Remember the days before the physically distant social life brought on by COVID-19? You might have been fortunate enough to have a foodie friend invite you to a dinner party complete with the experience of new dishes to taste and new people to meet. Whatever the circumstance that brought you to the table, it is the mix of people filling the chairs that can make or break the evening.
Each guest sitting down with their own expectations, inter-guest relationships, and social skills (or lack thereof). Will one person dominate the conversation? Is the group filled with introverts and no one to start the conversation? Will there be a clash between strong personalities and fixed mindsets, or will the diverse life experiences of those at the table create rich dialogue?
In our working lives this same phenomenon plays out in any cross-functional project. And, an effort as broad and far reaching as ESG within an organization certainly benefits from cross-functional perspectives and expertise. When the BELA ESG Working Group began meeting together in March, the first order of business was getting to know how each company was organizing around ESG efforts. In short, answering the question, “Who is at the ESG table”?
A report by SustainAbility titled Closing the Sustainability-Investor Relations Gap looked at the dynamics of the relationship between a company’s Sustainability functions and its Investor Relations (IR) departments and how their fundamental approaches to their practice areas created gaps or misalignments that impacted the ability of a company to clearly communicate to investors about their ESG efforts. What were strengths in terms of each function’s core purpose could become stumbling blocks when applied to ESG at the company level. Key areas of misalignment identified were: Language, Timeframe, Expertise, Relationships, and Resources. The report was written in 2016, but its insights are just as relevant in 2020.
The sorts of gaps described in the report not only apply to the Sustainability and IR functions, but can also be seen across the other players within a company’s cross-functional efforts to develop and implement an ESG strategy, and deliver reporting and disclosures that accurately and effectively tell the story of their ESG performance.
The following roles or teams have been identified by the BELA ESG Working Group as participants in the ESG process. Each role brings benefits and challenges. Not every organization will have the same participants or the responsibilities, of the participants may differ.
ESG Committee or Strategy Group
Their role as a cross-functional group is to develop and execute ESG strategy and the group may or may not include corporate consultants (internal or external). The benefit of this role is a coordinated approach to meet ESG demand. The challenge for this group is to align cross-functional perspectives and keep up with changing ESG demands. They may also be challenged by a lack of a single standard or reporting framework to leverage. Majors areas for development for this group will be creating a common language, approach, and understanding of the business and the foundational principles and concepts around ESG.
Sustainability Lead / Team
Their role is typically to manage the implementation of strategy for environment and social programs. They may also be titled Corporate Social Responsibility (CSR), or something similar. The benefit they bring is their knowledge of and focus on environmental issues, community outreach, etc. They may also have some experience with disclosure reporting and reporting frameworks. A challenge this role may encounter is having less broad lines of sight, oversight, or understanding than the full breadth of topics under the ESG umbrella. They can also be biased to principles-based thinking vs. financial-based thinking. A development focus for this role might be integrating more discipline in their practices and analysis, including providing more context for data. They may want to work with finance and audit to bridge gaps between principles-based goals and metrics and those closer related to financial reporting, controls, and disclosures.
Investor Relations
As the name implies, this role is the primary point of contact with the investor community, including the management of disclosures. They are likely to be a submission point for ESG inquiries and disclosure demands, which gives them a greater understanding of investor expectations. The downside of all of those ESG disclosure demands is the challenge of keeping up with the increasing number and speed of these demands for information. This role historically operates in timeframes and expectations around short-term financial targets, so an improvement point for them would be to develop thinking and reporting to highlight the longer-term horizons of ESG efforts to show value to investors. They can also seize the opportunity to better understand the range of investor types interested in ESG performance.
[Read Emily’s interview with Newmont’s Director of Sustainability Reporting, Carrie Christopher, about how she leverages ESG ratings agencies to create value for the company.]
ERM (Enterprise Risk Management)
Their role is to bring the disciplines of corporate risk assessment methods and infrastructure to ESG efforts. This risk expertise can be very useful in materiality assessment, and identification of financial and non-financial risks. The challenge for them could be too much of a focus on risk and a disregard for opportunities, or a focus on financial risk only without seeing sustainability risks as “material.” They could improve their thinking around smart risk taking and seeking opportunities to improve resiliency and profitability. They can increase their understanding of the connection between ESG and the long-term health of the organization, and become familiar with lesser-known risks of the environmental and social components of ESG.
Compliance / Legal
As subject matter experts or even program owners of key compliance, regulatory, or legal risks across the business, they can provide a holistic understanding of risk. They also have partnerships or relationships with business leaders. A challenge for them may be an inclination to adopt a risk-averse position, leading to a more conservative approach to ESG disclosures. They can increase their value by focusing on the narrative around how the business is mitigating risk. Time would be well spent learning about best practices from other companies regarding ESG disclosures.
[Read Emily’s interview with Western Union’s Chief Ethics Officer Nancy Reynolds and Marvell’s Chief Compliance Officer Roxane Marenberg about how they each see the role of ethics & compliance in ESG affairs.]
Audit
Their expertise really shines as they provide review, controls, and process for reporting. They can recommend process improvements for ESG data collection, management, and analysis. They can assist in aligning ESG reporting with other corporate disclosures. They bring controls, rigor, and discipline regarding data to the table. A challenge for this role may be that ESG is new for them and may seem like the “wild west.” There is little consistency in disclosure requirements for them to look to, unlike with financial or operations standards. Their work will center around learning about ESG-related disclosures, measurements, and frameworks to determine how be bring discipline to an area that is still emerging and shifting.
Finance
Those responsible for financial planning, reporting, and controls play crucial roles in aligning financial and non-financial reporting. They can bring an understanding of how strong ESG performance can improve a company’s access to capital. They will also be looking for disclosure standards, of which there is no one standard for ESG. This hints at one of the challenges they face, which is making the leap from a prescriptive GAAP-type reporting rubric to the principles-based reporting used in ESG (i.e. GRI (Global Reporting Initiative) framework), and understanding financial data in a non-financial context. Spending time to learn about ESG through engagement and exchange with those closer to ESG in the organization will be of great benefit.
Marketing / Communications
With a focus on brand strategy and messaging, they understand the narrative around the business purpose and brand and can help weave that into reporting or highlight ESG efforts via various communication channels. There is a risk that they might push the narrative and messaging beyond the supporting data, disclosures, and current level of business comfort with transparency or public commitments. For this role, attention paid to the balance between risk and brand messaging is advised.
Supply Chain Management / Sourcing
This role can manage the due diligence around vendor selection and monitoring for compliance with company code and policies related to sustainability issues. Their knowledge of suppliers and supplier practices is necessary to extend the reach of ESG strategy beyond the four walls of the organization. A challenge for this role could be a lack of ESG expertise, leading to difficulty implementing meaningful due diligence or monitoring programs, or a lack of resources and data to perform necessary research on suppliers’ ESG activities. As they learn more about ESG standards and the organization’s ESG strategy, they are better equipped to gather the support they will need to ensure the communication of requirements to suppliers and evaluate the sustainability of the existing supply chain.
Environmental Health & Safety / Facilities Management
Depending on the specifics of how this role is defined at any particular organization, their charge could be to address work environment and facilities operations in terms of waste, emissions, health and safety systems and controls. The elements they oversee will have direct impact on employees. They may be missing certain environmental risks or lack the necessary resources or data to report out on certain risks. They may also miss risks in the social aspect of ESG related to employee work environment. They will benefit from a broader understanding of ESG risks, and looking for opportunities as well as risks.
Product Design / Engineering / R&D
Their focus on new product lines and product improvements can lead to the incorporation of ESG strategy into product design and product life cycle management. They may already have efforts underway to increase the sustainability of new products using circularity principles. What they might be missing is line of sight into broader ESG considerations. They may be focusing solely on environmental risks. If they can broaden their understanding of the organization’s full ESG strategy and areas of focus, it could lead to expanded opportunities for products that better support the organization’s progress on ESG goals.
Conclusion
A well-functioning ESG program needs a collaborative approach across an organization. Companies need to be able to show they are positioned for long-term growth and sustainability, and each of the roles described above (and others) have valuable parts to play. Many of the suggestions for ESG-related development for these roles are really about building relationships, sharing knowledge across functions, and developing a common language and understanding around ESG. As ESG and its implications for companies continues to evolve and shift, those who play a role in its application within an organization are walking a path of ongoing education and adjustments.
About the Expert:
Emily Rickaby is the Global Resources Manager for the Business Ethics Leadership Alliance (BELA) at Ethisphere. In her role, she works with Ethisphere’s data and analytics team, members of the BELA community and other compliance and ethics professionals to curate and publish relevant content resources and enhance the BELA member hub experience in support of the BELA member community.
Emily has expertise in content development and instructional design in both the legal and corporate fields. Prior to joining Ethisphere, Emily worked for 8 years at Thomson Reuters in a Senior Content Development role for the West LegalEdcenter product. She also worked as a learning and development consultant for Wells Fargo and GE.
