How can a successful ESG strategy rely on EHS functions?

Nowadays, ESG (Environmental, Social and Governance) has become a major strategy for various and wide businesses around the world. With new emerging standards and frameworks concerning ESG, companies understood the importance of EHS (Environment, Health and Safety) functions to adopt a successful ESG strategy. Therefore, a company must have well-developed and mature EHS management to embark on the ESG journey.

In the last decade, companies started to face new challenges with emerging technologies and new operational applications. Companies are thus facing new risks and threats, especially when it comes to the safety of the environment and their stakeholders. One way to address these challenges is through sustainable activities and ESG.

ESG started to emerge and gained international recognition and interest around the mid-2000s. Alongside Corporate Social Responsibility (CSR), ESG criteria and their corresponding metrics will allow the quantification of the adopted actions by companies in terms of sustainability. These criteria are aligned with the UN’s sustainable development goals for 2030. Moreover, new standards, regulations and frameworks (existing and new) are emerging to prepare and present the ESG disclosure according to certain ESG reporting frameworks (IFRS -IFRS S1 & S2 draft, EFRAG-ESRS draft, GRI, CDP, etc.).

Companies adopting ESG strategy understood or are understanding the new emerging functions for the EHS divisions, and how to combine the tasks between ESG (rather managed by the financial and compliance departments) and EHS to provide the best ESG disclosure and respond to multiple criteria according to the reported metrics in their ESG reports. In other words, having a well-defined strategy and management for your EHS department can help you fulfil your ESG goals.

So, what is ESG all about? Why are the EHS functions ideal and important for ESG?

What is ESG all about?

ESG (Environmental, Social and Governance) is a strategy adopted by companies to act on threats and risks and turn them into opportunities. It is the basis of sustainable operations adopted by companies. ESG is often seen as a strategy adopted by businesses to act and limit the negative impact on the environment, and to be actively involved in climate change problems. However, it is not only about the environment, ESG concerns also the stakeholders and their welfare, and how the operations of a company impact the community around it, its employees, suppliers and customers. So, ESG is a framework that can help stakeholders and other interested parties (investors, government, etc.) to better understand how risks and threats are managed in an organisation regarding the environmental, social and governance criteria.

E (Environmental). It is the most “famous” criterion of the ESG along with its corresponding metrics. Environmental criteria are numerous, and they are related to the company’s operations and their impacts on the environment (risk management). These criteria include Green House Gases (GHG) emissions, water management and pollution, waste management, and impact on climate change. 

S (Social). The social pillar is all about the consideration of stakeholders and relationships. The S of ESG is all about measuring the human factor in and outside the company, this also includes the company’s operations impact and supply chain management on the community surrounding it. Customer satisfaction, the health, safety and welfare of employees (probably the most regulated criterion by legislation), hazards management (chemical, biological, physical), skills and training development, diversity, and human rights are among the topics covered by the social criteria.

G (Governance). Corporate Governance is all about the ways of running a company. Governance first defines the mission, the long-term vision, the purpose, the corporate risk appetite and the culture that must be developed. This directly concerns the management board in the way they are leading the company and the policies adopted, to ensure good business practices and be transparent to investors. Thus, gender equity in the board composition, fighting bribery and corruption, internal control and employee and executive compensation are among the main topics covered by Governance.

ESG reporting & scoring

ESG Reporting

When a company adopts an ESG strategy, after the end of a cycle, it has to issue an ESG report. ESG reporting is the disclosure of all the data related to ESG, by making its related activities transparent to the public and all stakeholders. 

ESG reporting can greatly help stakeholders to see how a company is managing its risks and opportunities. However, ESG disclosure/reporting should be done according to guidelines and formats set by ESG reporting frameworks, otherwise, the information and data reported can be misleading and considered greenwashing.

ESG reporting will include the targets and objectives set by each company, depending on the selected metrics covered by ESG. Companies must report their ESG results by adopting standardised frameworks (such as EFRAG, IFRS, GRI etc.) depending on the materiality assessment and selected metrics. Every company will select a reporting framework depending on the adopted strategy to set its ESG goals. These frameworks make sure that the ESG data is normalised and comparable across various industries regardless of their size and activity.

ESG disclosure data give important information to investors about a company’s performance and may impact their decision to further invest or leave a certain organisation. Sometimes, these data are also used by governments to provide some funding or to penalise companies according to their ESG performance.

ESG score

ESG score is important to objectively evaluate the performance of a company regarding ESG topics.

There are two different types of ESG scoring systems, internal and external. 

External scoring is conducted by rating platforms by using the ESG disclosure data and allows for comparing companies from various industries regarding ESG performance. There are various types of rating platforms depending on the data analysed. For example, the CDP (Carbon Disclosure Project) will publish ESG ratings related to environmental criteria.

Internal scoring is conducted by the company’s stakeholders to assess their own ESG performance. Internal control is important to directly compare yourself to others in the industry, directly analyse some issues affecting the company and many other topics. Internal scoring and monitoring will allow the management to make fast and right decisions to steer the company on the correct path of ESG performance.

However, a successful ESG strategy must be aligned with successful EHS functions and management. The two departments are entwined and directly linked, as many ESG criteria are covered by EHS functions.

Why are EHS functions necessary and important for ESG?

When a company decides to adopt an ESG strategy, the EHS department finds itself at the core of the ESG strategy's success and implementation.

ESG reporting, whether it is voluntary or required, should be done under certain disclosure frameworks. For EHS professionals, reporting according to standards and regulations is part of their daily tasks. Their knowledge about reporting and complying with multiple and complex requirements, makes the EHS functions valuable and important for this task. Moreover, ESG reporting necessitates quantified data, here also, EHS functions are essential for completing this task. For example, all the incidents, near misses, environmental emissions, and many other factors are all measured and reported by the EHS professionals according to certain requirements and regulations. This can greatly benefit the ESG strategy as it does not add more functions to the EHS department but comes as complementary and helps the company to achieve important ESG goals.

Having mature and successful EHS management in your company will make the implementation of an ESG strategy successful and reliable. Having poor EHS management will be a great obstacle to achieving ESG goals and even its basic implementation. Every manager should also keep in mind that they are not obligated to answer all the metrics and criteria of ESG. They should define with the ESG and EHS departments all the necessary and most important ones to their company. If this is not the case, you will be submerged by a huge number of requirements and data you must cover.

Here are some examples for every pillar of ESG that EHS can cover:

Environmental. Monitoring, controlling, reporting and evaluating the environmental emissions of the company’s activity correlate with EHS functions. Especially when we are talking about GHG emissions and monitoring, to achieve net zero emissions. In addition to the carbon footprint achieving carbon neutrality by 2050. These criteria can be easily quantifiable, especially when the EHS departments rely on software to measure all this data. Of course, many other environmental factors are covered, such as waste management, water management, etc.

Social. EHS functions contribute greatly to this pillar, especially to their most important and classic tasks, “Health, Safety and Well-being” of all stakeholders. Reporting incidents, near misses and all the corrective actions and safety measures installed in the workplace, is a major part of the EHS’s daily tasks. These data and other EHS functions related to “Social” cover important metrics in this pillar.

Governance. Steering the company in the right direction is a heavy burden on the shoulders of the management board. The aim is always to get the best ESG scores. This is where EHS management should be well conducted to provide the best functions to fulfil the ESG goals. Governance must manage its own register of strategic and ESG risks with sentinel people to monitor them. Risk management does not only cover the health and safety of employees but every threat and risk related to ESG. Monitoring and controlling risks and threats to eliminate them and/or transform them into opportunities cover the three pillars of ESG.

To succeed with the implementation of an appropriate ESG strategy adapted to your company, it is clear now and necessary to have mature and well-established management of your EHS functions.

Making the right choices

Adopting an ESG strategy is a great decision and means you care about the community and the environment. However, when it comes to acquiring all the necessary data to include in the ESG reporting, a lot of work is done by the EHS department. Sometimes, the data collection for all the adopted metrics by the company can be challenging, especially if it is done manually (paperwork) or via classic desktop tools.

Adopting new technologies and making the right choices in which digital tools to invest in, is important to collect the needed information and data on a single platform. Centralising the data on a single platform will make it easy to monitor all the actions and the performance of EHS functions via dedicated KPIs. This will make it easier to take necessary corrective actions if needed. All the real-time data can be represented by dynamic dashboards that can be easily integrated into your ESG reporting framework. In addition to an internal scoring evaluation tool that will allow you to monitor your own performance regarding the adopted ESG metrics.

ESG has become an important tool to evaluate the engagement of certain companies in the market regarding environmental and social criteria. Establishing a mature ESG strategy can’t be done if the EHS functions in a company are badly managed, this will lead to poor ESG scores. ESG and EHS are closely related. However, even with impeccable EHS management, companies find themselves in difficult situations regarding the balance between short-term business objectives and long-term ESG goals.

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