Analyzing and Optimizing Your ESG Goals
As governments, businesses, and consumers turn towards more ethical environmental, social, and governance (ESG) practices, businesses that reflect these goals are becoming more desirable and in demand. More and more consumers want to purchase from companies that reflect positive impacts on their environment and community. Investors are looking toward ESG-leading companies as ethical, risk-mitigating, long-term winners. Therefore, businesses are more inclined to focus on ESG goals and work with other businesses that reflect those same values.
The environment is a crucial part of developing ESG goals. Many consumers and clients want to know that they are working with or purchasing from a business that is low-impact. More than being low-impact, they want to work with companies that take active steps towards reducing their carbon footprint.
In fact, about half (48%) of all Americans are considering changing their purchasing habits in order to reduce their environmental impact. Additionally, a Morgan Stanley sustainable investing study showed that 79% of large global companies believe sustainability will influence revenue and 76% reported increasing pressure on sustainability action from investors.
Working towards environmental sustainability and stewardship involves focusing on at least three areas:
- Reduced emissions
- Supply chain efficiency
- Sustainable materials
The most effective and practical way shippers, logistics companies, and any company throughout the supply chain can begin updating their environmental goals and putting them into practice is by reducing their emissions. In 2020, the Environmental Protection Agency (EPA) reported that the transportation industry accounted for the largest amount of greenhouse gas emissions out of every other sector, making up 27% of total emissions produced.
The first step to reducing emissions is measuring current emissions, starting with Scope 1 (direct) and 2 (indirect from purchased energy), then including Scope 3 (indirect value chain, which is often where 3PLs and carriers fit for shippers). Once measured, you can take steps to reduce.
Creating goals and actively reducing emissions is a great way to attract more clients and customers, cut down on fuel costs, and help to reduce your carbon footprint. Therefore, add to your environmental ESG goals a reasonable and progressive decrease in the emissions your business can reach in the next 5-10 years, ideally with guidance from the Science Based Targets initiative (SBTi). Also, set a goal in the future for becoming carbon-neutral, which can be supported through a combination of reductions and carbon offsetting tactics.
Supply Chain Efficiency
According to the EPA, supply chains on average can account for up to 90 percent of a company’s greenhouse gas emissions. Implementing new technology that helps your supply chain operate more efficiently and effectively is a great way to begin working on your ESG goals. Working towards upgrading and replacing new systems that better optimize freight, track shipment locations, and overall provide control tower visibility is an effective way to reduce empty miles, require fewer trucks on the road, and burn less fuel.
Yes, this will involve an up-front investment, though any logistics partner you work with on evaluating systems to implement should provide you an ROI estimation that will offer net positive gains in the near term. Working smarter, not harder applies both towards environmental and financial ends.
Another way to advance your environmental ESG goals is to focus on using more sustainable materials. This starts with supplier selection and ensuring partners have are in good ESG standing through assessments such as EcoVadis. Further steps can be taken by sustainable manufacturing processes, eco-friendly pallets, and more.
If manufacturing more sustainably sourced products is not possible, then consider packaging. Switch to recyclable, reusable, and/or compostable Reusable Transport Packaging in addition to finding innovative ways to use less packing material in general. Even finding small ways to limit packaging will greatly reduce waste in the long run. Especially in B2C, consumers take notice of the packaging used for shipments arriving at their front door.
In addition to environmental goals, social goals are becoming increasingly prominent. Examples of social goals for businesses usually target the following:
- Health and safety
- Community impact
- Diversity, equity and inclusion (DE&I)
It is important to think about these subjects and how your company relates to them. Meeting high standards for these goals will earn your company a good reputation and make clients, customers, and employees more eager to work with you.
Health and Safety
COVID-19 put this issue front and center, and a bottom-line responsibility for all companies is to prioritize the health and safety of all employees, customers, vendors, and all stakeholders impacted by the business.
Every organization needs to regularly review, assess, and update policies, protocols, and practices to align with the best safety standards in their respective industry. Be sure to include these guidelines in the Employee Handbook for employees to understand their responsibilities in making the workplace a safe and accessible space.
Organizations should always seek ways to positively impact the communities they are a part of. This can include hosting and contributing to philanthropic events, raising funds for important causes, and rallying behind important community initiatives.
Empowering employees to get involved individually is another way businesses can give back, whether by incentivizing volunteer time or giving greater exposure to charitable opportunities.
Diversity, Equity & Inclusion (DE&I)
Foster an inclusive workforce. This should include updating hiring practices to reflect an emphasis on diversity of thought and experience, in part through greater diversity of gender and ethnicity.
Then with existing employees, continue to find ways to promote a diverse culture throughout the workplace, including programs that promote a sense of inclusion and wellbeing, and ongoing training.
Governance is the third piece of the ESG framework. While many organizations have already developed standards in this area, new best practices continue to emerge, whether in matters of executive compensation, anti-corruption protections, or strong IT security measures.
A few areas of emphasis you may want to analyze and optimize include:
- Corporate governance
- Tax transparency
- Risk management
Creating a strong organizational structure and executive governing committees helps to ensure regulatory compliance, ethical practices, and both internal and external accountability.
Companies should make sure the purpose of their organization is clearly laid out, as well as the makeup of boards of directors and executive leadership, with financial oversight and compensation being key issues.
It’s no longer just a question of compliance. As a carbon footprint shows the state of emissions, a tax footprint can show the state of a company’s priorities. Tax transparency can become a key way to showcase and validate a multi-national businesses ethical behavior.
By looking at a company’s taxes you can see who they’re paying taxes to and that they’re paying their fair share. Disclosing more than the required tax reporting to the public is a great way to build trust in your brand and optimize your ESG goals.
At the end of the day, a well-run business with strong governance and accountability will face less risk than a company with vague policies, inconsistent practices, and no clear path to improve.
In today’s world this spans across anti-bribery practices, anti-harassment policies, foreign corruption practices, and significantly in the technology era is strong cybersecurity measures. Stakeholders deserve to know whether they can trust a company they work for, work with or are impacted by.
Let’s Collaborate on ESG Goals
While it’s important to assess your suppliers’ ESG compliance, it’s even more important to look in the mirror and analyze your own ESG efforts. Use the tips above to optimize your ESG goals and strengthen your plan, and if you’re interested in working with Redwood, feel free to take a closer look at Redwood’s corporate governance and sustainability objectives.