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ESG Strategy Tips for 2024

As business leaders face new challenges such as changes to environmental, social and governance (ESG) regulations, AI risk management, biodiversity loss and more, it may be time to look at your ESG strategy again this year. With ESG strategy tips for your business, we help leaders navigate these areas by suggesting possible solutions. This guide will cover the following:

  • What is an ESG strategy?
  • What are the ESG trends and challenges?
  • ESG strategy tips
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What is an ESG strategy?

When it comes to business, ESG involves responding to what the UN considers to be the three pillars of sustainability: environmental, social and governance. By following ESG regulations, businesses measure the environmental and social impacts that they have, looking for ways to mitigate or improve these impacts.

ESG strategy itself then looks at the roadmap to reaching ESG targets. ESG strategic planning usually involves monitoring, tracking, improving and reporting a company’s social and environmental impact, as well as its governance. This is usually completed using ESG evaluations via a third party. A company’s ESG performance is also monitored by investors, consumers, journalists and potential investors, therefore each business can benefit from implementing a successful strategy.

ESG and sustainability 

Sustainability involves preserving and maintaining the Earth’s environmental and social resources. This may be essential to keeping supply chains stable, which could otherwise be disrupted by changing climates and therefore undermine the availability of certain natural resources such as food or fuels. 

Why is creating an ESG strategy important?

By creating an effective ESG strategy, businesses can demonstrate to both their employees and customers that they are fully aligned with being responsible on matters like human rights and sustainability.

As we found in our guide on how to develop ESG strategy, research shows that 25% of customers are willing to pay more for sustainable products, businesses may also benefit profit-wise from turning to sustainable practices.

Furthermore, we also discovered that ‘planet first’ customers represent a large share of the consumer segments and that strong ESG is becoming an important factor for investors. Overall, we see a strong case for reassessing and improving ESG strategy for your business.

ESG and reaching the UK’s net-zero targets

According to the UK government, ESG sustainability is important for reaching the UK’s net-zero target by 2050, which means that all sectors of the UK’s economy will have to decarbonise by that date. 

They emphasise the importance of challenges to supply chains due to increasingly severe weather conditions as well as both companies and investors updating their policies to manage future risks caused by climate change. For more information on the UK government’s Green Finance Strategy, please visit their website.

What are the ESG trends and challenges?

Regulations surrounding ESG and sustainability constantly evolve in the UK. In order to meet changing requirements, it may be useful for businesses to reconsider certain aspects of their ESG strategy. 

Anti-greenwashing regulations

As part of a sustainability disclosure and labelling regime, the UK has introduced an Anti-Greenwashing Rule, which according to the Financial Conduct Authority, states that business sustainability claims should be ‘fair, clear and not misleading’. This means that any sustainability claims made about a product should ‘stand up to scrutiny’ and not mislead consumers with inaccurate information. For more information about the Anti-Greenwashing Rule, visit the Financial Conduct Authority’s finalised guidance.

AI and ESG regulations

On the social side of ESG, the UK government is also considering the effects of AI on areas such as data privacy and potential job losses. It acknowledges that AI decision-making can be biased, due to flaws in data or due to the biases developers may have themselves. They discovered that workers monitored by AI have higher levels of anxiety. The Trade Union Congress highlighted concerns over accountability and transparency when it comes to AI decision-making.

Currently, there is no dedicated AI legislation in the UK and the government takes a ‘pro-innovation’ approach to the use of AI in business. However, there is existing legislation on how AI can be used, such as regarding data protection, equality, human rights and intellectual property. For more information, please read the UK government’s research on the policy implications of AI.

The growing importance of sustainable supply chains

Consumers are increasingly concerned about the sustainability of business supply chains. It therefore may be important for businesses to reconsider how they protect both people and the environment through their supply chain.

Businesses continue to face supply chain disruption, which may increase due to extreme weather and other climate change-related disruptions. The UK relies on agricultural commodities which may be affected in particular by flooding, droughts and high temperatures.

Biodiversity loss

An increasing concern for businesses is the industry’s impact on biodiversity loss. The UK is one of the most nature-depleted countries in the world and so the government responded to this with the Environment Act 2021. Some measures from the Act are still being introduced, however, including:

ESG strategy tips

In this next section, we will explore some of the ways that businesses can improve their ESG strategy. This may involve changes that aim to meet some of the new regulations and challenges described in the previous section. 

Supply chain sustainability and transparency

With growing customer awareness about supply chain sustainability, it is useful for businesses to become more transparent about where they source their materials from. This could involve collecting data from their suppliers, as well as turning to more sustainable suppliers to work with in the future. By providing transparency on where materials are sourced, businesses can keep consumers happy and informed. This can also potentially help them to be compliant with the anti-greenwashing regulations. 

Additionally, businesses can assess the future sustainability of certain resources in the advent of potential supply chain disruptions caused by climate change. This could be looking into alternate materials or resources to use that may have greater longevity, or would be easier to source or grow in the future.

Monitoring biodiversity

Businesses can improve their ESG strategy by monitoring the impact that they have on local biodiversity. Biodiversity includes ecosystem services such as:

  • Climate
  • Pest control
  • Pollination
  • Access to fresh water
  • Soil quality

Monitoring biodiversity is still in its infancy, but businesses can participate in researching this for themselves in order to stay at the cutting edge of sustainable practices. Some ideas for tackling biodiversity as part of ESG include:

  • Risk management plans: businesses can research biodiversity impact and can develop a risk management framework to mitigate the effects of biodiversity loss. They may wish to create a risk assessment plan for local ecosystems, including different case scenarios and outcomes of a business’s impact on such ecosystems.
  • Researching biodiversity metrics: unlike climate impact, monitoring biodiversity is difficult as it is less tangible as a value. Businesses can use the UK government’s biodiversity net gains value to measure habitat loss as well as what needs to be done to restore biodiversity. They can also use frameworks like the Global Biodiversity Score for assessments.

Creating an effective AI policy

Businesses can develop the social aspect of their ESG strategy by responding to the impacts AI is having on the employment landscape. As we found in our article on how to responsibly use AI-powered HR tools, using AI in low-risk areas like interview transcription, rather than high-risk areas such as assessments and scoring of candidates is best-practice. This is because AI can carry biases, which could potentially lead to missing out on some applicants.

By creating an AI policy, businesses can show their commitment to using AI tools fairly in a way that aims to complement human processes rather than replacing them. Leaders can also outline how the AI tools they use do not lead to biased and discriminatory decision-making processes. You can also express how you plan to monitor and mitigate any potential biases that you find.

As we address in our guide to AI and HR, leaders can plan to set out an AI governance plan which involves documenting an: ‘organisation’s principles with respect to AI and create processes for continually assessing tools, detecting issues and rectifying any problems’. 

With changing regulations, businesses are required to update their ESG strategies. With a growing market segment in the UK being ‘planet first’ plus investors being hungry for a strong ESG approach, there are many positive reasons for making changes. Supply chain disruptions and biodiversity loss are also big concerns which businesses can respond to with cutting-edge research and risk management solutions.

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