats people. This includes the relationships an organisation fosters and maintains with its workforces, the societies in which they operate, as well as the current political atmosphere. This encompasses diversity, equity and inclusion, health and safety, labour management, data privacy, and community relations.

A company's social purpose speaks to the needs of people. These needs are met by a company's products or services. How is your company adding value to the world?

How we focus on social purpose

Skillcast is in constant pursuit of change in the world and believes in Gandhi's principle of striving to be that change. We have partnered with Transparency International (UK) to fight against bribery and corruption by developing free anti-bribery training resources. This includes a refreshed version of the acclaimed 'Doing Business Without Bribery' e-learning course, which has become the gold standard anti-bribery training.

At Skillcast, we treat all employees, customers and suppliers with dignity, respect and fairness. Social integrity starts with a company's internal standards and policies. It's important for company management to be aware of unconscious bias and to encourage equity and diversity in the workplace. We became a Living Wage Employer in 2019 and promote equality, diversity, data privacy and health and safety in the workplace through our digital learning technology and free online resources.

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Governance

Simply put, this element of ESG is the way a business is governed. This definition covers a business's key decisions about future direction and growth, how it is structured, manages its risks, and responds to business opportunities.

This component of ESG looks at whether a company is compliant, has a good relationship with regulators and avoids compliance fines. Corporate governance is one of the key considerations investors take into account, and it will ultimately determine a company's future value.

How we focus on governance

Corporate governance is at the heart of what we do. We help companies engage with their employees to transform their workplace cultures with our e-learning, RegTech tools and compliance management system.

Our core mission is to facilitate more ethical and inclusive workplaces through robust staff training and compliance processes. Skillcast aims to achieve compliance transformation, and we believe that there should be no barrier to regulatory compliance. Our free training aids include best practice guides, desk-aids, ebooks and training presentations to start your compliance training and improve your ESG credentials.

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ESG reporting: Total transparency

As ESG increases in importance, ESG reporting and the disclosure of ESG scores become vital for businesses. Regular reporting is a credible way to show that your company is committed to ESG. An ESG report enables the company to be more transparent about the risks and opportunities it faces. It is a communication tool that plays an important role in convincing sceptical observers that the company's actions are sincere.

An ESG score can consider everything covered by the three components of ESG, from equality and inclusion to GDPR and AML compliance. The ESG score is a number in the range of 0-100, with anything below 50 considered a poor score. These ESG scores are used by investors when considering potential investments. A low ESG score is considered high risk for investors. A pre-pandemic study found that:

  • 63% of respondents increased investments in companies with high ESG scores
  • 44% of respondents were willing to pay a premium for this type of investment

Expectations of regulators & other stakeholders

Whilst no specific regulatory requirements apply to ESG as a whole, the expectations of regulators and non-regulatory bodies are increasing.

These are being developed against a backdrop of global initiatives, including the UN Paris Agreement. This agreement followed on from the UN Framework Convention on Climate Change.

Such initiatives increase the pressure on businesses to move towards low-carbon or carbon-neutral operations. In turn, there's an increased pressure for financial services businesses to invest in such businesses for the benefit of both shareholders and clients.

ESG in the EU

For firms operating in the EU, the European Commission's Action Plan for Financing Sustainable Growth is moving firms towards firmer requirements on:

  • investors' duties and disclosures
  • benchmarks for lower carbon emissions
  • standards for client advice on sustainability

The Plan is primarily looking for firms to direct cash flows towards sustainable and longer-term investments while managing the financial risks associated with climate change, environmental threats, and social concerns.

In some territories, such as the UK, these requirements are incorporated into regulators' rulebooks. 

As well as regulations, ESG is also driving new standards for disclosures and communications made by firms in reports and accounts.

The EU intends to implement standardised processes for reporting through the Non-Financial Reporting Directive and Sustainable Finance Disclosure Regulation.

The Directive requires bodies considered to be of public interest to publish information showing the ESG impact of their business activities.

Meanwhile, the Regulation requires disclosures on how environmentally sustainable investments are, whether they present risks to ESG considerations and conversely, how investments themselves are affected by ESG.

ESG in the UK

In 2019 in the UK, the Prudential Regulation Authority (PRA) set out its expectations for banks and insurers to manage the financial risks arising from climate change.

The regulator expects a firm's board to understand and assess these risks within the context of business strategy and risk appetite. At the same time, the PRA placed a requirement on firms to give responsibility to a senior manager to identify and manage these risks.

Firms will be required to be more transparent in future and provide additional disclosures in material presented to prospective investors.

Over the next few years, the challenge for firms will be to identify the specific regulatory and legislative requirements that apply to their businesses and couple these with suitably robust risk management arrangements. Together, these will form the foundations of client propositions that will need to consider ESG matters more seriously.

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How to build an ESG process

1. Set policies, controls & procedures

Decide what's important and how you're going to achieve it.

2. Arrange effective compliance oversight

Get the "tone from the top" right, and appoint someone with overall responsibility for compliance/ethics.

This increases accountability and ensures things get done.

3. Conduct due diligence

Conduct adequate due diligence on all business partners, including associates and third parties.

Make sure you're not delegating authority to those who are unfit or unsuitable.

4. Provide information & training

Make sure everyone understands your compliance programme, rules and expectations.

Be careful how you do this too - put your compliance and ethics messages front and centre, rather than a 5-minute add-on at the end of business meetings.

5. Monitor & audit behaviour

Ask yourself - Is it achieving the desired results? How do you know? Is it effective? Are the rules or policies doing as expected? Can anything be improved? If so, how?

Data should be collected to ensure that monitoring is objective.

6. Use enforcement to deal with violations

Make sure that rules are applied consistently and you respond to all breaches effectively.

Publicise cases (while balancing the need for confidentiality) so offenders are clearly seen to face sanctions for violations.

Use information about violations to improve your C&E programme for the future.

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ESG Resources

We have 80+ free compliance training aids, including assessments, best practice guides, checklists, desk aids, eBooks, games, handouts, posters, training presentations and even e-learning modules.

What ISO 14001 is & How it Helps ESG

Gaining an ISO 14001 certification can be a useful tool to add credibility by demonstrating that your product or service meets the environmental protection expectations of your customers. Learn more about ISO 14001 and why it is important.

Understand ISO 14001

ESG Reporting: 6 Ways to Reduce your Environmental Impact

Environmental impact is the pillar of ESG that measures a firm's environmental consciousness. Here are 6 ways to reduce your carbon footprint.

Reduce Environmental Impact

Business Ethics & Integrity Course

Our Business Ethics & Integrity Course is designed to raise employee awareness and understanding. It includes practical examples to respond to real-world ethical dilemmas.

Business Ethics & Integrity E-learning Course

Code of Conduct Course

Our Code of Conduct Course will help your employees learn about your code of conduct then demonstrate its application in a series of practical examples and scenarios.

Code of Conduct E-learning Course

Environmental Awareness Course

This course helps staff understand the key issues, legal obligations and how to reduce your company's environmental impact.

Environmental Awareness E-learning Course

Environmental, Social & Governance (ESG) Course

Our Environmental, Social & Governance Course will help your employees understand how ESG affects your firm and society.

ESG E-learning Course

Equality & Diversity in the Workplace Course

Our Equality & Diversity in the Workplace Course will help your employees understand what steps to take to prevent discrimination and harassment.

Equality & Diversity in the Workplace E-learning Course

How to Support the Social Element of ESG

There's more to ESG than environmental impact. Social purpose greatly affects companies, and compliance teams must support the social element.

Supporting the "S" in ESG

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