ESG regulations are rapidly emerging around the world and getting increasingly more complex and demanding. It can become overwhelming for companies and investors alike to keep up with all the new regulations or performance expectations in sustainability related matters.
It may help to remember why all of these regulatory endeavors exist in the first place, that is, trying to get investment to prompt a more sustainable economy, planet and society.
But many challenges arise when approaching these fast-developing financial efforts for a more sustainable future; from a lack of understanding to concerns surrounding costs and returns, here we analyze some of the most predominant and current worries when adopting ESG criteria.
A lack of understanding
According to a recently published survey on ESG placement in investment portfolios, 56% of the adopters of such a criteria said there is a lack of clarity over ESG terminology. There was also a sentiment of not understanding what ESG means in practice.
There seems to be high rates of alignment with ESG strategies among senior managers, boards or investment teams, but the challenge arises when aligning with the entirety of the organization. It is only in institutions where ESG strategies have been pursued for longer that it is deeply embedded in the culture of the organization.
In this regard, education and communication are key for achieving integration, as it will allow change to come within the organization, instead of waiting for changes in regulations to overwhelm the company. While education is quite obviously a way of gaining more insight and understanding, communication is relevant as much as the benefits of ESG investment are conveyed in an effort to align the strategy with all stakeholders.
The lack of a common standardized reporting metric
Problems grow when the lack of understanding meets the fact that, as for today, there is no common standardized performance or reporting metric that allows for benchmarking.
Cooperation and engagement might be the answer to this problem, helping enhance future regulations, standards and benchmarking tools. Just like in any other area of business, the sharing of knowledge and information can help address these measurement concerns.
Investors’ alignment and engagement with the quest for sustainable finances could accelerate the process of coming up with high quality standards more quickly. Also, there are clear benefits in looking at peers to see what they are doing that you might be missing in order to integrate ESG more.
Specialized management
Once the strategy is adopted we can’t forget to build up an efficient management system in order to bring out the best of the latter in terms of alignment, engagement, costs and returns. In tune with the idea of cooperation explained above, in order to find the best resources to manage ESG strategies and accelerate its adoption, partnerships are a must.
As demands and approaches to ESG vary across and inside different sectors or types of organizations, specialist expertise becomes a key component of a successful implementation and adoption of ESG criteria in a meaningful or relevant way to each institution.
Aspiring for more
Many are seeking for a more sustainable approach to investing, aware that ESG could be the way to address ethical and responsibility concerns while creating long term value. However, the challenges explained above also constrain investors and companies from committing large proportions of their resources to ESG related matters.
But at the end of the day, it all comes down to cooperation and partnership. While most organizations struggle to adapt and develop ESG strategies due to the lack of tools to measure and accurately understand the value of ESG based practices, looking for relevant partners might be the answer to such ambiguity.
Working together, at all levels, towards the common goal of sustainability is the fastest way to achieve not only the appropriate and much needed standards and regulations while inspiring increasingly sophisticated voluntary actions, but also having these actions backed up by precise tools of measurement and quantification that will allow for comparability and progress evaluation, helping to pursue continuous improvement.
Engaging through transparency
In DoGood we believe that it is precisely through partnership that we can enhance the value of our project and help pave the way to a more sustainable future. We want to serve as a benchmark for improvement and building of a strategy by prioritizing transparency and measurable information in order to bring light to the scope of the sustainability performance of an organization.
In this regard, it is essential to our work to promote good corporate governance, meaning that the processes of disclosure and transparency are followed so as to provide regulators and shareholders as well as the general public with precise and accurate information about the financial, operational and other aspects of the company, including a more accurate definition of the ESG performance.
We have developed a corporate government tool that helps establish ESG impact quotas for employees in regards to the sustainability strategy of the company. Through our SaaS technology we are able to activate and track employees’ impact, creating engagement that translates into improved ESG metrics, reputational value and an overall positive impact for the environment and society.
If you want to know more about how we work to create a positive social and environmental impact, click here.
