The last decade has brought about new challenges for businesses, with emerging technologies and new operational applications introducing novel risks to both the environment and stakeholders. To address these issues, sustainable activities and Environmental, Social, and Governance (ESG) strategies have become increasingly important.
ESG criteria (and their corresponding metrics) allow companies to quantify their sustainability efforts and align them with the UN’s sustainable development goals for 2030. As such, various new standards, regulations and frameworks have been developed to facilitate ESG disclosure and reporting, such as IFRS, EFRAG, GRI, and CDP.
Companies that adopt an ESG strategy recognize the importance of environmental, health, and safety (EHS) functions and how they can be combined with financial and compliance departments to provide the best ESG disclosure and improve the metrics in their ESG reports. With a well-defined EHS program, companies can achieve their ESG goals and improve their overall sustainability performance.
To better understand why that is, we'll take a brief look at ESG, what it measures, and how it relates to workplace safety.
ESG: A General Overview
ESG is a comprehensive strategy for identifying and mitigating risks while turning them into opportunities for sustainable operations. Although ESG is often associated with environmental considerations, it encompasses far more than this. It also considers the welfare of stakeholders and the impact of a company’s operations on its surrounding community, employees, suppliers, and customers.
Breaking down the acronym is a helpful way of understanding the scope of ESG:
- The “E” in ESG refers to its environmental criteria and corresponding metrics. These criteria relate to a company’s operations and their impact on the environment (e.g. greenhouse gas emissions, water management, pollution, waste management).
- The “S” in ESG stands for its social criteria, which focus on stakeholder relationships and the human factor within and outside the company (e.g. customer satisfaction, employee health and safety, hazard management, diversity, human rights, supply chain management).
- The “G” in ESG refers to corporate governance, which covers a company’s mission, vision, risk appetite, culture, policies, and transparency to investors. Governance issues include gender equity on corporate boards, fighting bribery and corruption, internal control, and employee and executive compensation.
ESG Disclosure Scoring
Companies that adopt an ESG strategy must issue an ESG report (or sustainability report) at the end of a cycle. These reports disclose all date related to ESG, making its related operations transparent to the community and stakeholders. These reports provide valuable insights into the company’s risk management and growth opportunities, allow investors to evaluate the company's performance, and could impact government funding and penalties.
To report their ESG results accurately, companies should follow standardized reporting frameworks such as EFRAG, IFRS or GRI. This ensures that the date is normalized and can be compared across industries. Deviating from these standard frameworks can also be deceptive and perceived as an attempt to "greenwash" the company's actual ESG performance.
Why EHS Matters for ESG
The EHS department plays a vital role in a successful ESG strategy. EHS functions contribute to each of the three pillars of ESG, such as monitoring and controlling environmental emissions (carbon footprint, greenhouses gases), managing incidents and near misses, and risk management.
EHS professionals are responsible for ensuring compliance with standards and regulations. Their expertise in reporting and compliance is essential for quantifying, tracking, improving, and accurately reporting ESG metrics. Various aspects of an ESG report, such as incident reporting and environmental emissions, fall squarely under the responsibility of the EHS department.
Successful ESG implementation requires a mature and effective EHS management system, as poor EHS management can impede achieving ESG goals and objectives. To avoid becoming overwhelmed by the number of ESG criteria, managers should collaborate with both EHS and ESG departments to determine which metrics are most critical for their company.
(Learn more in Near Misses: What They Are and Why You Should Report Them)
Taking the Right Turn
Opting to implement an ESG strategy is a laudable decision that demonstrates your company’s commitment to the welfare of its community and the environment. While this might involve setting up a separate ESG department, the EHS department is often tasked with gathering the data required for ESG reporting, which can be particularly demanding if it is obtained and tracked manually via paperwork or conventional desktop tools.
To surmount this challenge, it is crucial to invest in digital tools that can consolidate the data on a single platform. This will allow you to effortlessly monitor EHS activities and performance, simplifying the process of taking corrective measures if required. Moreover, real-time data can be seamlessly integrated into your ESG reporting framework.
In order to develop a strong ESG strategy, it is essential for a company to effectively manage its EHS functions, since poor management can lead to low ESG scores. EHS management on its own is not sufficient for achieving ESG goals, but it is essential for ensuring accurate reporting and meeting various ESG targets.