The process through which organisations develop their environmental, social, and governance (ESG) or sustainability strategy must address business risks and opportunities.
Taking a business case approach to creating an organisation’s ESG strategy ensures that the targets are realistic and practical and take into account the complexities in the operating environment.
Organisations that integrate ESG or sustainability into their purpose can better manage shocks and disruptions to their business from ESG risks and are less likely to keep shifting their sustainability goalposts. Therefore, connect an ESG strategy to the broader goal of building a sustainable business that delivers returns for shareholders and wider stakeholder groups.
In recent months, some organisations have pulled back on their climate ambitions, including revising the climate or green targets they had set previously. For instance, we have seen some organisations push their net-zero target further, citing various challenges and complexities in their operating environment. Such moves do not instil confidence or build trust with stakeholders and society.
Organisations should take advantage of data and robust scenario planning before setting ESG or sustainability targets to reduce the likelihood of this occurring. Making informed decisions relies on using accurate and verifiable data. Therefore, organisations must ensure that green targets are set with comprehensive measurement, reporting, and verification of the underlying data to inform such decisions. For example, an organisation’s net-zero target should only be set by management once it has measured, reported, and verified its emissions data and developed a strategy for managing the attendant risks and opportunities across its business.
The transition strategy is also where scenario planning should be applied. Organisations do not operate in a vacuum and constantly interact with their environment, both internally and externally.
Therefore, in developing their transition strategy, it is pertinent to incorporate likely responses from internal and external relationships in their operating environment to build scenarios. It will enable them to identify potential geopolitical conflicts, competitor responses or technological changes that could influence their competitive position as they develop their sustainability strategy and set the related targets.
Also, organisations must implement a robust governance process or mechanism for interrogating these targets before communicating to stakeholders.
Akinyemi Awodumila is a Partner at Deloitte East Africa. He is an author who writes and speaks widely on corporate reporting topics.