ESG Investing Conference

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Impact Investing Forum

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London. Nov 18-19. (Virtual)

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Impact Investing Conference

ESG and Compliance – Response and Enhancement | Thomas Fox – JDSupra JD SupraESG and Compliance – Response and Enhancement | Thomas Fox – JDSupra JD SupraESG and Compliance – Response and Enhancement | Thomas Fox – JDSupra JD Supra

Impact Investing Conference

Our five-part series on ESG compliance and compliance is concluded by looking at the last prong of the StoneTurn ESG Framework: Response and Enhancement. Many compliance professionals would view this as similar to continuous improvements, and you wouldn’t be far from the truth. It is even more crucial in ESG due to its dynamic nature. Harvard Business School Professor George Serafeim stated that companies will be under increasing pressure to improve their ESG performance in his Harvard Business Review article entitled Social Impact Efforts that Create Real Value. As a company achieves a set of goals, it will be under increasing pressure to move on to the next set. As we’ve seen in the compliance world, an ESG program does more than just “window dressing”. It can include such activities as “improving ESG disclosures, releasing a sustainability report, or holding a sustainability-focused investor relations event.” Just like compliance, and properly seen, ESG “must look to more-fundamental drivers–particularly strategy–to achieve real results and be rewarded for them.” ESG program enhancements and responses are key to real results. ESG program responses and enhancements are key to real results. “Comparing to compliance, most companies treat ESG efforts as a cell phone case – something added for protection (in this instance, protection of the company’s reputation).” If they want to reap real financial benefits, corporate leaders must replace this mindset with an ambitious and differentiated ESG Strategy. Jennifer Hermes, writing in an article in Environment + Energy Leader entitled Perspectives on Continuous improvement in Corporate Sustainability in 2012, stated that “It starts by a mindset of continual improvement. You can’t manage something you don’t measure. The ability to set clear, achievable benchmarks and strategies to reduce carbon emissions, conserve energy, reduce waste landfills, and other eco-conscious pursuits, motivates employees and stops top-down tinkering. Long-term operational savings can be achieved by organizations that take consistent steps to achieve specific sustainability goals over time. It helps everyone to be aware of the common goals and accelerates a deeper understanding of the entire supply chain’s contribution to environmental sustainability performance. Hermes concluded that “When you grow your business sustainably, there is no finish line.” Every achievement is a learning opportunity to improve your environmental performance. Even if business leaders view compliance as reactive and legally based compliance, compliance professionals know that continuous improvement is the only way to ensure a successful compliance program. The Department of Justice (DOJ) agrees. Rodolfo Oraujo and Kosmas Papadopoulos wrote in their article, The Seven Deadly Sins Of ESG Management. They stated that companies should not adopt a static approach to ESG management. This could lead to a failure to adhere only minimal regulatory requirements. This is because it can be a source for innovation and collaboration between the industry and the government through continuous improvement. Part 3 of this series discussed how effective implementation of an ESG plan requires regular monitoring with KPIs. This systematic approach to ESG from a compliance perspective is one reason compliance is the best corporate function to manage an organization’s ESG efforts. In a Forbes.com article entitled 12 Ways to Drive Better ESG reporting, Jim Deloach added more reasons for continuous monitoring that will help improve your overall ESG program. Focusing on past performance and achievements will limit your ability to see the future and may even hinder your ESG efforts. Deloach suggests that investors should have a balanced view that includes future goals and commitments that are aligned to the strategy. ESG reporting should be aligned with financial reporting to ensure that all stakeholders can concentrate on both financial performance and ESG performance. The alignment of the two may be more important in order to allow investors to make a timely and complete evaluation of the company’s prospects. The “underlying ESG-related activities” drive investments, generate returns and create new revenue streams. They also help to enable strategies. All these authors emphasize that ESG programs must be enhanced and responded to in accordance with the continuous improvement requirement. The 2020 Update to Corporate Compliance Programs stated that “One hallmark of a successful compliance program is its ability to improve and evolve.” Substitute ESG to compliance and the connection is obvious. What should you do when you have all the information from your ESG program? You should have a strategy plan in place to implement your continuous improvement findings. To determine how each goal of the Strategic Plan relates to ESG implementation in your business, you will need to arrange a time to review them. Create an execution plan. Keep it simple sir or KISS is the best way to move forward. This would mean that each ESG goal should have a clear and simple plan to ensure that it is being achieved. Accountabilities should be in place. Accountabilities must be attached to any plan of execution. This means that there must be a reporting requirement about how the task is being accomplished. The next review of your plan should be scheduled. Regular reviews of the process should be done. This allows for any potential problems to be identified and addressed more quickly than if meetings were held on a less frequent basis. I hope you have learned from this series not only how, but also why a Chief Compliance Officer (CCO), or corporate compliance function, is the best person to lead an ESG initiative. The process of creating, implementing, and managing an ESG program is very similar to a compliance program. ESG goals are very similar to those of a compliance function and a CCO. They must be champions of institutional justice in an organization. Compliance is also an integral part of good government. Compliance is free from conflicts of interest because there are multiple levels for oversight, monitoring, and verification. Both internal and external audit are available with an additional set of eyes. You can listen to my podcast, The ESG Report on Compliance Podcast Network. Each Monday I discuss an ESG issue from a compliance perspective. [View source.]

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By ESG Magazine

ESG Magazine is one of leading ESG investments publications for ESG Funds and ESG Companies. It's based in London, UK.

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