How To Create An ESG Policy That Protects Your Reputation

Magnus Boyd 9 Nov 2022

Five issues to focus on when setting out your environmental, social and governance (ESG) agenda.

From 6 -18 November 2022, the 27th United Nations’ Climate Change Conference of the Parties (COP27) is taking place in Sharm El Sheikh Egypt – which means once again, climate change is front page news.

With huge promises being made by governments across the world, the focus on our planet – and what’s going wrong – can often feel overwhelming.  Individually, there are steps we can all take to lead a more sustainable life, but ultimately, it’s businesses who are really under pressure to be seen to being green.

Speaking at COP27, Prime Minister Rishi Sunak stated that fighting climate change is both a moral and economic imperative. It’s not, though, simply the conscience boosting credentials or financial incentive that could benefit a business: a company’s reputation could be significantly improved by taking decisions to address climate change, sustainability and social issues.

However, it goes the other way too.  If businesses fail to make moves, or don’t follow through with their commitments, company reputation could be irreparably damaged.

But these reputational risks that exist in the climate space – and in ESG as a whole – can be minimised and prevented.

Here are five issues businesses should consider when drafting a new ESG policy, or extending an existing one, that all have reputation at the fore.

Don’t bite off more than you can chew

The problem: The biggest problem with most ESG policies is the breadth of issues they must encompass. From socioeconomic issues such as social inclusion and the carbon footprint, to sector specific concerns like reusable plastic, the remit of ESG can be broad – and therefore unachievable. Small, actionable and achievable changes are better than aspirations. If there’s likely to be a gap between what you say you’ll do, and what you’ll actually manage, it will be spotted. Journalists can justify their scrutiny into the gap between claim and reality on the grounds of public interest – and the allegation of hypocrisy in relation to ESG claims is more damaging than ever.

The solution: You can’t have a policy on everything – choose the issues that mean the most to your staff and customers, and aim for small, achievable changes.

Establish both commitment and metric at the same time

The problem: Not specifying when you’ll achieve something, and how you’ll even know when you’ve achieved it, is an accident waiting to happen. If a commitment is not accompanied by a timescale and some form of measurement, it will be more vulnerable to challenge. Aligning your commitments or policy to common ESG metrics – such as the UN Sustainable Development Goals, World Economic Forum’s Common Metrics, and the Sustainability Accounting and Standards Board – will mean they are less likely to be questioned. But at the same time, adopting common ESG metrics increases the chance that your performance will be directly compared to others.

The solution: Meet your targets or be prepared to say why. Make your commitments measurable and with a deadline, so that your policy is less vulnerable to questioning. Last year, the then Prime Minister Boris Johnson set a target for all of the UK’s electricity to come from clean sources by 2035: here, we have a clear measurement and timeframe. Such a specific aim, accompanied by a date by which it will be achieved, also helps with accountability internally.

Align your ESG policy with your values

The problem: In recent days, we’ve seen criticism of world leaders who chose to take private jets to COP27; their actions clearly not reflecting their words. When it comes to ESG commitments, inconsistency will land you in the spotlight for all the wrong reasons.

Most big corporate wrongdoing stories will start from dissatisfaction within. Not aligning your external commitments to your internal stakeholders’ priorities is a big mistake. Whatever your ESG policy, it needs to correspond with internal strategies and culture. Increasingly, employees want to work for companies with clear purpose and ESG credentials, so aside from affecting external reputation, ignoring internal corporate values could even impact hiring and retention.

The solution: ESG begins at home. Ensure your stance is consistent with your corporate culture and values. When drafting an ESG policy, it can be valuable to include the experience and views of the internal stakeholders to determine what should be prioritised.

The ESG Paradox

The problem: The breadth of ESG issues often throw up paradoxes and unintended consequences which can get misreported. Sometimes, the damage to reputation is a largely a result of regulatory compliance. For example, some food and drink producers get attacked in the media for their reliance on single-use plastic, yet food regulations mean that in certain cases, these producers have no option, and must use these materials to comply.

The solution: Whilst we can’t affect the regulation, we can ensure that these paradoxes are highlighted, so reputational damage doesn’t occur unfairly. All aspects of an ESG policy need to be reviewed by a multidisciplinary team so that the paradoxes are captured and properly understood.

Unpredicted risk

The problem: Sometimes, there are risks you just can’t see coming. But the more you rehearse how to deal with the problems you can predict, the better able you are to improvise when the unpredictable happens. Very often, the backdoor risks for ESG policies lie in the supply chain.

The solution: A supply-chain audit. Request and review your suppliers’ ESG policies and gather information to understand the degree of alignment between your ESG policy and that of your supplier. Scan the horizon for potential backdoor risks that may arise and rehearse a game plan in case it occurs.

Drafting an ESG policy can’t happen overnight – and creating one without reputation in mind can lead to many issues later down the line. Taking the time to ensure your policy and commitments are as watertight as possible – with minimal reputational risks and with small, achievable goals the priority – means your business is less likely to suffer reputational damage due to holes in your ESG agenda.