As Environmental, Social and Governance (ESG) regulations continue to expand in number and complexity, so too does the issue of “ESG-washing”. Organizations that are too focused on complying with ESG reporting may lose sight of the long-term value-creation opportunities it provides. ESG reporting can become a box-ticking exercise that provides little foresight into the risks and challenges an organization may face. This can reflect an ineffective use of resources and more costly outcome when organizations adopt a reactive — as opposed to proactive — approach.

The storytelling element is important to address these issues; by humanizing data and creating intentionality, organizations develop meaningful and forward-looking strategies to better engage its stakeholders. An ESG- and financially-integrated lens leads to proactive identification and management of risks and opportunities. Consequently, organizations are able to raise and deploy capital by entering new markets, as well as attract and maintain consumers and talent through reputational branding.

What are the benefits of mindful storytelling with ESG?

• Engaging stakeholders & industry peers in your ESG journey through buy-in and shared experiences
• Proactive identification of risks and opportunities that tie-in to financial benefits

POTENTIAL OBSTACLES TO MEANINGFUL STORYTELLING

To tell a compelling ESG story requires an awareness of the challenges in doing so, several of which are noted below.

Absence of buy-in

Without management’s support, ESG may be treated as an afterthought and standalone concept from the rest of the business. Data collection and reporting befalls a box-ticking exercise. This leads to a constant race against time to produce annual ESG reports or presentations to the board, and offers little room for strategic thinking about ESG risks and opportunities.

Compliance-driven environment

The lack of standardization in ESG reporting is also a problem. Although there are various standards in place help to structure and create comparative data, the need to respond to too many requirements is counterproductive and can cause “greenwashing” or “ESG-washing”, i.e. the overstatement of ESG credentials, and inadequate substance on ESG issues.

Lack of materiality and readability

Organizations that report on a wide spectrum of ESG key performance indicators (KPIs) could reflect a lack of critical thinking about its relevance, i.e. materiality. Blanket statements such as, “we have an ESG policy in place”, would merely fulfill descriptive-based KPIs, but offers no insight of the organization’s performance or long-term strategy.

When taking this approach, ESG reports become lengthy and imbalanced; the content tends to only illustrate upside, without proper depiction of the risks that have occurred or need to be managed. Arguably, this becomes an ineffective use of time and resources.

Running before you can walk – issues with ambitions of becoming an industry leader

As ESG is now a topic that can no longer be ignored, organizations also want to be recognized as an industry leader. The issue arises when there is a lack of understanding around the concepts or processes involved. Although the desire to be an industry leader in ESG is commendable, considering feasibility and practicality around timelines is crucial, or the project can become too overwhelming for those involved.

Static data and financial consequences

When companies are too focused on compliance, they may only be reviewing their ESG data once a year, i.e. ‘static data’ that may not paint an up-to-date picture of risks and opportunities in their industry.

Yet, some ESG risks have financial implications that cannot afford a year-long wait for action. Strengthened regulations and legal instruments around environmental and social inaction has both direct financial effects on an organization, e.g. fines and penalties, and indirect effects, e.g. boycotts and reputational damages. When an organization is only reacting to ESG risks, they delay their ability to pivot and change strategy, and subsequently may incur more severe and costly consequences.

What could the negative, unintended outcomes of not engaging in mindful storytelling with ESG be

• “ESG- and Greenwashing” – a box-ticking exercise that lacks purpose and intentionality, which leads to an ineffective use of time and resources
• Delayed action and mismanaged risks could result in costly consequences

OVERCOMING BARRIERS

Balanced, purposeful, and relatable content makes good ESG storytelling, and is the basis for a successful and sustainable company strategy. So, what are practical steps that can help an organization tell a good ESG story?

Changing mindset

Resetting intentions with ESG is crucial for buy-in. ESG may be a treasure trove of untapped opportunity, but realizing this starts with considering what ESG issues really mean (and what causes them). Only then will an organization properly focus its efforts and allocation of resources more effectively, and start to embed ESG practices as part of their operations.

Going beyond compliance

Shifting the focus from compliance to improve operational efficiency would benefit organizations in identifying risks and (cost saving) opportunities more readily. By really understanding the organization’s ESG performance, risks can be managed and forward-thinking strategies can be developed and implemented, e.g. evaluating how to transform policies and descriptions – qualitative KPIs – into something that is long-term and measurable as well as outcome-, impact- and action-based.

Focus on quality over quantity

Defining (and narrowing) the ESG scope through stakeholder engagements and materiality assessments support the identification of relevant KPIs. This reduces lengthy and monotonous reports and simultaneously offers more balanced and meaningful content to overcome the issue of ESG-washing.

Become a leader by being open, vulnerable and willing to fail

Proactively engaging stakeholders in dialogue — including investors, standard-setting organizational bodies, and industry peers — especially on topics in which your own organization is not yet excelling in may give you the recognition of being a leader in the ESG space.

The ability to draw from relatable experiences and create shared-value suggests critical thinking about ESG issues at large, and alacrity to adapt new practices to overcoming obstacles in the ESG journey. Transparency and accountability on the organization’s successes and downfalls would captivate your audience more effectively than if you were to focus merely on reporting your successes.

Live data and financial modelling

To be able to engage in forward-looking strategies requires up-to-date ESG data tracking that are both quantitative and qualitative. The number of organizations that are using online tools or platforms continue to grow as it provides relief in automating calculations, e.g., emissions, employee turnover rates, incident rates, as well as in centralizing documentation and data more quickly for trend monitoring.

It is equally important for organizations to embed ESG risks as part of the traditional and mainstream financial modelling, which in turn provides a better representation of an organization’s performance across the value chain. This creates opportunities to tap into new markets and proactively address any mismanaged issues.

CLOSING REMARKS

Storytelling in ESG is powerful because it humanizes the data and compels readers, i.e. stakeholders to go on your ESG journey with you. An interesting story, and a successful ESG strategy, is one that is purposeful, with intention, balanced and forward looking. This translates to being transparent and accountable for your ESG activities, which in turn can help you identify inefficiencies, cost saving opportunities, and risk management through financial modelling integration. By further engaging stakeholders in identifying shared experiences – both the positive and negative –, organizations become less prone to ESG-washing and will be able to drive long-term value-creation.

If you’d like to discuss any of the topics raised in this article in further detail, Turnkey’s ESG Experts are more than happy to schedule a call or a meeting with your team. Please don’t hesitate to get in touch.