Use the Standards Published by the Sustainability Accounting Standards Board to Get Started
Business strategy. You spend hours examining it, refining it, and updating it, then measuring progress against your strategic goals. Environmental, social, and governance, or ESG, issues play an important role in achieving your overall strategy for financial success. Do you have a stand-alone ESG strategy? Is ESG a part of who you are as a company?
Which ESG Goals Are Important to Your Financial Success?
Developing an ESG strategy starts with knowing which environmental, social and governance goals are critical to your business strategy and success.
The Sustainability Accounting Standards Board’s (SASB) Materiality Finder is a trusted resource for companies to determine which ESG topics are important to their businesses. Public companies can use the Materiality Finder to search their company name, and “find financially material sustainability topics”. While there is no name locator for private companies, they can use SASB’s materials to identify their sector and industry. This can help determine the disclosure topics that are relevant to them.
Which ESG Strategy Topics are Important to You?
After determining your company’s sector and industry, you can refer to the topics that SASB has compiled for your specific industry. This will determine which ESG topics you should consider incorporating into your strategy, measuring, and reporting.
Using the SASB approach, if you are in the Electronic Manufacturing Services & Original Design Manufacturing Industry within the Technology and Communications Sector, you can use SASB’s compilation of Sustainability Disclosure Topics & Accounting Topics to learn that water management is an important disclosure topic for which the accounting metrics are:
– Total water withdrawn
– Total water consumed
– The percentage of each in regions with high or extremely high baseline water stress
SASB’s Water Management standard also makes it clear that ESG is a risk management, as well as a disclosure, activity. It does that by including a requirement that the reporting entity analyzes all of its operations for water risks.
Given your industry’s reliance on the availability of water for processing, water consumption is likely already a part of your business strategy. Knowing that water consumption is also important from an ESG perspective may prompt you to add a social or community-oriented focus. A strategic goal would be to decrease the burden that your operations place on water resources in the communities where you operate. You might also consider a more ambitious goal of decreasing overall water stress in those communities without curtailing your operations.
Which ESG Issues are Important to Your Key Stakeholders?
Beyond adopting ESG goals that enhance your financial success, consider who your critical stakeholders are. Consider what ESG issues are important to them.
Keeping with the Electronics Manufacturing Services & Original Design Manufacturing example, this industry requires a stable supply of well-educated design engineers and scientists. In addition, it needs a workforce that will reliably produce the high-tech products that the company designs.
A trained and dependable workforce is critical to the success of this industry. SASB has identified Labor Practices as a material disclosure item for SASB. The SASB accounting metrics associated with this topic are disclosure of work stoppages and idle days as a result.
Beyond the disclosure of these accounting metrics, companies in this sector have an opportunity to report more topics. For example, the history of the company’s relationship with labor organizations and how the company engages with the workforce at all levels. The SASB standard is a starting point for disclosure, but need not be the end of the story.
ESG Strategy – Getting Started
US public companies are already required by the Securities and Exchange Commission to report on some ESG topics, such as Human Capital Management. In March of 2022, the SEC also announced proposed new climate-related reporting rules.
Beyond regulatory compliance, companies have an opportunity to take the lead themselves. They can provide ESG reports that are meaningful to both investors and other stakeholders. CLEAR Strategy can help you get started.