How to Build the Right ESG Framework

Before ESG came into vogue, the term, in the early 2000s, meant any eco-friendly measure used to track carbon emissions, conserve electricity and water, manage waste and plant trees. 

In the initial stages, there were multiple frameworks on how ESG should be measured. 

Organizations that incorporated ESG into the corporate strategy were among the niche bracket that had the resources and the means to efficiently track and report on their sustainability efforts.  

Over the decade, ESG became goal driven, and every organization started tracking it. Well, almost! 

However, products made sustainably were expensive to manufacture and deploy. The maintenance costs and overheads to manage such products were high as well. For example, solar panels, waste disposal systems and recycling systems. The returns on investment were not great. 

However, as technology and competition improved, many organizations started manufacturing sustainable products and the economies to scale improved. 

Being sustainable was no longer as expensive as it used to be. 

This brought in new frameworks and parameters from regulators in different regions. That provided a baseline for organizations to follow, implement and track their sustainability measures. 

Today, embedding ESG into your strategy can led to tax benefits, increased revenue, cost reduction, better market outreach, customer and investor potential, competitive advantage, client retention and goodwill.

Also read: How Procurement Can Drive ESG Goals for the Enterprise

Tracking and Measuring ESG Metrics  

If you are an organization that incorporates ESG framework, you will have the ability to manage and track goals. For example, you can mandate that your vendors also follow ESG norms in any which way they can. 

As an organization, you would have to be transparent on how you track ESG goals, sustainability scores, and other green measures. Here are some of the ways you can do it: 

• Set up targets and try to achieve them
• Publish your ESG numbers and provide insights on how you have achieved them
• Set up a budget for the ESG framework; start small and slowly grow that budget
• Track your historical ESG data, set up a benchmark and analyze how you are measuring ESG targets
• Set up an ESG audit, have the audit team ensure that ESG measures are implemented the right way
• Ensure teams are compliant with ESG norms
• Leverage technology to manage ESG goals. These can include: 
  • Supplier scorecards
  • Supplier forms
  • Strategic sourcing initiatives (RFx)
  • Contractual agreements 
  • Project management activities 
  • Spend management 
  • Category management 
  • Market intelligence 
  • Should cost models 
  • Supplier segmentation 
  • Risk management 
  • Third-party risk management 

ESG Regulations and Compliance by Region  

European Union: The Sustainable Finance Disclosure Regulation has been in force since March 2021. It ensures that there is transparency in markets for sustainable investments in products and services. Failure to comply could result in fines and sanctions. 

Also read: Key Takeaways From France’s Plastic Packaging Ban 

The United States: The U.S. Securities and Exchange Commission (SEC) has mandated that all public companies to disclose ESG related data and findings to investors. The SEC also ensures that Nasdaq mandates all listed companies to incorporate ESG-related data. 

Also read: New SEC Proposal on Climate-Related Disclosures

Asia Pacific: In India, the Securities Exchange Board of India has asked 1,000 listed companies to provide a Business responsibility & Sustainability Report although it is voluntary. 

In China, ESG framework is in its early stages and the regulators have ensured that companies follow the regulations. There are many companies adopting ESG goals and have provided disclosures. However, the measures are voluntary. The regulators are said to be working towards a stronger and standardized framework. 

The Value of ESG Insights  

It is just a matter of time before ESG is followed globally. This will provide us with better insights into how organization are compliant or non-compliant with ESG frameworks. For example, how open are they with respect to diversity? Or what are their governing indicators such as company policies, disclosures and investments?

ESG ratings will help provide deeper understanding of an organization’s future. Are there any risks or concerns? How can they mitigate them? 

Technology also plays a critical role in capturing ESG parameters and establishing analytics. The qualitative and quantitative indicators can be measured by leveraging the right technologies. This is an exciting opportunity for sourcing, procurement and supply chain technology companies since they have the tools and the know how to capture them. Implementing the right technology through automation and AI is key to driving ESG-based frameworks. 

Author: Apurva Malewar

Learn more about how GEP can help you organization achieve its ESG goals.