Businesses everywhere need to back ESG ambitions with real action

Attention is now focused on COP28 where the 197 nations will continue to seek and implement accountable, transparent, and sustainable environmental, social, and governance (ESG) strategies. Entities such as Dubai Financial Market and Abu Dhabi Securities Exchange have launched sustainability reports and started to integrate metrics into their business operations.

Not only are shareholders and regulators keeping businesses accountable, employees are also prioritising ESG. Most organisations understand that failure to implement ESG practices risks devaluing their brand and compromising their integrity. The problem is often not so much a lack of awareness as uncertainty over where attention should be focused and how efforts should be communicated.

This uncertainty is prompting many businesses to seek guidance on best practices around the issue – and the role of leaders and boards in driving ESG strategies has also come to the forefront. The best ways to commit to ESG priorities and avoid greenwashing include:

Aligning sustainability goals with the business

In a world that increasingly bases company health and investor appeal on ESG credentials, one-off initiatives are insufficient. In fact, nothing short of an authentic link between ESG practices and a company’s core values and commercial goals will build and retain public trust.

Consumers are demanding greater transparency into business operations, supply chains, and social impacts. The messaging of ESG efforts must be precise and truthful to avoid greenwashing. Organisations should also make their ESG goals and achievements public to demonstrate open communication and accountability.

Investing in experience

Embedding ESG priorities in both strategy and operations, however, requires a new leadership paradigm to advance the dialogue around increased transparency and disclosure. Boards need at least a foundational knowledge of the subject to understand which criteria materially impact their business, develop an integrated strategy accordingly and communicate said strategy to a wider audience.

Recognising that what it takes to maintain ESG fluency, command and compliance will eventually go beyond a rudimentary grasp, companies are taking a step further and bringing in ESG experts onto their board to spur further innovation.

This ensures an organisation can navigate the ever-evolving ESG risk and opportunity landscape and help balance traditional board qualifications with new knowledge and mindset.

Achievable targets

While setting ambitious ESG targets may help an organisation to push the envelope of what it can achieve, it can create unrealistic expectations. Start by asking if the goals set are attainable to ensure the business isn’t set up to fail. If a target is reached ahead of schedule, new ones can quickly be set.

The same principles apply to measurement metrics. For an organisation to advance on its purpose-led ESG journey, universally agreed-upon standards to measure and report impact are needed so that all stakeholders get certainty and equivalence. Such disclosures are not meant to replace existing reporting but to augment critical topics in mainstream reports. They also represent a stepping-stone to the global goal: a single set of consistent ESG standards.

ESG has quickly gathered momentum in recent years, but the megatrend can be traced back to before the 1960s. Why has it taken six decades to get here?

Barriers have included the lack of transparency and accountability; and no quantifiable way to measure the impact of ESG policies. Companies were able to report on their ESG efforts without fear of scrutiny – resulting in greenwashing. Though great strides continue to be made, as recently as 2021, a survey of 300 asset managers across US and European businesses revealed that while 85 per cent of respondents said ESG was a high priority, 64 per cent worried that a lack of transparency and corporate disclosure were inhibiting implementation.

Stakeholders want each dollar to buy a difference. They want a culture of continuous improvement and a board-level pledge that the ESG approach will be rigorous, evidence-based, and verifiable.

This is good news for the UAE, with strategic policies such as the energy strategy for 2050, the Green Agenda 2030 and the National Innovation Strategy, leaving it well-placed to showcase continued progress towards facing global challenges.