Starting your ESG journey: where to begin

It might be difficult to start your company's commitment to reporting its environmental, social, and governance (ESG) measures. But remember: This is a marathon, not a race.

Emily Parlapiano, head of ESG initiatives and reporting at Amneal Pharmaceuticals, said: "You do not have to be perfect on Day 1. Your suppliers and stakeholders want to see progress."

On Tuesday, Parlapiano participated in a panel discussion on creating ESG programs at Compliance Week's virtual ESG Summit. Adrian Khouri, global director of ESG at the producer of automotive components Tenneco, joined her in the discussion of the best practices for companies approaching the early stages of ESG reporting and how to get ready for prospective regulatory disclosure obligations.

The speakers provided the following road map for starting your ESG activities if your organization is at this stage—possibly preparing for the climate-related disclosure regulation proposal put out by the Securities and Exchange Commission (SEC) in March.

Below, we go into further detail about the ideal practices for each milestone.

Transparency and yearly reporting:  "Start by identifying all the things your company is doing on ESG and build a baseline,"Khouri advised . "That will give you an indication of how mature your program is today. Most likely you’re doing a lot already."

Khouri claimed that in 2016, Tenneco started receiving pressure from European clients over their ESG ranking. Before embracing the Global Reporting Initiative (GRI) standard in 2019, the company created its first report that was unrelated to any specific framework and expanded on its findings year after year.

The company's initial attempts, according to Khouri, "got people discussing [ESG] and trying to understand what it was we were trying to do and where to go from there."

Parlapiano suggested talking to investors about the ESG topics that are most important to them. She also discussed the advantages of external gap analyses, which Amneal had conducted before publishing its initial report. Establishing early emphasis areas can be aided by understanding the strengths and limitations of your firm.

"You’re going to have a great starting point, but you have to dig past some of those layers before you can get that first report out the door,"  she said. “… Where you are on the journey today shapes how you’re going to get to where you want to go going forward."

Peer benchmarking: Where is your competition in their ESG journeys? Have any of them have any notable public successes or failures that you can learn from?

According to Khouri, "When we did peer benchmarking specifically in automotive, we were surprised how many of our peers were still in the beginning of their journey. We thought for sure many would be advanced, if not in the middle. A lot of them were either not reporting at all or just starting."

Your business may use the results of this exercise to establish reasonable goals for where it wants to go in order to remain competitive.

Materiality assessment: "Understanding the materiality drivers for your industry or industries, depending on how your company is structured, is helpful," said Parlapiano. A materiality map provided by the Sustainability Accounting Standards Board (SASB) offers direction for 77 distinct sectors.

Khouri disclosed before outlining its most important ESG areas, Tenneco hired a third party to carry out a materiality study, key leaders were interviewed, and investor and consumer expectations were examined.

According to him, "Having something at the bottom doesn’t mean it’s not important and you stop doing it, but it helps you focus on the top tier. Those are the items you need to set public goals on."

According to Parlapiano, external materiality evaluations also increase credibility.

Strategy framework: You are now building out your strategy since you are aware of what your competitors are doing and what the company's and its investors find vital.

"What does ESG mean for us?"  Khouri said. "What are we trying to achieve?"

However, Parlapiano added, "there are some fundamental truths about what ESG is and how and who ESG is serving—the stakeholders involved in your business." ESG implies different things to different firms.

Serving shareholders is a natural strategic purpose to develop around, especially for compliance specialists, she claimed.

Setting new goals: During the peer benchmarking phase, you may take note of some of the achievements your rivals are working toward. Your objectives might be influenced by theirs.

"Do you want to be with the group where you’re just managing expectations, or do you want to compete or lead?" Khouri asked. "It doesn’t happen overnight; you have to go through it step-by-step and build your goals for the long term to move the needle on this."

Be reasonable when establishing carbon-neutral or net-zero deadlines, he said. " ," he said.

Implementing and measuring: According to Khouri, this is the most crucial phase since "it’s not in your hands anymore. You have to depend on your cross-functional teams … they will be the ones doing the work and implementing the initiatives."

Departments including operations, human resources, legal, and others all have a role to play. Khouri said that Tenneco put up a dashboard to monitor its quarterly success on its key performance measures.

He said, "We didn’t wait until the annual report to find out how we did."

Improvement and adjustment: ESG reporting is a cycle that can be improved upon and adjusted. By going through these processes each year, a company can make sure that its goals are being adjusted to continue to serve the most crucial aspect of the puzzle.

"This (ESG) is about the people," Khouri remarked. "TThis is not about the processes, procedures, or requirements. It’s about the people—inspiring the people, collaborating cross-functionally, getting that momentum. That will help you move a lot faster."

By fLEXI tEAM