ESG strategy: Identify your sustainability challenges and define your action plan

How do you begin a comprehensive ESG approach? 

The first step is to understand what impact my company has on the environment and society, and conversely, what impact the environment and society have on my company. This is what is known as double materiality, which has become very popular with CSRD.

Defining what we call your company's sustainability challenges will define the ESG issues on which you'll need to focus your attention through policies, actions, measurements and reporting .

In this article, we will explain in detail :

• what is a sustainability issue, 
• risks, opportunities and impacts (RIO),
• steps for defining your sustainability challenges,
• the list of CSRD sustainability issues,
• ways to go further and improve ESG performance

Enjoy your reading!

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What is a sustainability issue? 

A sustainability or material issue concerns the way in which we use human and planetary resources to meet our current needs, while ensuring that these resources will be available for future generations. 

Simply put, it's a question of how we can live in a way that doesn't deplete or degrade natural resources, while promoting a fair, equitable world of work and respecting human rights. 

A sustainability issue examines how investment decisions impact positively or negatively on the environment and society, through risks, opportunities and impacts (RIO).

For example, a digital services company may have a stake in climate change mitigation, energy consumption and employee working conditions.

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Understanding my company's risks, opportunities and impacts (RIO)

To define your company's sustainability challenges, you need to understand in concrete terms what are the risks, opportunities and positive or negative impacts of your business related to its environment, value chain, society, human rights and business ethics.

These notions are very important to help you define the issues you need to work on.

Risks (Financial)

Risks are potential negative outcomes linked to ESG issues. Poor management of a sustainability issue can strongly affect financial performance...

These risks could be associated with climate change, resource scarcity, social unrest, governance failures and other sustainability issues.

For example, for an industrial company, the scarcity of resources is a risk to be taken into consideration, as it can have an impact on its financial performance.

Opportunities (Financial)

Opportunities represent the financial benefits or positive outcomes that result from addressing sustainability challenges.

A company may perceive the development of a sustainable product or service and the improvement of resource efficiency, for example, as a financial opportunity.

Other positive outcomes for the company can result from more responsible practices, such as gaining a competitive edge, improving brand image and helping to build customer loyalty.

Impacts (Extra-financial)

Impacts are the effects that a company's operations, products or services have on the environment, society and ethical standards .

This includes the direct and indirect consequences of a company's actions on external factors and stakeholders. 

For example, on the social side, poor working conditions can lead to high turnover rates and legal challenges.

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Steps to define my company's sustainability challenges

Our experts share with you the key steps to successfully selecting sustainability issues specific to your business.

Understanding the context

Analyze your activities to identify where they impact the environment and society. Take into account the regulatory framework and the actions of your competitors, as well as the expectations of your stakeholders.

Know the list of issues

We recommend using frameworks such as CSRD, EcoVadis or other CSR labels or assessments to get a comprehensive list of the different sustainability issues that could impact your business. Then, supplement with standards such as GRI and SASB, as well as sector-specific best practice standards, to find out what companies in your field are doing, and draw up an initial list of issues.

Select your sustainability issues

Assess which ESG impacts are most important for your stakeholders and society, and which aspects are likely to influence your financial performance. Ideally, you should question your internal and external stakeholders through questionnaires and interviews. For example, the environment may be represented by NGOs.

At the end of these steps, you'll have a clearer vision of the sustainability issues specific to your company, so you can draw up a summary.

Synthesize your challenges with the Dual Materiality matrix

There is no set format for listing your sustainability issues, but we recommend that you use a dual materiality matrix to help you understand and prioritize your material challenges.

The list of sustainability issues defined by the CSRD 

The CSRD (Corporate Sustainability Reporting Directive) is a European directive that imposes a framework on more than 50,000 EU companies to assess and share their environmental, social and governance (ESG) performance.

Through the ESRS (European Sustainability Reporting Standards), the CSRD defines all the sustainability issues on which a company can be assessed. Based on the steps above, it's up to you to define the issues relevant to your company, using a materiality matrix.

We recommend that you use this list to define your own!

In the diagram below, we present the main ESRSs and how they are organized, then delve into the details of sustainability issues.

ESRS E1 - Climate change

• Adapting to climate change
• Climate change mitigation
• Energy

ESRS E2 - Pollution

• Air pollution
• Water pollution
• Soil pollution
• Pollution of living organisms and foodstuffs
• Substances of concern
• Substances of very high concern
• Microplastics

ESRS E3 - Aquatic and marine resources

• Water
• Marine resources

ESRS E4 - Biodiversity and ecosystems

• Direct drivers of biodiversity loss
• Impact on species status
• Impacts on the extent and condition of ecosystems
• Impacts and dependencies on ecosystem services

ESRS E5 - Circular economy

• Incoming resources, including resource utilization
• Outgoing resources related to products and services
• Waste

ESRS S1 - Company workforce

• Working conditions
• Equal treatment and equal opportunities for all
• Other work-related rights

ESRS S2 - Value chain workers

• Working conditions
• Equal treatment and equal opportunities for all
• Other work-related rights

ESRS S3 - Affected communities

• Economic, social and cultural rights of communities
• Civil and political rights of communities
• Rights of indigenous peoples

ESRS S4 - Consumers and end users

• Impact of information on consumers and/or end-users
• Consumer and/or end-user safety
• Social inclusion of consumers and/or end-users

ESRS G1 - Business management

• Corporate culture
• Whistleblower protection
• Animal welfare
• Political involvement and lobbying
• Supplier relationship management, including payment practices
• Corruption and bribery

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Go further and improve your ESG performance

Once you've defined your sustainability challenges with your stakeholders, it's up to you to take action and make a positive contribution to society and the environment.

If you are subject to CSRD, we invite you to take a look at the list of indicators defined in the ESRS and choose the right ones for your company.

Alternatively, to formalize your ESG approach, we advise you to define policies for each sustainability issue, with quantitative objectives, concrete actions and indicators to monitor.

Formalize your policies

Once you've identified your key sustainability issues, you'll need to set a course for your company by formalizing your ESG policies. 

To begin with, clearly define the scope of the policy, specifying the sites and activities concerned. 

Then set concrete, measurable and time-bound objectives for each theme, ranging from general commitments to quantitative targets per theme. 

Finally, to ensure that the policy is complete, we recommend that you specify the governance structure as well as the mechanisms for reviewing and updating the policy.

The policies that are virtually indispensable for companies to draft are :

• An HR policy,
• An ethical charter,
• An environmental policy,
• A responsible purchasing policy.

Defining concrete actions

To demonstrate the seriousness of your approach, we recommend that you justify at least 4 actions for each of your sustainability issues.

It is essential to use documentary evidence to prove the implementation of these actions, such as procedures, action plans and official documents.

For large organizations, it is important to demonstrate that actions have been deployed over a significant part of the perimeter to ensure that they are effective.

Some examples of ethics-related actions: mapping anti-corruption risks, drafting a whistle-blowing procedure, offering fraud training, etc.

Here are a few examples of social actions: conduct satisfaction surveys on working conditions, define an individualized career plan, offer training on diversity and inclusion, set up exchange sessions between employees and management, etc.

These are just a few examples - it's up to you to define the actions that suit you best!

Define your goals 

We will find the objectives in the policies and also in the resulting actions. They will enable regular monitoring over the short, medium and long term to adjust and adapt your ESG strategy. 

Objectives must be SMART: 

• Specific, clear and understandable,
• Measurable, quantified or quantifiable,
• Achievable, in line with your approach,
• Realistic, precise and in line with your business,
• Temporal: the scope and timeframe must be defined.

For example, "reduce CO2 emissions by 20% by 2025" or "achieve 50% parity between men and women in management positions by 2030".

Tracking the right indicators

For each of your sustainability issues, define indicators to track your ESG performance over time. This could involve tracking the number of workplace accidents, the percentage of employees who have signed your ethical charter, your carbon emissions in t of CO2 - any indicator that makes sense for your company.

To help you define them, we have prepared a list of 100 ESG indicators indicators that we think are relevant!

After that, it's up to you to build your own list of ESG indicators according to your specific challenges.

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Conclusion

To build an ESG approach, the first step is to understand the issues on which your company has a positive or negative environmental and social impact. To achieve this, here are two tips: analyze your company's context, regulations and best practices, and secondly, get to know the list of all sustainability issues. This is essential if you are to define which are the most relevant for your company.

Once you have consolidated the results in agreement with your stakeholders, we advise you to summarize them in the form of a double materiality matrix.

Then take action by defining policies, actions and objectives, and tracking the right indicators.

All these steps can seem complex, as there are many parameters to take into account and the data is sometimes fragmented.

To meet the demands of your customers, investors and banks, we advise you to centralize everything in a CSR management system.

At Beavr, our experts help companies formalize their CSR procedures to meet all these requirements. If you need help, don't hesitate to contact us.