5 steps to making data driven ESG goals part of your business strategy
Setting ESG goals is an essential part of defining your ESG strategy. Intentionally choosing the path you want to take on ESG strategy is more likely to lead to improved performance. Even if you know where you are today, charting a course toward a desired state requires careful setting of data driven ESG goals.
The following article lays out a five-step path for your company to start setting its ESG goals.
Step 1 – Understand the value of ESG goal setting
The expectations around ESG for companies across sectors has heightened in recent years with BlackRock leading the charge when the company’s CEO, Larry Fink announced plans to integrate ESG metrics into 100% of the firm’s portfolio. Now, 91% of investors say that non financial performance has played a role in their investment decisions over the past 12 months; 71% of job seekers prefer to work for environmentally sustainable companies; and 54% of consumers are willing to pay a premium for sustainable goods.
No longer can companies be in the public spotlight without a strategy for ESG that rests upon meaningful and achievable ESG goals with a defined a path to achieve those goals.
Step 2 – Assess your ESG baseline before you set your goals
Prioritizing areas of ESG impact is an important early step in every company’s ESG journey and should come before goal setting. You can read more about the importance of prioritizing impact areas in our recent article, Launching your ESG Journey, or check out our SaaS ESG Platform to help your team evaluate which ESG topics to focus on. Our software tools paired with ESG expert guidance helps you to quickly identify which ESG issues should be a priority for your company and more broadly what benchmarks within your industry you will want to focus on.
Materiality and Baseline Assessments are two important and distinct evaluative steps that can help you to better understand any progress made to date and potential areas where you can make the most impact. They’re key to conduct before you start setting your ESG goals. If you’re ready to move ahead with an ESG Assessment or simply want to learn more about the benefits of conducting one, our recent article may be valuable to you on why conducting an ESG baseline assessment is essential for every company.
Data considerations are also important to evaluate early on. What systems do you have in place already and what additional data might you need to start tracking progress toward any goals? You’ll also want to consider if you are able to access required data, think energy usage data from your facilities and fleet, GHG emissions from your manufacturing processes, or visibility into Tier 3 supplier waste. While your ESG strategy should never be built completely around data availability, it is an important consideration for which ESG goals you’ll eventually set and how you’ll gather metrics to track progress towards those goals.
Step 3 – Familiarize yourself with and set SMART ESG goals
Setting the right ESG goals will help your company demonstrate your long-term business vision to your customers, investors, and other relevant stakeholders. Companies need to hold themselves accountable for improved performance over time. Creating Specific, Measurable, Achievable, Relevant and Time (SMART) ESG goals helps establish attainable objectives within a predetermined timeframe. By taking this approach, companies can eliminate generalizations and guesswork while setting goals and targets over clear timeframes, and intentional ways to track progress.
Specific: What exactly are you going to do? What needs to be accomplished? Who is responsible for it? What steps need to be taken to achieve it?
Measurable: How will you know if you are succeeding? This is where a company will incorporate a measurable and trackable benchmark.
Achievable: How will you implement the goal? This is a company’s reality check. A goal should be realistic, something that a team can reasonably achieve.
Relevant: Does the goal connect to your overall objectives? Why are you setting the goal that you are setting?
Timely: When will you achieve the goal by? This is where a company should ensure that their team is on the same page about when the goal will be reached. For a goal to be considered a SMART goal, time-bound parameters should be built in.
Consider ESG goal frameworks that already exist
If you are stuck, you may look outside your own processes or to what other companies in your industry are making commitments to publicly around ESG. For example, you may benefit from learning from the ESG commitments and activities that industry leaders are already taking using the Industry Targets Dataset in our ESG Platform or consider the Sustainable Development Goals set by the UN.
Beware overly of aggressive ESG goals
The big question now is not the level of interest in and adoption of ESG policy, but rather if companies will be able to hit the targets that they have laid out. Relying on SMART ESG goals empowers you to set challenging, yet realistic goals, and to avoid the appearance of greenwashing or simply making goals for the public relations value without the plans to achieve them.
Step 3 – Set up a data tracking system for your ESG goals
To keep iterating and driving towards your goals, you’ll need the right platforms to internally track ESG data and measure progress. Determining the impact of ESG factors on a business can be a big task, involving a lot of data. Many companies and investment managers are making big commitments and setting intermediate goals to benchmark their performance in reaching these goals and this requires careful data tracking.
The aim behind quantitative ESG measures is that it will force organizations to measure their progress and have the supporting data to back up their ambitions. Executive teams are increasingly in need of ESG data systems to managing ESG-related demands. When the stakes are highest, this data is being audited by independent third parties (such as with financial statements) before it can be disclosed, as both customers and investors expect more credibility around ESG.
Step 4 – Measure ESG goals and set timelines by creating KPIs
Your ESG goal is a set target that you are aiming to achieve for a given ESG issue. For example, Walmart has an climate change related ESG goal to achieve an 18% emissions reduction in its own operations by 2025 (over 2015 baseline). For each ESG goal that you have decided is important enough to track, you should have a key performance indicator (KPI), a quantifiable measure of performance. In the above Walmart example, their goal requires multiple KPIs for its measurement: percent change in Scope 1 and 2 annual emissions, percent change in carbon intensity, percent change in carbon intensity as a percent of revenue, percent change in fuel efficiency. By adding quantifiable metrics, Walmart can track progress from their baseline overtime and adjust as needed as they drive towards their ultimate ESG goal. Some businesses will have an ultimate ESG target and interim goals that they want to achieve along the way.
Welcome and solicit feedback on your goals
To ensure that your KPIs align with the long-term success of your company, consider engaging with stakeholders whose perspectives may shed light on key considerations not yet uncovered internally, for example Walmart convenes an annual ESG working group covering every operational department across the company. A sense of ownership and commitment to ESG goals will help establish policies, programs, and a culture around impact. Feedback can help monitor progress around ESG goals and determine how stakeholders are viewing the ESG goals you hope to achieve. Feedback can also help when multiple KPIs are needed to achieve a goal, or when evaluating if the right metrics were chosen for a goal that may be complex or intangible.
Add credibility to your goals
Consider aligning your performance and reporting with third party standards to add credibility to your company. GRI allows for organizations report on their impacts in a consistent and credible manner. Product level certification can back claims around manufacturing, inputs, and outcomes associated with your sales.
Step 5 – Share and announce your ESG goals
Having identified the company’s stakeholders, determined the key ESG issues, and established governance and operational practices, now is the time to be transparent and publicly disclose your ESG goals and where you are at with your progress. Being transparent can increase accountability and credibility, customers can see where you are at on your journey, and other stakeholders will understand what metrics your company is prioritizing.
Sharing how and why the company has chosen specific ESG issues to focus on, the ESG goals your company has set in relation to those issues, the KPIs that you’re using to assess progress on these issues, and what processes are in place to track and measure progress against those goals will help your brand clarify what it wants to be known for and help you organize your team to deliver on those goals.
With achievable and measurable ESG goals forming the basis of your ESG strategy, you can use environmental, social and governance to your advantage while driving toward long-term business resilience.
Disclaimer: Good.Lab does not provide tax, legal, or accounting advice through this website. Our goal is to provide timely, research-informed material prepared by subject-matter experts and is for informational purposes only. All external references are linked directly in the text to trusted third-party sources.
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