How to create an ESG Strategy in 5 steps That Will Impress Investors? (2024)

There is no doubt that environmental, social and corporate governance (ESG) matters arehigh in the minds of investors, potential and current employees, and customers alike. Each party has a stake in the sustainability of an issuer, whether it is because concentrating on these elements reduces the risks of scandals and sanctions or because they want to work for or buy from a company that is run in a fair and equitable manner. This is why an ESG strategy is important.

French manufacturing firm BIC, famed for its pens and razors, amongst other products, has adopted a strong ESG strategy. The company has undertaken twoshare buyback schemesin recent years. The latest, which runs until 22 December 2022, will donate thedifference between the purchase price and the averagevolume-weighted average priceover the execution period to theAbdul Latif Jameel Poverty Action Lab (J-PAL)to support theBIC Corporation Foundation for Educationand research programs related to education.

This programme not only helps those in need but also aligns with the company’s pledge to provide a sustainable return to shareholders.


Table of Contents

I)Why develop an ESG strategy?

II)How does an ESG strategy help impress investors?

III)Steps to create an ESG strategy

III.I)1. Ensure commitment on all levels

III.II)2. Assess your current state

III.IV)4. Choose an ESG framework

III.V)5. Set key performance indicators and report on your progress

IV)FAQs

IV.I)Do institutional investors care about ESG?

IV.II)What are investors looking for in ESG?

IV.III)What is the difference between ESG and sustainability?

How to create an ESG Strategy in 5 steps That Will Impress Investors? (1)

Why develop an ESG strategy?

There are three main reasons to develop an ESG strategy:

ReasonExplanation
It is the right thing to doThere is a climate crisis that everyone needs to address, including businesses. Many organisations,such as Euronext, are pledging to put in place actions that help limit the rise in global temperatures.

Furthermore, companies should take responsibility for protecting the environments in which they work and the people that they employ while promoting fairness on all levels.

It is in the interests of stakeholdersA recent global study found that nearly80% of shareholderssaid ESG was an important factor in their investment decision-making. In addition, consumers will pay more for products fromethical companies, and three-quarters of employees want their employer to bemore transparentabout sustainability.
ESG reporting will soon be mandatoryThe European Union already has some requirements formandatory ESG reporting, and these will increase in scope in the coming months and years. Legislation such as the Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD) will seek to make non-financial reporting easier to compare between businesses and exposegreenwashing, too.

How does an ESG strategy help impress investors?

An ESG strategy shows your commitment to factors relating to the environment, social issues and corporate governance. Rather than simply claiming to take sustainability seriously and then just continuing as normal, an ESG strategy pinpoints what the issuer will strive to achieve in these areas.

This is of interest to investors, as a robust ESG strategy can benefit them in the following ways:

  • It can improve the company’s performance:Financial advice firm Foster Denovo found that “three-quarters of ESG-screened indicesoutperformed their broad market equivalents.“ According to ESG Book,a model portfolio of ESG-related European stockssaw an annual average return of 1.59% above its unweighted benchmark between January 2017 and April 2022.
  • It can cut costs:By reducing waste on paper, water and carbon, for example, a company can shrink its expenses. Switching to virtual or hybrid eventsreduces venue hire costs, refreshment bills, and travel and accommodation expenses. In addition, a company that prizes diversity and inclusion as part of its ESG efforts will naturally reduce its risk of litigation from employee discrimination cases.
  • It reduces risk:Companies that look after their people and care for the environment are less likely to contravene laws and regulations relating to these areas. This means they are less likely to face sanctions or reputational damage from becoming embroiled in a scandal. In the US,Pacific Gas & Electric was fined $125 million(€124.7 million) for a lapse in its ESG obligations, which caused the Kincade fire in 2019. Four people were injured, and hundreds of buildings were destroyed in the incident after a faulty PG&E powerline caused the blaze.
  • It creates long-term visibility and value:Shareholders can see how their investment is working sustainably while the issuer creates and works towards meaningful non-financial KPIs. This provides tangible evidence of shareholder value, which will increase over the following years as ESG-related issues become ever more important to external forces, such as the media and government.

Steps to create an ESG strategy

1. Ensure commitment on all levels

ESG is a term that might not resonate with all levels of your organisation. This means that you have to talk in specifics and let people know what your ESG aims are. You should explain what they mean in practical terms, how they will affect employees on a day-to-day basis, why the company is pursuing a specific goal, and what it means to achieve it.

Your senior leaders need to back your plan from the start and understand exactly what success will look like and what the positive impact will be. Once they commit toyour ESG vision, it makes it easier to gain buy-in from other levels within the company. Give them a reason to want to achieve those goals by spelling out the benefits.

ESG is, by its very nature, a broad term, and no issuer can cover all areas. So, request input from internal stakeholders about those elements of ESG that they think are more pertinent to your organisation. Having had their say in the development of your strategy, they are more likely to commit to turning it into a reality.

2. Assess your current state

Once you have decided on the areas of ESG that are most relevant to your business, industry, and location, you need to understand where the company is placed in relation to these aims.

Even if you do not already have a cohesive ESG strategy in place, you may have separate policies and procedures ongoing in these areas.Take stock of any metrics that you haveto see how successful your current efforts are and track the progress of your programmes.

You should also check the level of engagement all stakeholders have. If there is little adoption or adherence to the policies, consider why this might be. Are the aims solid but the processes flawed? Have you communicated the benefits of the programme effectively?

Consider what you can do as part of your strategy to encourage colleagues to engage more.

How to create an ESG Strategy in 5 steps That Will Impress Investors? (2)

3. Set ESG goals

The next step is to work onsetting out the ESG goals that are important to the business. They should resonate in the industry, relate to the places in which you carry out work, allow you to make the largest impact, and align with your target investors.

Carry out a materiality assessment to help you determine these goals for your business. Perform interviews with both internal and external stakeholders. Compile a list of material topics that could have an operational or financial impact on your business and which your business can manage or influence in some manner.

The goals should relate to your business strategy and need to be specific enough to be meaningful. Following theSMART goalsframework helps you set the right kinds of goals in order to impress investors and show that they will deliver tangible and valuable change.

SMART goals are Specific, Measurable, Achievable, Relevant, and Time-Bound.

Once you have these goals, consider the issues that your company might have in achieving them. It is important to bear this in mind when developing your action plan for moving forward.

4. Choose an ESG framework

One criticism of ESG reporting is that it can be difficult to benchmark ESG performance and compare it accurately against peers. If you want to be able to show potential investors your progress in a way that is meaningful to them, using a standardised ESG framework helps them to understand better how effective your programme is.

The frameworks provide pre-defined systems or structures for your ESG goals that allow for easier comparison across the industry. Here are some of the most popular ESG frameworks:

5. Set key performance indicators and report on your progress

KPIs are essential in ensuring your progress towards your ESG goals and doing so in a timely and effective manner.

Your strategy should involve stages for your journey to complete your goals. Simply aiming for the end result can seem too far away and becomes demoralising. However, building your ESG strategy so that it recognises the steps you take on the route to achieving your goals makes it seem more achievable.

You can allow yourself to celebrate reaching each KPI. It keeps you focused and provides a valuable opportunity to take note of your progress.

This also allows you to report on your progress to internal and external stakeholders. You must make sure that you do so in a clear and easy-to-understand manner. With such an important topic as ESG, investors need to know that you are being transparent about the way you document your procedures and results. Do not try to spin poor performance, but rather, show your strategies for improving it.

How to create an ESG Strategy in 5 steps That Will Impress Investors? (3)

FAQs

Do institutional investors care about ESG?

Institutional investors do care about the sustainability of the companies in which they invest because their clients are passionate about it. TheEuropean Corporate Governance Institutefound that “institutional investor holdings are strongly driven by the ESG quality of companies.”

At the same time, theEuronext ESG Equity Barometerindicates the growth of sustainable assets under management (AuM), showing the trajectory of sustainable investing.Bloomberg Intelligencealso reports that there will be roughly $9 trillion (€9.2 trillion) in fresh ESG AuM available between 2022 and 2025, and total AUM is expected to surpass $50 trillion (€51.5 trillion). As a result, more and more institutional investors will be focusing on ESG investing.

Another example of the importance of ESG to institutional investors is the fact thatsignatories to the Principles for Responsible Investment now managehalfof the public equity assets held by institutional investors globally.

What are investors looking for in ESG?

Investors want clarity and transparency over the ESG reporting of their issuers. Greenwashing, where a company oversells its green credentials to gain an advantage, is a concern for investors who want to know that companies are making a tangible impact.

What is the difference between ESG and sustainability?

Sustainability is an umbrella term for doing right by the environment and social issues. ESG is more specific, setting out certain goals and measuring them to show progress from a financial standpoint.

Issuers need to create a robust sustainability roadmap in order to prepare the ground for a successful ESG strategy.

Conclusion

5 Steps To Creating An ESG Strategy That Will Impress Investors

An ESG strategy must be clear and relevant. It must lead to a real impact on the areas that you target with your goals. You must be able to show how you will achieve those targets as well as providing updates on your progress. The goals should be defined based on a materiality assessment with both internal and external stakeholders, and you need to make a case for their inclusion to those who will carry out the work needed to achieve them.

Most of all, your ESG strategy should speak to your investors and those you would like to invest. If you want help with this, Euronext Corporate Services ESG Advisory team can make sense of your investors’ expectations and craft them into a comprehensive bespoke ESG strategy based on extensive data collection and analytics. You can request a free demo right now to see how it will benefit your business.

References and further reading

  • More on ESG Advisory
  • Why your ESG rating is important
  • Attract the right shareholders
  • Sustainability and governance
  • ESG value

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How to create an ESG Strategy in 5 steps That Will Impress Investors? (2024)

FAQs

How to create an ESG Strategy in 5 steps That Will Impress Investors? ›

ESG considerations can help investors identify companies with strong risk management and long-term growth potential, potentially leading to positive financial returns.

How to formulate an ESG strategy? ›

How to create an ESG strategy: 11 steps to follow
  1. Assess ESG practices. ...
  2. Involve management in the process. ...
  3. Establish specific ESG roles and responsibilities. ...
  4. Perform materiality assessments. ...
  5. Establish the baseline. ...
  6. Conduct an ESG gap analysis. ...
  7. Set ESG goals. ...
  8. Consult stakeholders.
Jan 2, 2024

How ESG attracts investors? ›

ESG considerations can help investors identify companies with strong risk management and long-term growth potential, potentially leading to positive financial returns.

How do I create an ESG? ›

How to Create an ESG Policy
  1. Identify ESG Material Issues. No two administrations are alike; each has to identify its ESG material issues. ...
  2. Set ESG Objectives and Commitments. ...
  3. Policy Development and Implementation. ...
  4. Governance and Responsibility. ...
  5. Continuous Improvement and Review.
Nov 29, 2023

What are the key elements of ESG strategy? ›

Environmental Social Governance Strategy

ESG encompasses three key aspects: environmental, social, and governance. Environmental: The environmental aspect of ESG is centered around reducing businesses' negative environmental impact.

What is the ESG strategy model? ›

An ESG strategy is an integral focus for a company to incorporate environmental, social and governance practices in their business model.

What are the three principal ESG strategies? ›

The three pillars of ESG are:
  • Environmental – this has to do with an organisation's impact on the planet.
  • Social – this has to do with the impact an organisation has on people, including staff and customers and the community.
  • Governance – this has to do with how an organisation is governed. Is it governed transparently?

What is an ESG investment strategy? ›

This type of ethical investing strategy helps people align investment choices with personal values. ESG stands for environment, social and governance. ESG investors aim to buy the shares of companies that have demonstrated a willingness to improve their performance in these three areas.

How to build an ESG roadmap? ›

How can you create a roadmap for ESG transformation?
  1. Assess your current state.
  2. Define your vision and goals.
  3. Design your action plan.
  4. Engage your stakeholders.
  5. Execute your action plan.
  6. Evaluate your performance and impact.
  7. Here's what else to consider.
Nov 17, 2023

What is the ESG strategy and policy? ›

ESG allows the business to target different areas of its organisation and implement more sustainable, ethical practices. Examples of environmental business practices include: reducing energy and using renewable energy sources to become a net zero organisation. developing greener products and services.

What are key ESG measures? ›

In this article, we will provide an overview of some of the most common ESG metrics examples including:
  • Greenhouse gas emissions.
  • Diversity and inclusion percentages.
  • Living wages.
  • Tax paid.

What are the ESG pillars? ›

ESG stands for environmental, social and governance. These are called pillars in ESG frameworks and represent the 3 main topic areas that companies are expected to report in. The goal of ESG is to capture all the non-financial risks and opportunities inherent to a company's day to day activities.

What is the framework of ESG strategy? ›

What is an ESG strategy? ESG strategies provide an important set of guidelines, or framework, that a company puts in place to address environmental, social, and governance (ESG) factors in their operations and decision-making processes.

How do you write a sustainability strategy? ›

7 Steps for Creating a Sustainability Strategy
  1. Step 1 Learn about sustainability. ...
  2. Step 2 Form a Green Team. ...
  3. Step 3 Assess areas that need improvement. ...
  4. Step 4 Write a green mission statement. ...
  5. Step 5 Create an action plan. ...
  6. Step 6 Implementation. ...
  7. Step 7 Review performance.
Jan 30, 2023

How do you structure an ESG team? ›

Steps to build an ESG Team structure in a smaller company
  1. Identify ESG champions and assess current resources. Leverage existing employees with a passion for sustainability. ...
  2. Cross-functional collaboration. Encourage collaboration across departments to share ESG responsibilities. ...
  3. Outsource expertise.
Feb 13, 2024

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