Companies around the world are beginning to recognise the importance of having Environmental, Social, and Governance (ESG) policies in place. These policies not only benefit society and the planet but can also lead to financial benefits for companies. From reducing carbon emissions to promoting diversity and inclusion, ESG policies are becoming a key part of any company’s strategy.
What is an ESG policy?
An ESG policy documents how a company is addressing the three pillars of ESG – environmental, social, and governance. This formalised document outlines the company’s ESG commitments, guiding vision on ESG issues, how the business is involved in these issues, and how ESG activities are monitored and reported.
An ESG policy unifies employees to work towards shared goals through consistent business practices. Additionally, an ESG policy communicates a company’s ESG position to external stakeholders, such as investors, suppliers, customers, potential talent, and the public.
Why should a business have an ESG policy?
Like other corporate policies, an ESG policy creates a shared vision of ESG issues within the business context.
Internally, the policy guides ESG efforts, working towards common goals and contributing to the company’s commitments. For example, if a company articulates that it aims to be a digital-first operation to reduce paper use, employees will be encouraged to adopt paperless practises across the organisation. Ultimately, this unity can increase success in achieving ESG goals.
Additionally, an ESG policy can improve risk management. Developing and maintaining the policy encourages businesses to understand the relationship between ESG issues and business activities. This helps to identify issues and manage them proactively.
Externally, an ESG policy communicates the company’s ESG position to stakeholders. This builds trust and transparency, which are increasingly demanded by customers. It may even be a requirement of downstream customers committed to the sustainability of their own value chains. Additionally, an ESG policy can be a competitive advantage, such as with investors looking for sustainability leaders or effective risk mitigators.
Overall, an ESG policy shows stakeholders that a company understands its ESG risks and role in the environment and society.
What should an ESG policy include?
ESG policies can vary depending on a company’s activities and what is important, or material, to them. Nonetheless, there are key sections to include in any ESG policy:
- The organisation’s ESG commitment – for example, acknowledging the business’ role in addressing climate change, creating positive social impact, and upholding ethical business standards.
- The role of employees – How employees uphold the ESG policy at an organisational level (e.g., incorporating ESG targets into strategic planning) and an individual level. Employees contribute by reducing the environmental impact of their teams (e.g., traveling by train instead of flying), building a diverse and inclusive workplace, upholding compliance, and raising issues when necessary.
- The role of the value chain – How the company expects its suppliers and customers to uphold ESG standards, such as workplace safety and ethical procurement.
- Oversight of the policy – Who is responsible for the policy and its implementation. ESG policy and strategy should be overseen by an ESG committee, with direct reporting to senior leadership or the board.
- Monitoring and reporting – How the company ensures the policy is upheld, successes tracked, and issues raised.
What is the difference between an ESG policy and an ESG framework?
ESG policies should not be confused with ESG frameworks. As we saw above, an ESG policy is a company-specific document that describes the company’s approach to ESG issues. An ESG framework guides what topics should be covered in reporting and can be used by all companies. An ESG policy can be informed by a framework – for example, a company can apply the Task Force for Climate-related Financial Disclosures (TCFD) framework to think about climate-related risks to the business.
What are the best practices for ESG policies?
Creating an ESG policy is an important step in ESG strategy because it sets the vision and approach to these issues for the whole company. Some best practices when creating an ESG policy include:
- Start with a materiality assessment to understand the important, relevant ESG issues. Focus the policy on addressing these issues that either pose a significant risk to the business or are a top priority for key stakeholders.
- Develop the policy with different perspectives by involving various stakeholders. This will encourage a diversity of opinion and avoid groupthink.
- Review the policy annually. ESG is rapidly evolving, and policies should be reviewed regularly to stay relevant, effective, and accurate. Additionally, ESG legislation is developing quickly, so regular reviews will also address any regulatory changes.
- Communicate the policy with all employees and refer to it regularly to ensure the organisation is working towards the same goals and standards. Additionally, be transparent in sharing the progress and challenges with ESG goals.
- Consider a third-party audit to ensure the policy is implemented and upheld properly across the organisation.
VinciWorks offers a free policy template for businesses to download and use in order to inform their staff on everything ESG related they should know. This includes information on reporting, disclosures, business practices, policies, procedures, investments, board activities, stakeholder engagement, and investor relations. Click the button below to get started on your ESG journey today with VinciWorks’ free ESG Policy Template.