The number-one problem with ESG programmes is bottom-up thinking

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The number-one problem with ESG programmes is bottom-up thinking

At Speeki, we spend a lot of time helping companies manage elements of their ESG programmes. And almost every company has the same predicament: should the programme be top-down or bottom-up? Meaning, does it start with high-level principles and work down, or start at the ground level and work up?

At Speeki, we believe that ESG programmes are much better when they are initially developed from the top down and then, later, developed from the bottom up. Meeting in the middle means that you can then widen the space where it really makes an impact.

Starting from the bottom up is always likely to be reactive and reporting focused, without a view for what you are trying to achieve. Bottom-up ESG is short-term thinking, and almost always guaranteed to not add value in the long run. A good example of bottom-up ESG is when ESG leaders are focused entirely on net zero, measuring and reporting carbon numbers, or meeting the reporting requirements of new legislation. Bottom-up ESG focuses on an obvious, often legislation-based objective.

A top-down approach, however, places any specific (bottom-up) activities into an overall programme and perspective. 

Using a healthcare example, a bottom-up approach is like taking a tablet to address a headache rather than looking at the root cause of the headache and treating the problem instead of the symptom. Unfortunately, while it is sometimes necessary to ‘take a tablet’ to relieve immediate pain, too many people never go back and address the root cause.

While it might be necessary to do some bottom-up or short-term ESG to address an urgent need, don’t fall into the trap that this is all you need to do. ESG is about building long-term solutions for the health of your company and how it manages to survive in the ecosystem of its stakeholders (including the planet); it is not about short-term solutions to meet a legislative requirement. Just like our healthcare example, ESG is about building a better, long-living and more sustainable body and lifestyle – not quick fixes to address an immediate need.

Here's where to start with ESG to avoid falling into the short-term immediacy that ruins most businesses looking for quick fixes.

1. Start with the top-down view of ESG and sustainability at 40,000 feet

When looking at ESG, it is important to first take a very broad view of the company's overall ESG. This means looking at the company's business as it applies to each of the ESG pillars: environmental, social and governance. By taking this macro view first, you can get a better understanding of the company's overall commitment to ESG and identify any focus areas. 

In many cases, companies have not clearly defined what ‘ESG’ means to them or even documented which areas they consider as part of ESG. This is because they are preoccupied with quickly gathering information and data on specific ESG aspects to include in a report, which means they overlook crucial steps to tackle the immediate issue at hand. It's important to take a step back and reflect on the company's purpose and what is important to it, and then determine its specific ESG definition. Defining ESG encourages strategic and long-term thinking.

While the definition of ESG might seem obvious, it is far from being clear in the market, so it is important that you do consider what it means to your company. ESG is a long-term initiative, not a short-term reporting fix. If you need help defining ESG, refer to the Speeki ESG model on our website and the associated whitepapers.

Just like how a patient with a persistent headache would engage a medical professional to help them, expert ESG assessments can identify issues that companies simply cannot see themselves. Switching to a legal example, the idiom ‘the lawyer who represents himself has a fool for a client’ equally applies in an ESG context: there are far too many companies that are not engaging outside help to challenge their beliefs and assumptions on the adoption and maturity of their ESG practices.

This 40,000-foot assessment is important to get right, because if you miss this opportunity you can almost guarantee that when you get to the ground you will be in the wrong spot. Companies should reconsider this assessment with trained and resourceful, business-focused external support: their ESG team, so to speak. This team can provide an immense amount of input to supplement the in-house skillset.

2. From 40,000 feet to 30,000 feet, narrow your focus

Once you have a good understanding of the company's overall ESG definition, you can then drill down into specific areas that are of interest to the business and that you deem important. For example, if you are concerned about the company's environmental impact, you can look at areas like climate change, pollution, energy usage and waste management. Similarly, if you are concerned about the company's social impact, you can look at your human rights practices, labour practices and community engagement. At this level, you are starting to assess which of the main areas of ESG you might need to think about in more detail, which might already be well covered and which might be more of a priority. This is when you could conduct an importance or materiality assessment to prioritise some focus areas.

Unfortunately, many companies only conduct materiality assessments because they are expected to do so for reporting requirements. As a result, the materiality becomes a reporting materiality, not a programme or focus materiality. This is one of the major gaps in ESG programmes. Again, that short-term ‘bottom-up’ approach crept in too early. Our recommendation is always to do an importance and materiality assessment because this will help you look at ‘importance’, which is more of a 40,000-foot level consideration, and ‘materiality’ in terms of reporting, which is much lower.

At this stage you will start to refine the areas that you are going to focus on around ESG. You will conduct importance and materiality assessments and start to consider in more detail the specific areas that you have prioritised according to the results of those assessments. This is the time that you need to engage many people across the organisation to determine how you are going to tackle the next level. This is also when you will need to document some of the material that you find.

3. 30,000 feet to 500 feet is all about programme development and documentation

As you progress and start to get a little lower, you will also find that the funnel gets wider. The third level is all about building out the programmes that you have identified as important or material. This is the biggest area and covers the most air. Building ESG programmes across all areas that fit your business requires a substantial amount of work.

The biggest mistake that people do here is focus on discrete actions that are not structured as part of a programme. A programme is a framework that can be used to build out the system that is being implemented to address a particular task. If you take the example of anti-bribery – a common element of a governance programme – you need to build a programme that is integrated into the fabric of the business, not just implement a policy around gifts. There is more to programmes than just policy and training.

The programme should be structured according to a recognised framework. You get to choose which framework you use, and the framework you choose may vary across the different areas you are focusing on. There are, however, common frameworks that can be used across each of the areas that you have identified as important or material, such as the Speeki Engage™ framework or ISO management systems. Following a framework will help you develop, execute and manage the area that you are building, and ensure that you spend enough time at the third level rather than too quickly dropping to a lower level to focus on reporting or other specific actions.

4. From 500 feet down to 6 feet, its all about monitoring, measuring and reporting

For the penultimate phase of the ESG funnel, you are focused on monitoring, measuring and reporting. This is a relatively short section of air – most of the work has been done in the higher levels, so this area is really about reviewing the data that has been accumulated in those levels and using it to report to your stakeholders or address external filings.

This is where most people would start to build bottom-up programmes, using reporting requirements as their foundation. This would have the effect of putting ‘form over substance’, where the focus is on reporting data rather than the development and improvement of the programmes that produce the data. The danger of this quick-fix approach is that it is very unlikely to have longer-term staying power. It is rare for a bottom-up or form-over-substance approach to make any headway in improving overall ESG performance.

Monitoring and measuring should be integrated into the previous level and therefore require only a few adjustments here. Similarly, the reporting requirements should have been identified in the previous step, and this step is mostly mechanical or operational, where you press the buttons in your platform to produce the required information. This stage should be very quick and easy, however it is an important step because this is when you will be connecting to reporting agencies, regulators and filing your reports with various authorities.

This stage may also require some assurance such as audits and/or certifications. It is a growing requirement of many regulators for ESG reporting submissions to be assured (much like a financial statement from an independent body).

5. The remaining space is for feedback and improvement

While it is also covered in the main element of programme building, there is also a need to focus on seeking feedback on and improving your ESG programmes. This might involve input from experts as part of an assessment, or perhaps gaining a certification for all or part of your programmes. This is an important piece of the funnel because you are really in the phase of making sure that the system that you built works and adds value to the business.

Whenever you are building an ESG programme, it is important that you build from the top down, not from the bottom up. A top-down approach will ensure that you focus on the right things, you develop a set of important (and material) elements to focus on, and your programme adds value to the business. While there is often a rush for short-term bottom-up approaches with ESG, caution should be exercised to ensure that the high-level top-down approach is taken to ensure the long-term success of your programme.

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