Environmental, Social, and Governance (ESG): Why It’s Important and Where to Start
ESG has become one of the hottest topics at companies across all industries—with many high-end independent talent citing it as one of their clients’ top priorities in BTG’s last Talent Lens survey. So, what is ESG and why is it suddenly so important? ESG stands for environmental, social, and governance, and companies across the globe are increasingly using ESG criteria to ensure they are operating responsibly while also keeping an eye out for risks and opportunities related to sustainability.
Driven by a combination of factors—including employees who are increasingly seeking more purposeful and socially responsible work, customers making brand choices based on sustainability and social issues, investor attitudes, and new government regulations—corporations and business leaders have become acutely focused on their responsibilities and role in society.
As companies increasingly grapple with these issues, highly skilled independent talent are standing by to help. We recently sat down with one such expert from the BTG talent community for timely insights on how business leaders can make progress on critical ESG-related initiatives regarding biodiversity, carbon neutrality, sustainable manufacturing practices, and more. Read on for his insights below.
Meet the Expert
Ted Grozier
Principal & Chief Sustainability Officer at Good.Lab who helps businesses win by strategically addressing ESG and sustainability data
Which sustainability practices are easiest for a company to implement when beginning to monitor and manage social and environmental impact?
A successful approach to ESG management starts with an assessment of “Materiality,” a strategic process that systematically identifies and prioritizes Environmental, Social, and corporate Governance issues as they relate to your business and its stakeholders. Companies will make the best progress when they tackle the most important issues first. In addition, because energy and climate is an important topic for almost every business, and because energy conservation can have very attractive financial returns, efforts in that impact area can often find a smooth path to implementation.
How should companies properly assess their impact on biodiversity? What are the potential business challenges and opportunities in this area?
As part of a Materiality process, businesses can consider what impact they have on biodiversity throughout their full value chain. An early-stage pharmaceutical company, for example, may find that palm oil is necessary to produce its medication. Yet palm oil production is a major contributor to biodiversity loss. The biodiversity impact of a company may occur many steps into the supply chain and may not be obvious at first glance.
While there are methods to monetize so-called “ecosystem services,” the value that businesses get from the environment, they are conceptually complex and difficult to quantify. Business leaders will get more traction within their organization and be more successful if they frame biodiversity in more familiar business terms. If, for example, a company’s main product contains palm oil, what is the associated reputational risk, and how could that negatively impact sales? Against that backdrop, what are the cost implications of ensuring that the palm oil is harvested sustainably? Better yet, can the ingredient be eliminated or substituted?
As companies increasingly pledge to become carbon neutral, how can a company carve out the proper timeline and resources to become carbon neutral?
Carbon neutrality is only one component of an effective, value-creating ESG strategy. Before taking the net-zero leap, companies need to understand their material ESG issues and develop a prioritized approach to mitigating their largest impacts.
How can a business properly monetize the future cost associated with emissions and compare that to the monetary value that relates to emission reduction in the future?
For some emissions such as CO2, where no existing market mechanism exists, companies can perform scenario analyses based on projected carbon prices. Doing so requires the calculation of a baseline and estimation of the CO2 impact of business decisions, however. Even if done at a high, imprecise level, this can help future-proof capital investment and other major decisions.
One industry that’s been a particular focus of yours is consumer goods. How can a consumer goods company choose between different shipping methods (land, air, sea) to increase monetary and ecological benefit?
In general, the emissions associated with shipping increases in the following order: Rail → Sea → Truck → Air. Avoiding unnecessary air freight is an obvious strategy to reduce the impacts of transportation. But beware that shipping is often a very small fraction of a product’s environmental footprint! Consider raw materials, manufacturing, and packaging impacts alongside shipping.
How can a consumer goods company redesign their products in such a way that the products are easier to repair or recycle at end of life?
Design for recycling is a science that begins with an understanding of all the processes associated with the product design, production, use, and disposal. Choosing lower-impact materials, labeling them, and avoiding the use of composite materials are just some of the ways to improve recyclability.
Is longevity or recyclability more important to prioritize during the manufacturing process?
In general, product longevity is much more important than recyclability in product design. A notable exception is products that have high use-phase impacts compared to their manufacturing impacts. LED bulbs are more difficult to recycle than incandescent bulbs, but they use a fraction of the energy—and also happen to last much longer!
What is the benefit of using recycled materials vs virgin materials?
Using recycled content has three primary benefits:
- It diverts waste from landfill, incineration, and “leakage” to the environment
- It reduces primary material demand, particularly for plastics, keeping fossil carbon in the ground
- It has the potential to dramatically reduce the energy demands for materials production
For example, it takes 95% less energy to recycle aluminum than to create it from bauxite; depending on the energy source, this can reduce CO2 emissions by up to 95% as well.
When contracting and manufacturing abroad, what resources help companies find reliable subcontractors who provide living wages and follow environmental standards?
The Responsible Business Alliance, Fair Labor Association, and International Labor Organization are non-governmental organizations dedicated to improving the performance of manufacturing abroad. The U.S. Department of State and the State of California have published several resource guides on transparency and labor standards.
For-profit companies like QIMA are skilled in factory audits, but the Japanese quality mantra Genchi genbutsu—“go and see for yourself”—is a best practice as well.
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