The 2nd McKinsey Quarterly article provides practical tips for “how companies can take a more systematic and rewarding approach to ESG.”
Forward-looking companies make ESG intrinsic to their strategy by defining, implementing, and refining a carefully constructed portfolio of ESG initiatives that connect to the core of what they do.
Being forward looking in ESG necessarily calls for considering the needs of a range of stakeholders and society more broadly.
ESG is a process, not an outcome: The approach of forward-looking companies is marked by four reinforcing parts of mapping, defining, embedding, and engaging.
The science of ESG mapping involves careful consideration of what stakeholders have at stake, identifying a company’s superpowers (company’s unique capabilities to have differential impact) and vulnerabilities (foundational expectations), and tracking the degree to which the company “walked the talk” by benchmarking regularly.
The choices in ESG decision making:
- Considering high jumps (the levels a company must reach to meet its ESG bar) and long jumps (the one or two ESG areas where the company can take a leadership role and, ideally, affect other players in its ecosystem and beyond)
- Thinking systematically about ESG trade-offs
- Measuring and assessing what matters.
The approach to ESG implementation
- Syncing ESG with operations
- Following through on initiatives to ensure impact using incentives and “nudging”
- Discerning what the numbers do — and do not — say about ESG
The engagement and dialogue of social licence
- Using ESG engagement to sharpen strategy
- Showing investors the business proposition
- Making cadence core to the dialogue
IC Insight: Companies that are demonstrating ESG excellence are continuously improving their ESG strategy, and deliberately incorporating ESG considerations as core to their business model – tightly linked to the company’s purpose.
