The ESG Consultant Guide and Roadmap

Table of Contents

01. What is ESG?

Environmental
Social
Governance

02. The Business Case for ESG

New or Expanded Revenue Streams
Lower Operating Costs
Improved Recruiting, Productivity and Tenure
More Investment and Lower Cost of Capital
Brand and Reputation

03. An ESG Consulting 6-Step Roadmap

Define the Team
Set the Right Goals
Select a Framework
Apply Technology for Automation
Measure and Report
Ensure Governance

Frequently Asked Questions (FAQ)

An ESG Consulting Guide: What You Need to Know

Environmental, social and governance is a phrase in vogue.

For some, it sounds like something to adopt for altruistic or reputational reasons.

For others, it sounds like a discretionary expense to avoid.

As a long-time ESG consultant, I can share that both views are shortsighted and incomplete.

So, to give this concept the merit it deserves, this post provides context, business case support and the overarching benefits. It also includes an ESG consulting 6-step roadmap to maximize results.

01. What is ESG?

Let's start with clear context.

Environmental, social and governance (ESG) is a program built on a framework to help stakeholders manage environmental, social, and governance risks and opportunities.

The framework includes policies, procedures and performance measures to limit an organization's negative impact or improve its positive impact on the environment, society, and its own well being.

Standards provide a basis to evaluate a company's impact on the environment, society, and its internal governance.

Below is an expansion of these terms with some practical examples.

Environmental

Environmental includes actions related to climate change, pollution and natural resources.

In a business context, that includes a company's efforts and policies regarding its energy consumption, waste generation and carbon emissions. It reflects how a company's activities affect the natural world.

Some examples of environmental factors include the following:

Energy and water consumption and efficiency
Waste management and output
Greenhouse gas (GHG) emissions
Air and water pollution
Biodiversity loss, including deforestation and natural resource depletion

Social

Social includes a range of topics from human rights to community impact.

A socially responsible company prioritizes the well-being and fair treatment of its employees, suppliers, customers and community members.

Some examples of social factors include the following:

Safe labor practices and working conditions
Support for human rights and labor standards
Workplace health, safety and wellbeing
Fair compensation for staff, including a living wage
Diversity, equity and inclusion programs
Employee experience and engagement
Data protection and privacy policies
Fair treatment of employees and suppliers
Community relations and sponsorships

Governance

Governance is the internal system of procedures, practices and controls that ensure that the company and its executives comply with laws and policies.

It includes the structures, processes and systems that guide a company's operations and decision-making.

It provides oversight for things like board composition, executive compensation, transparent reporting, regulatory compliance, and anti-corruption measures. Strong governance ensures that a company operates with integrity and accountability.

Some examples of governance factors include the following:

Board composition, independence, diversity and rotation
Executive compensation plans, policies and ratios
Ethical business practices and code of conduct
Financial transparency and accounting integrity
Regulatory compliance
Integrity policies, to avoid corruption, bribery and conflicts of interest
Political involvement, contributions and lobbying
Whistleblower programs
Shareholder rights

02. The Business Case for ESG

Sometimes E S G is required. Large companies in many parts of the world are compelled to provide sustainability and/or ESG reporting by government regulatory authorities.

Other times, it's voluntary.

But for either scenario, a business case is a helpful tool that considers both the investment and financial return.

The business case will vary based on the scope of your adoption.

In my experience as an ESG consultant, I find companies adopt one of three progressive models.

Sometimes these levels are used as a roadmap to advance from one to the next.

The costs vary based on the scope of your program but are fairly easily calculated.

The incremental revenue and financial return require more planning.

The financial impact from ESG programs is primarily driven by 4 profit levers. They include increased revenue generation, decreased operational costs, improved labor, and lower cost of capital.

A. New or Expanded Revenue Streams

An ESG consultant often helps clients apply their programs to attract new customers for additional growth.

As consumers and business customers increasingly embrace social causes, they seek products and brands that align with their values. These buyers have exceeded a tipping point.

A study by IBM, titled Why Brands Must Deliver on Omnipresence, Agility, and Sustainability, found the following:

Nearly 6 in 10 buyers surveyed are willing to change their purchase decision to reduce environmental impact.
Nearly 8 in 10 indicate sustainability is important for them. And for those who say it is very or extremely important, over 70% would pay a premium of 35%, on average, to brands that are environmentally responsible.

An additional study from Coresight Research provides corroborating evidence.

Additional revenue streams may include government contracts and companies with defined procurement policies that favor suppliers with environmental and social programs.

B. Lower Operational Costs

Adopting these initiatives yields cost savings.

For example, energy-efficient practices cut utility expenses. Recycling and waste reduction lower disposal costs. Optimizing supply chains boosts operational efficiency and reduces fuel and travel-related expenses.

C. Improved Staff Recruiting, Productivity and Tenure

88% of Millennials say they want to work for a company that reflects their values.

Aligning and promoting the company's values will help attract and retain employees.

Giving staff a sense of purpose will boost employee motivation, engagement and productivity.

Even in less exciting industries, a culture of stewardship can be an attractive proposition to multiple generations.

D. More Investment Opportunities and Lower Cost of Capital

Impact investing continues to accelerate.

Socially conscious investors now use environmental and social criteria to screen potential investments. They are looking for ways to maximize their returns in ethical and humanitarian ways.

Venture capital and private equity firms, with pressure from limited partners like pension funds and real estate portfolios, seek out companies that provide ESG reporting.

They consider these companies safer investments as their brands are bolstered by customer-driven cultural movements. Also, they are less likely to incur PR nightmares or be fined by governments.

Companies with ESG programs can lower their cost of capital by attracting these investors.

E. Brand and Reputation

As an ESG consultant I'm the first to advise the most strategic benefit is to the company's brand and reputation. However, I'm also quick to acknowledge that this benefit is extremely difficult to measure.

Nonetheless, showing a commitment to environmental stewardship, social responsibility, and strong governance taps into the aspirations of a socially conscious public. This in turn elevates the company brand and increases customer loyalty and market share.

One Caution

Inauthentic programs can backfire.

Companies that exaggerate participation, use this as a PR or brand image ploy, or fail to verify results with reporting can attract immense public scrutiny and incur a significant backlash.

Greenwashing is the term for making false or misleading claims about environmental actions. It's also something skeptical consumers are on the lookout for.

The bottom line is this.

An environmental, social and governance program can be a powerful tool for unlocking growth opportunities, lowering costs, and strengthening your brand.

Targeting a mix of above benefits can create a competitive advantage and a positive impact on your company's top line, bottom-line and valuation.

Also, be clear that these programs and company profits are not opposing forces. In fact, when strategically aligned they become synergistic.

03. An ESG Consulting 6-Step Roadmap

Consider this ESG consulting roadmap when it comes time to plan your journey.

A. Define the Team

Identify executive sponsors, stakeholders and team members. You want a cross-functional team of passionate and self-motivated staff who believe in the program. You also want members with different areas of expertise such as HR, finance, investor relations, legal, risk and IT.

Team roles should be clearly defined with a RACI chart. Not all positions will be full-time, but all team member responsibilities should be defined in time-bound and measurable terms.

If you lack expertise, you may want to consider an ESG consultant to jump start the program and fill any needed skills.

Lastly, board level engagement will signal to all that the program is a strategic priority.

B. Set the Right Goals

Define your goals in measurable terms and with anticipated costs, timelines and payback.

When working with clients, our ESG consulting staff normally create goals that align on two fronts.

First, we prioritize the environmental and social goals most important to stakeholders.

Second, we select goals that appeal to target audiences, create company differentiation, and result in competitive advantage.

For companies that include sustainability goals, you may want to consider adoption of scientific-based targets. That 5-step process is illustrated below.

C. Select a Framework

Environmental, social and governance frameworks bring industry standards, recommended guidelines and supporting metrics.

Some of the most commonly used frameworks include the following:

Global Reporting Initiative (GRI)
Carbon Disclosure Project (CDP)
The GHGP Corporate Accounting and Reporting Standard
Climate Disclosure Standards Board (CDSB)
The Sustainability Accounting Standards Board (SASB)
Task Force on Climate-related Financial Disclosures (TCFD)
The International Sustainability Standards Board (ISSB)

Here are some considerations when picking a framework for your company:

Start with each framework's purpose and reporting metrics. This will quickly separate them
Determine if a framework is best suited for specific industries or geographic locations
Ensure the framework accommodates any regulatory compliance requirements
Consider the framework's recognition and credibility with your stakeholder groups
Assess the framework's scope, coverage and complexity
Recognize you may choose to use multiple frameworks

D. Apply Technology for Automation

An application management system such as Salesforce Net Zero Cloud is needed to automate data collection, process automation and information reporting.

These advanced applications also drive business process improvement opportunities and deliver commercial insights to improve your program.

An ESG implementation need not be a daunting task. Starting with an agile MVP or sequencing your deployment in phases can allow you to get up and running in as little as four weeks.

E. Measure and Report

Businesses need to demonstrate how they are making good on their promises.

That's done with reporting that discloses progress and results in the three areas of environmental stewardship, social responsibility, and corporate governance.

The framework you use will determine the performance metrics you need to report.

Reporting is also a legitimate opportunity for brand storytelling. Use reporting to share the company's aspirations, goals and concerns. Share how the company is acting as a good corporate citizen.

It's okay for the company to spotlight its initiatives and successes. However, any shortcomings and remediation plans should also be disclosed.

Transparent reporting will be rewarded by the company's customers and stakeholders.

It will also boost employee morale as staff see how their contributions are making an impact to something they care about.

E S G reports are generally produced annually and made available on the company's website.

F. Ensure Governance

Everybody knows governance is needed to shepherd the program. But not everybody knows what that means. Governance is about 4 things.

Transparency, that clearly shows program status and progress, and whether the program is on track
Inspection, which is a regular cadence to review the most essential measurements, vet progress and ensure understanding
Adaptation, to implement changes when results incur variances from plan, or to steer the program toward an outcome, or implement a course correction, and
Accountability, which ensures the program is aligned with the company's strategy and each person knows and delivers their commitments

There are many good tools and artifacts to support governance. They include things like roles and responsibilities documents, RACI charts, RAID (Risks, Assumptions, Issues, Dependencies) schedules, and steering committee reports.

Good governance avoids confusing activity with progress and separates the urgent from the important. It brings clear eyed rationalization when confronted with competing priorities.

An ESG Consultant Can Help

Implementing an environmental, social and governance program that achieves targeted results within budgeted guidelines can be a complex undertaking.

Fortunately, there are partners that can help.

Johnny Grow is one of those partners. ESG consulting is a core competency.

We help clients jump start their program and accelerate results. We help them achieve environmental, social and governance goals while at the same aligning those goals for business advantage.

Our staff include fractional ESG and Chief Sustainability Officers, carbon accountants, regulatory reporting experts, Net Zero Cloud technology experts, and ESG consulting specialists.

We're here if you need an experienced partner to help plan, design, implement, or support a tailored program that achieves your goals and fits your budget.

Frequently Asked Questions (FAQ)

What's the difference between ESG and sustainability?

Sustainability and E S G programs overlap but each is unique.

Sustainability is normally focused on conserving natural resources and protecting the planet. Its primary goal is to reduce greenhouse gas (GHG) emissions. To this end, companies measure and reduce energy consumption, water consumption and waste generation in an effort to lower their carbon footprints.

Environmental, social and governance programs use specific criteria and metrics to assess a company's performance in those areas.

It's more focused on financial risk and returns. The three dimensions provide corporate governance and an investment framework.

There is also a strong emphasis on managing risk, reputation, operations and capital across these pillars. Companies measure, report and improve the environmental, social, and governance aspects of their business alongside its financial considerations.

Companies with high performance are considered to be more resilient during disruptions. They are considered to have lower risk exposure and create higher returns. Many investors consider this reporting when making investment decisions.

In short, E S G considers how the world impacts the company or an investment in the company, where sustainability considers how the company impacts the world.

What are the ESG reporting frameworks?

There are many operating and reporting frameworks. The below list is not exhaustive but is a good start to assess which framework may be best for your company.

The GHGP Corporate Standard. As an ESG consultant I suggest this one be your starting point. It actually provides three related accounting frameworks for Project, Product and Entity (also known as The Corporate Standard). The Corporate Standard is the most common. It is heavily used in sustainability programs and covers the accounting and reporting of the 7 GHG emissions defined by the Kyoto Protocol (i.e., these emissions make up your GHG emissions inventory). The Standard details generally accepted GHG accounting and reporting principles, as well as how reporting entities should set organizational and operational boundaries, track emissions over time, account for direct and indirect emission reductions, and verify and report GHG emissions, among other things. This standard can be the company basis for other regulatory reporting.
U.N. Guiding Principles Reporting Framework. This United Nations framework provides ethical guidance related to human rights. It's high level but easy to understand and will assist with other frameworks.
SASB Standards. The Sustainability Accounting Standards Board (SASB) framework provides guidance for financial reporting related to an organization's sustainability efforts. It is now part of the IFRS Foundation.
IFRS Sustainability Disclosure Standards. The International Financial Reporting Standards (IFRS) is a framework to create a consolidated view of sustainability programs. It attempts to simplify environmental, social and governance reporting by aligning and consolidating multiple frameworks.
GRI. The Global Reporting Initiative (GRI) is a popular voluntary sustainability reporting framework. It provides reporting standards that can align common disclosures with IFRS standards.
TCFD recommendations. The Task Force on Climate-related Financial Disclosures (TCFD) is an international benchmark for climate risk disclosure. It helps companies understand how climate risk manifests as financial risk. It also provides guidance about governance, strategy, risk management, and metrics to address climate-related financial risks.
CDP. The Carbon Disclosure Project (CDP) is an international non-profit organization that helps companies, cities, states, regions and public authorities disclose their environmental impact. It uses a questionnaire that aligns with the IFRS climate standard.

You may want to consider an ESG consultant to share lessons, answer questions and quickly identify the right framework for your company.

What ESG compliance requirements apply to my business?

Statutory compliance requirements are based primarily on company size and location.

For example, in the United States, there are California Climate Disclosure Laws.

The Climate Corporate Data Accountability Act (CCDAA) (data act or SB 253) requires any company doing business in California with total annual revenues exceeding $1 billion to publicly disclose their scope 1, 2 and 3 greenhouse gas (GHG) emissions annually.

The Greenhouse gases: climate-related financial risk statute (risk act or SB 261) requires covered entities to publicly disclose a climate-related financial risk report. It should include climate-related financial risks that an entity is exposed to, as well as measures taken to mitigate these risks. This report is required biennially and applies to companies, except insurance businesses, doing business in California with annual revenues exceeding $500M.

Other common regulatory requirements include the European Union CSRD (Corporate Sustainability Reporting Directive) and the UK SECR (Streamlined Energy and Carbon Reporting). There are many regulatory authorities, and a company may be subject to multiple authorities. Seek an ESG consulting expert to understand your regulatory obligations.

What is an ESG consultant?

An ESG consultant helps companies manage their environmental, social and governance journey.

This often includes assisting with a strategy that unlocks social, environmental, financial, and reputational benefits.

That strategy should identify and engineer the environmental and social programs that will maximize the company's goals in the least time, cost and risk. It should sequence those programs into a roadmap that drives predictable and measured execution to a defined destination.

An ESG consultant identifies common risks and provides proactive mitigating actions. Many ESG consulting pros also provide repeatable assets such as process designs, industry benchmarks, and analytical tools.

There are several related types of ESG consultants. They include, but are not limited to, carbon accountants to calculate greenhouse gas emissions, reporting experts to ensure regulatory compliance, and technology experts to automate data capture, processing and reporting.