The risks of failing to create a coherent and effective environmental, social and governance (ESG) strategy are manifold. From regulatory risk relating to how effectively you comply with legislation such as the Corporate Sustainability Reporting Directive (CSRD) to the financial risk associated with failing to meet the expectations of sustainably-minded investors. Research indicates that two-thirds of shareholders consider ESG factors when making investment decisions.
However, creating your ESG strategy can feel overwhelming, with a wide range of considerations to make in order to tailor your approach in a manner that works in the best interests of your business and its stakeholders.
This article provides examples of effective ESG strategies from companies across Europe and the world, offering insight into how these organisations work towards a more sustainable future.
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Successful ESG strategy examples
LVMH
French luxury goods firm LVMH, whose portfolio includes Dior and Bulgari, holds a Carbon Disclosure Project (CDP) triple ‘A’ rating and a Sustainalytics low-risk score of 13.9. Through the conglomerate’s LIFE 360 environmental programme, LVMH reduced emissions by 28% and achieved 63% renewable energy use. 61% of its new products were classified as sustainably designed.
Launched in 2020, LIFE 360 established a phased approach with targets set for 2023, 2026 and 2030, addressing four critical areas of sustainability:
- Protecting biodiversity
- Fighting climate change
- Enhancing the circular economy
- Improving transparency over the sustainability of products.
This plan and its predecessor, LIFE 2000, have helped LVMH achieve its positive ESG results.
Unilever
Unilever’s Growth Action Plan aims to establish the European consumer goods firm as a sustainable leader in the corporate world. Its approach is built on the principle that progress in sustainability should naturally drive financial performance, creating a virtuous cycle where both are intrinsically linked.
The company states that “ringing the alarm and setting long-term ambitions isn’t good enough anymore. Now is the time to focus on delivering impact.” Unilever intends to achieve this by focusing on four key pillars of ESG, narrowing the scope of its sustainability plan so it can work to improve performance in those areas.
The pillars are:
Pillar | Commitment |
Climate | Achieve net zero carbon emissions across the value chain. |
Nature | Ensure that ecosystems within the supply chain are resilient and regenerative. |
Plastics | Collaborate with stakeholders to reduce plastic pollution and improve the circulation of plastics to prevent them ending up in the oceans. |
Livelihoods | Provide a decent standard of living for those stakeholders within Unilever’s value chain, including the establishment of a living wage. |
BNP Paribas
Financial services organisation, BNP Paribas places sustainability as one of three pillars of its strategic plan. The Paris-based headquartered company is committed to aligning its portfolios with its aim of carbon neutrality as well as supporting clients in the transition towards a sustainable and low-carbon economy.
BNP Paribas has set ambitious targets for reducing carbon emission intensity for power generation, automotive activities, and oil and gas by 30%, 25% and 10% respectively. In addition to environmental goals, BNP Paribas focuses on social impact by developing products and services that improve financial inclusion for 6 million people and ensure that more than 90% of its assets under management are in sustainable investments.
The bank aims to align its financing and investment activities with the Paris Agreement, targeting carbon neutrality by 2050.
Danone
Danone has formally adopted a policy of combining business success with social progress. It is one of the largest corporations to achieve B Corp certification, which ensures it meets high standards of social and environmental performance in five areas:
- Governance
- Workers
- Community
- Environment
- Customers
The company prides itself on being an “includability committed employer”, putting in place procedures to ensure an inclusive and diverse workplace.
Danone also adopted the “Société à Mission” status under French law in 2020. This is held by organisations “whose objectives in the social, societal, and environmental fields are aligned with this purpose and set out in its by-laws.” This now forms part of the company’s articles of association.
The company focuses on a host of ESG areas in its sustainability commitments, including tax transparency, ethics, responsible marketing, regenerative agriculture and climate action.
Volkswagen
German automotive firm Volkswagen has set sustainability targets, including reducing the carbon footprint of its fleet by 40% by 2030, compared with 2018. The idea is to look at each area of business operations and ensure that efforts are being made at all points of the manufacturing ecosystem to seek out ways to improve sustainability. This includes the use of recycled materials, including marine debris, in the design of car interiors.
The company’s ESG strategy is called regenerate+ and is geared towards an overall mission of “becoming a nature and society positive mobility provider.” It includes commitments in four areas:
- Nature — going beyond carbon emissions reduction targets and including reduced use of natural resources and supporting biodiversity.
- People — working together with the company to deliver change as well as ensuring diversity and inclusion, and improved health and safety standards.
- Society — the aim to generate a positive impact across the company’s value chain, including the ambition that 95% of suppliers will have a positive sustainability rating by 2040.
- Business — exploring new areas and products that enable environmental responsibility as well as value creation.
L’Oreal
L’Oréal launched L’Oréal for the Future in 2020, an ESG programme designed to deliver a reduction in environmental impact and a positive contribution to society by 2030. The French cosmetics company is working towards 100% renewable energy at its operated sites by 2025, as well as a host of commitments for 2030, including:
- Reducing greenhouse gas emissions (GHG) linked to the transport of products.
- Ensuring all factories use 100% recycled or reused water.
- Achieving 95% biobased ingredients in formulas, derived from abundant minerals or circular processes.
- Recycling or reusing 100% of waste generated at company sites.
- Benefiting three million people through L’Oréal’s social engagement programmes.
- Providing access to employment for 100,000 people from disadvantaged backgrounds.
Why develop an ESG strategy?
There are a range of benefits companies can access by creating an ESG strategy. These include:
- Reducing regulatory risk by understanding more clearly your ESG impact. This helps with double materiality assessments you need to make to ensure you report accurately and comprehensively for CSRD.
- Providing internal and external stakeholders with reassurance that you are working towards a sustainable future. Not only do investors and customers both want to work with companies that share their concerns over the environment and social issues, but shareholders are also keen to reduce the risk of controversy caused by businesses that fail in their duties in these areas or demonstrate lapses in governance.
- Sustainable practices can lead to increased revenue, with 80% of consumers saying they would pay more for sustainable produced and sourced goods.
- You can also reduce expenses. Going paperless, for example, means you save on paper, printer ink and electricity across your organisation. Creating a dedicated programme to reduce waste also encourages more efficient use of resources, cutting costs.
- A business can create a powerful marketing message based around its sustainability efforts, too. The environment and treatment of people are emotive subjects that speak to consumers, and demonstrating what your company is doing to play its part in a sustainable future helps your brand reputation.
Best practices to build an effective ESG strategy
Align with values
Many of the ESG strategy examples above, including Danone, match the companies’ sustainability programmes with their company mission. Sustainability is of such importance currently that it should not feel like an afterthought, but rather the driving force behind the company’s direction of travel. Otherwise, it can seem performative, risking accusations of greenwashing.
Engage stakeholders
There is no point creating an ESG policy in isolation, guessing at what your investors and customers want to see from your business. As in the example of Unilever, it is impossible for any company to commit to making huge strides in every section of ESG, so businesses identify the most important aspects to them and work towards making tangible change in areas in which they are best placed to excel. Investor and employee engagement will help you narrow down the environmental, social and governance factors on which you should concentrate.
Set clear sustainability goals
The clearer your ESG goals, the more likely you are to meet them. Without knowing exactly what you are aiming for, your efforts can more easily fizzle out through lack of focus. SMART goals are specific, measurable, achievable, relevant and time-bound. Using this framework to assess science-based aims helps you to develop clear targets that make a difference and can be better assessed by shareholders.
Integrate operations
ESG isn’t a separate entity, it should form part of every department’s thinking when planning operations for your business strategy. Similar to Volkswagen, you should be looking for a holistic approach to ESG and commitment in all areas to reducing waste, finding more sustainable ways of working, contributing to your ESG strategy and meeting those goals.
Track performance
The best way to stay on track towards your goals is to monitor your progress. This allows you to see how far you have come, how far you have to go and whether you are on target to achieve your goals. L’Oréal reports annually on its progress towards its goals, showing transparency to all key stakeholders and keeping those responsible for achieving these aims accountable.
Continuous improvement
Tracking your progress allows you to adjust your processes and align your trajectory towards your goals. Learning from what has and hasn’t worked is an essential part of your ESG strategy, which should not be set in stone, but should be a living document that you can tweak to gain the best possible outcomes.
Showcase your successes
Don’t be afraid to flag your successes with your ESG strategy to your stakeholders. Report on the goals that you achieve on your investor relations website and social media. This shows that your strategy is working, increasing investor trust in your programmes and allowing you to build the next stage of your sustainability focus.
FAQ
How do ESG strategies vary across different industries?
ESG strategies can vary depending on the company’s sector and the specific environmental and social impacts of the work that they carry out. For example, drinks manufacturers will have more of a focus on water waste, automotive firms will be concerned with greenhouse gas emissions, whilst technology companies will be more concerned about conflict minerals than other organisations due to the resources needed to create mobile phones, for example.
What are the best practices for collecting and reporting ESG data?
There are a range of ESG frameworks that provide sustainability metrics that companies can use to guide their reporting. Conduct a materiality assessment to understand which metrics apply to your organisation.
How often should ESG data be collected and reported for optimal transparency?
Collect ESG data continuously, whether it is qualitative or quantitative, engaging different departments to help with the collection process. Report on the key metrics annually to demonstrate your ongoing commitment to sustainability.
ConclusionThese ESG strategy examples help to demonstrate the ways in which companies integrate their sustainability programmes into their wider operations. Not only do they achieve positive impacts on the environment, social matters and corporate governance, but they also drive growth and encourage brand loyalty. For help developing your ESG strategy, the expert team at ESG Advisory will support you in building the sustainability pillar of your business. They will work with you to reduce risks, attract new investment and stimulate growth with a dedicated strategy that meets your needs as a business. ESG Advisory also assists with CSRD compliance, taking you through every step of the implementation process. Request a demo of ESG Advisory today. |
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