ESG and sustainability strategy
Environmental, Social and Governance (ESG) and sustainability strategies in businesses have changed radically in the last 5 years. With the increase in stakeholder expectations, companies are now finding their strategies are not meeting current requirements and are needing an update.
In the past, sustainability and Corporate Social Responsibility (CSR) strategies were considered an addition, a bolt-on to a business’s commercial strategy. In recent years, there has been a significant acknowledgement by stakeholders, regulators and the financial sector of the direct and indirect financial impact of ESG and sustainability and issues. This has been set out in the recent European Corporate Sustainability Reporting Directive (CSRD) and Task Force on Climate-related Financial Disclosures (TCFD).
Businesses are now looking to ensure their ESG and sustainability strategies are entirely intertwined with their commercial strategies and to maximise commercial opportunities and minimise financial and stakeholder risk. This often means using the old-fashioned approach of focus areas being people, planet, community – a box-ticking exercise – is now too simplistic. Rather companies are now developing strategies which are more sophisticated, tailored and refined to their specific needs, with a focus on the financial opportunities and alignment to the commercial strategy.
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Reporting for a new era
Simply Sustainable has been providing best practice guidance in ESG and sustainability reporting for over 12 years. We predict that 2023 will be the year that robust and credible nonfinancial reporting becomes the expected norm for global business.
In short, this is down to new Environmental, Social and Governance (ESG) and sustainability reporting requirements in the United Kingdom, the European Union and the United States that are set to fundamentally change the nonfinancial reporting landscape.
The Corporate Sustainability Reporting Directive (CSRD) is a new set of EU rules that will require ESG reporting on a level never seen before, capturing a whole host of companies that previously were not subject to mandatory nonfinancial reporting requirements, including public and private non-EU companies that meet certain EU-presence thresholds.
For US issuers, the new EU rules will result in mandatory reporting on a broader set of ESG topics than those required under current and proposed Securities and Exchange Commission (SEC) rules. It is important that the business community does not ignore the approaching tide of regulation on sustainability reporting that could entail significant financial and reputational damage if overlooked.
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At Simply Sustainable, we understand that sustainable growth is the only way to build a prosperous business that has a lasting positive impact on our environment and society.
The past few years have been pivotal for the ESG and sustainability revolution. It continues to be an area of focus for stakeholders at all levels – investors, regulators, businesses and consumers – despite the current backdrop of a turbulent economy and cost of living crisis.
In 2022, we saw a rise in important conversations and the development of global regulation aimed at improving sustainability, particularly across ESG and sustainability reporting and greenwashing.
The key sustainability trends for 2023, across various sectors, will remain focused on the credibility of claims and robust disclosure and reporting.
In addition, there will be greater attention on carbon reduction, a strategic focus on understanding what the transition to a low carbon economy means for business and its stakeholders, as well as moving away from using carbon offsets as a credible means to decarbonise.
Regulators have been exercising greater scrutiny of corporate sustainability efforts, fuelled by concerns that companies and asset managers may be using disclosures and sustainability-related labels on products and services as a marketing tool to appear more proactive on ESG issues than they truly are.
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Since 2010, Simply Sustainable has developed corporate sustainability strategies for some of the biggest brands in the world.
Over the years, we have learned a thing or two about what makes a robust sustainability strategy, and we have created this guide to share our learning with you.
Whether you’re starting with a blank page, refreshing your existing approach, or are just keen to see how your organisation measures up, here you will find what we have come to understand to be the hallmarks of a truly robust sustainability strategy.
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The Problem with Plastic
Our oceans cover most of the Earth’s surface and are vital to sustaining life. In the last decade, human activities on land and at sea have placed enormous pressure on our water systems, damaging delicate ecosystems and reducing the availability of resources that many communities rely on. Recent studies have shown that more than 800 marine and coastal species are affected by plastic through ingestion, entanglement and other means. Alarmingly, new evidence has emerged about microplastics detected in human blood strengthening the need for urgent action to amplify efforts and build momentum for a common solution.
As more consumers demand effective responses, businesses face increased reputational risk from the challenges of plastic. So, how can companies respond to increasing pressure from a wide number of stakeholders to manage regulatory, reputational and operational risk?
Current Regulatory Landscape
Disturbingly, like carbon emissions, plastic pollution is global. This makes it challenging for countries to address and implement effective policies that cover the full plastic value chain, gain sufficient support and use standard reporting methodologies that drive large-scale change. These factors heighten operational complexity, non-compliance and reputational risks.
Plastic pollution, therefore, requires a global response involving the support of governments, businesses, and individuals. Instruments in the current international landscape are limited to the broader context of marine pollution and fall short of provisions related to plastic. Making it essential for a dedicated global framework that builds upon existing national, regional and international instruments whilst addressing the significant gaps that result in marine degradation.
Future Regulatory Landscape: UN Resolution to End Plastic Pollution
In January 2022, over 70 large business, including giants Nestle and Coca Cola, called for a legally binding UN treaty that supports the circular economy. Their call for action was influenced by the need to harmonise regulatory mechanisms and to address the mounting pressure from stakeholders.
The historic passing of UN Environment Assembly resolution in March means such a crucial framework will be negotiated by the end of 2024. The plastic treaty has the potential to be the most important multilateral agreement and to maximise the impact, all nations must confirm, adopt and ratify the treaty.
So, how will this treaty propel the business landscape? By addressing the full lifecycle of plastics from production, design and waste management, the treaty will set national action plans to meet voluntary targets.
- Recognise that plastic pollution includes microplastics
- Reaffirm the 2030 agenda for sustainable development
- Reaffirm the principles of the Rio Declaration on environment and development
- Strengthen coordination between stakeholders
- Promote the sustainable design of products and materials
- Reaffirm the importance and role of businesses.
How will businesses benefit from a plastic treaty?
Upon ratification by nation-states and ambitious plans implemented, your business may be subject to:
- New reporting requirements
- New monitoring standards and metrics
- Setting plastic reduction targets
- Conducting lifecycle assessments
The requirements may reduce some of the regulatory, reputational, and operational risks. Businesses can plan their investments effectively, manage their compliance and avoid damage to business reputation. Furthermore, the framework will simplify the reporting and monitoring process, leading to greater transparency and bolstering coordination across the plastic value chain along with improving the prospects for meeting ambitious corporate commitments.
At Simply Sustainable, we believe that businesses should embrace sustainability and are here to help your business understand how your brand, products and services have an impact on the environment across their entire life cycle.
 United Nations Sustainable Development. UN report finds marine debris is harming more than 800 species, costing countries millions.
2 Leslie, H., van Velzen, M., Brandsma, S., Vethaak, A., Garcia-Vallejo, J. and Lamoree, M., 2022. Discovery and quantification of plastic particle pollution in human blood. Environment International, 163, p.107199.
3 Edie. 2022. Coca-Cola and PepsiCo among big businesses urging UN to create new treaty on plastic pollution
4 UN Environment. Historic day in the campaign to beat plastic pollution: Nations commit to develop a legally binding agreement.
The imperative for action on carbon is growing – the political and economic climate reflects this
The term ‘net-zero’ has saturated the business landscape prior to and post COP26; however, many businesses we encounter don’t fully understand what it means to be net-zero and the steps they need to take to decarbonise. Some organisations are deterred from attempting to explore the steps required because it is considered expensive and unattainable. Others perceive the net zero sustainability solution to be easily solved via carbon offsets, through means such as decarbonisation agriculture.
This document consolidates our knowledge in this area to make it simple for businesses to understand how they can achieve net-zero and how we can help navigate some tricky areas.
The imperative for action on carbon is growing – the political and economic climate reflects this
The term ‘net-zero’ has saturated the business landscape since COP26; however, many businesses we encounter don’t fully understand what it means to be net-zero and the steps they need to take to decarbonise. Some organisations are deterred from attempting to explore the steps required because it is considered expensive and unattainable. Others perceive the issue to be easily solved via carbon offsets.
This document consolidates our knowledge in this area in order to make it simple for businesses to understand how they can achieve net-zero and how we can help navigate some tricky areas.
To download our updated in-depth analysis, please complete the form below:
This insight report is the result of a round table discussion attended by 22 of the country’s most respected sustainability and communications decision makers.
We have broken down the top 5 most commonly shared communication challenges, and shared best practice response. We have also evaluated how the brain responds to storytelling, with a focus on human-centric stories at the heart of a successful sustainability communications strategy.
This report outlines the business case for sustainability and summarises the four main benefits of sustainability to business.
Under each of the four main benefits we have detailed the latest available evidence to answer the question, ‘what value does sustainability bring to my business’.
There are much stronger calls from employees and the public for companies to demonstrate their social license to operate – how they’re supporting employees, customers and communities particularly when the business is facing challenges.
Our recent research into the implications of the pandemic on sustainable business and ESG uncovered four strong themes (see here for summarised findings). Each has important implications and insights for our sector. In this article, we look at another one of these in more detail – the supercharging of social sustainability.
The companies we spoke to were clear; this crisis has seriously tested the social side of their strategies, placing various interconnected social issues firmly in the spotlight – from employee welfare and the treatment of vulnerable customers through to supply chain sustainability and providing essential support to frontline workers and the most vulnerable in our society. Perhaps even greater tests are still to come when the impact of Covid-19 on jobs and incomes becomes clear.
And here’s the thing, the companies which understand the needs and expectations of their employees, customers, suppliers and communities have been better able to respond and adapt to this situation. They’ve found it easier to make decisions that protect jobs and income, transition to new ways of working, and employ existing structures, technology and resources to support employees from afar. They’ve taken proactive steps to protect their SME suppliers and customers who are isolated or in financial difficulty, and they are collaborating effectively with existing partners to understand local priorities and deploy resources and volunteers effectively.
As a result, these companies have been better able to weather these storms and are proving more resilient to the immense disruption almost every business has faced. At the same time, the crisis has highlighted the role of business in society and expectations are heightened as a result. There is increased scrutiny for how a company treats its stakeholders and serves local communities and society more broadly. For investors, it has highlighted why the ‘S’ in ESG really matters. A recent poll of UK Independent Financial Advisors found that over three-quarters believe investors will divest from companies that have failed to support their employees through the crisis and in a separate survey, almost nine in 10 wealth managers believe that the pandemic will result in increased investor interest in ESG investing.
This has significant longer-term implications for the social aspects of sustainability. Here we explore three key considerations.
1. Building a more stakeholder-centred approach to business
Stakeholders will expect more from businesses as a result of this. There has been so much emphasis on fair and responsible and the behaviour of some companies seems to have really jarred with people.
As we’ve seen, Covid-19 has highlighted the value of strong stakeholder relationships in overcoming challenges. Reputation and trust have been won and lost on how companies have treated employees, customers, suppliers and local communities, showing the importance of putting stakeholder needs at the heart of good business. And this will be as important, if not more so, as restrictions are eased, government support is withdrawn and businesses strive to recover quickly.
The impacts of the pandemic on stakeholder relationships also shouldn’t be underestimated and it is highly likely that many expectations of a business will have permanently changed. Lots of employees will have got used to more flexibility, greater autonomy and a better work-life balance. Others will have been away from the business for an extended period and will be anxious about their return, safety or job and income security. Customer circumstances will have changed, increasing the risk of certain vulnerabilities, the ability to pay for or access services. Their expectations about how services should be delivered may have changed. Key suppliers may be facing a cashflow crisis and risk going out of business. Community partners may be facing similar and will be grappling with increased demand for and how to deliver their services. The public has new-found awareness of how business can support those on the front line and the most vulnerable in our society, and stronger opinions on how it can act more meaningfully on the big social issues of our day. Investors will push for better governance and more action from those they invest in on issues like mental health, gender and race equality and sustainable supply chain, that impact long-term financial value.
In response, companies will need to develop and demonstrate a more stakeholder-centred approach to business to ensure long-term success. Proactive engagement strategies, designed to reach a broader range of stakeholders, will be needed to fully understand and respond to these new dynamics and evolving expectations.
2. Developing a relevant and integrated social strategy
The ‘opportunity for all’ part of our strategy, which includes our employment charter, is even more important and we want to use this situation to drive things forward.
This crisis, along with the rise of the Black Lives Matter movement, has again highlighted the inequalities and divisions in our society. Individuals and groups of individuals who – because of their race, gender, age, socio-economic status, a certain vulnerability or any other marker of difference – are not treated equally. They might be unable to access the same opportunities as others and subject to prejudice and discrimination. They are also more likely to be disproportionately affected by the kind of crisis we are experiencing now. For example, the ONS has found that black people in the UK are 1.9 times as likely to die as white people from Coronavirus, with social factors such as deprivation and occupation thought to play a big part in this disparity. There was also a stark reminder recently of the lack of progress in UK workplaces on equality issues, with new research from Business in the Community finding that Black employees hold just 1.5% of senior roles, an increase of just 0.1 percentage points since 2014.
The result is a growing expectation on businesses to lead on change. A US poll in June by Edelman for example found that 60% of Americans would now boycott or purchase from a brand based on its stance on racism.
Against this backdrop, it is becoming even clearer that many social aspects of sustainability strategies and commitments have not evolved sufficiently or kept pace with the issues we face in society. This includes racism, discrimination, poverty, inequality, mental health, obesity and social mobility. It is particularly stark when compared to environmental equivalents which have begun to advance in the face of looming threats such as climate change, biodiversity loss and resource depletion.
Added to this, in our experience, it is also common for companies to view and manage environmental and social considerations as separate entities when they must be seen as one: ensuring for example that the transition to a low carbon economy does not leave anyone behind or compound existing inequalities.
Faced with this reality, companies must now question whether:
- their social strategies are focused in the right areas. Are they centred around great jobs, opportunities for all, healthy, happy & fulfilled people, truly inclusive workplaces and diverse workforces at all levels?
- their commitments and goals are suitably ambitious. Will they drive urgent action that results in meaningful change?
- social and environmental considerations are full aligned and managed holistically. How will the pursuit of one affect or support the other?
3. Accelerating action on inequality in the world of work
We’re working across the sector and with our partners to understand the impact of the pandemic on social mobility and how we might need to evolve our approach to help mitigate this.
What is more, we seem to have finally reached a point where calls for social equality – where each and every person is treated fairly and given equal chance without discrimination – can no longer be ignored. Business has a vital role to play in the pursuit of social equality which starts in the workplace. People increasingly want to see tangible evidence of the actions a business is taking and the practical difference this is making in tackling issues of inequality and racism. Even before the pandemic and the rise of the Black Lives Matter movement, global polling earlier this year showed how growing inequality is eroding trust in institutions and highlighted the growing expectations on business to speak out on key current social and environmental issues.
The first step is making a firm commitment to tackling inequalities that exist. Yet businesses must go beyond statements of intent and solidarity – there must be a shift in mindset to go beyond the bare minimum (keeping employees safe, policies around non-discrimination for example) towards much more proactive and practical measures that make a difference. They must take the time to really understand the issues of inequality and the impact (positive and negative) that their business has on these. It requires consideration of every aspect of the way they operate: from policies, processes and behaviours through to who they spend money with, in order to identify where there may be barriers to individual opportunity and plan how to overcome these.
Workforce data is crucial – understanding who is applying for roles, being interviewed, getting hired, progressing in the business, accessing training and development opportunities and diversity and pay at every level of the organisation. Examining how company indicators compare with local and national indicators can be a good place to begin identifying imbalances, exploring the reasons why and setting goals and plans to overcome these.
Companies also now have an ideal opportunity to rethink the kind of workplace they want and need for the future. The future of work has long been a key business concern – with demography, technology, climate change and shifting values all resulting in an increasingly complex landscape for businesses to navigate. With many of these trends having significantly evolved and accelerated due to recent events, companies are resetting and reviewing their workplace plans and projects. Putting social equality goals at the centre of how they respond and adapt will be crucial for society, the economy and for businesses that want to build and maintain the trust of those they rely on.
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