Five critical success factors for effective ESG

Today, environmental, social, and governance (ESG) strategy is an agenda-topping item for almost all companies – of all sizes. And for very good reasons.

The current global energy crisis, coupled with the almost-daily reporting of new climate extremes, has focused the minds of many business leaders on the need for action around minimizing the environmental impact of their operations and industries. They are also increasingly aware of the growing need for businesses to demonstrate that their aims are rooted in wider societal goals, and to act accordingly, as good corporate citizens.

In a world of dynamic global trading relationships and geopolitical change, business leaders are also under pressure like never before to show that their corporate policies and practices – from diversity and inclusion commitments to the use of customer data and the ethical codes governing production – are suitably fair, robust, and compliant.

The scale and scope of company commitments are influenced by many factors: industry sector, location, size, corporate purpose, and more. But in most cases, businesses today are seizing the opportunity to both directly and indirectly act on ESG – not only by focusing action on their own internal activities but also by contributing and influencing positive outcomes among their external stakeholders, from business partners to consumers. A bank switching to non-virgin plastic for its payment cards or a manufacturer setting a policy to only work with partners showing progress towards sustainability targets are just two examples.

To quote one famous declaration from Marc Benioff, the CEO of Salesforce, speaking at the World Economic Forum annual meeting in 2021: “There has been a mantra for too long that the business of business is business; today, the business of business is improving the state of the world.”¹

To gain further insight into the business challenges – and the opportunities – of ESG, we asked two leaders from G+D’s Corporate Sustainability department – Andreas Lamina, Head of G+D’s Corporate Sustainability department, and Frank Krüger, Director Corporate Sustainability, G+D – to identity five of the critical success factors that businesses can adopt to establish a highly impactful ESG strategy today.

1. Make ESG strategy a pillar of your organization’s future success

For most companies, the strategic business focus is based on two pillars: creating a compelling value proposition (as an innovation leader, a global brand, or a trusted partner for example) and, secondly, strategic objectives (to generate revenue and appropriate levels of profitability and to grow market share).

Modern, forward-thinking companies, however, are adding an ESG framework to those two pillars on an equal footing, where hitting a net-zero target, for example, is considered as important as reaching an 8% EBIT profit margin or a 5% growth target. That is exactly the approach embraced by G+D.

“We progressed to focus on sustainability as an integral part of our overall company strategy,” says Andreas Lamina, Head of G+D’s Corporate Sustainability department. “ESG is not a thing we do besides other things; it’s a focus for all the things we do as a company, now and into the future.”

G+D is not alone in that pursuit. According to EY’s CEO Survey for 2022, 86% of CEOs in the Eurozone region alone think that ESG is an important value driver for their company, identifying it as an even higher priority than revenue growth.² Furthermore, 82% of investors responding to a PwC survey in late 2021 said ESG should be directly embedded into corporate strategy.³

Of course, pitting ESG against value propositions and financial targets can result in some friction between potentially conflicting business priorities. But having the CEO involved directly in the ESG steering group can balance decisions regarding which of the three pillars takes priority in any particular business situation. A simple example might be a discussion within the purchasing department on buying a regular supply of energy, where green energy might be the slightly more expensive choice – and one that impacts margins – but a choice that aligns with the ESG strategy.

“With a management team that accepts and understands the problems that the world is facing, you can work out how your company can be part of the solution and not contribute to the problem,” says Lamina.

2. ESG strategy needs input from all quarters

With employees and consumers, customers and suppliers, government and regulators, NGOs and investors all increasingly voicing expectations that businesses should address ESG issues, strategy needs to be widely informed and sensitive to the priorities of all stakeholders.

And that has come from the top. To be successful, ESG strategy for any company has to be championed from the very top of the organization, says Lamina. Indeed, around a quarter of CEOs already see ESG as a critical part of their role, either now or going forward, according to EY’s research.

However, that is not where all the thinking and great ideas need to come from. Establishing open mechanisms to draw insight from all across the organization, as well as beyond its walls, is essential.

At G+D, multiple company leaders – from the CEO to the heads of sustainability, operations, communications, compliance management, and HR – together make decisions on ESG strategy. But the influence on direction also comes from the grass roots.

Frank Krüger, Corporate Sustainability department lead for management systems at G+D, points to a recent example at G+D: an ESG Hackathon that drew hundreds of participants from around the world to contribute insightful ideas into how the company can become even more sustainable. Ideas that will inspire action, he adds.

“The contributions and influence are both high level and very diverse,” echoes Lamina. Today at G+D, most ESG initiatives are coming through its different business units as they seek to contribute to their own and group targets. But in the near term there will be also a flow of initiatives coming directly from the corporate center because of the strategic importance of those, he says.

4. Focus on areas where you can have the greatest impact

Although the goals of ESG strategies need to be ambitious, to show demonstrable progress you need to approach them step by step, milestone by milestone – and in closely targeted areas.

“It is important to break down your multiple focus areas into specific actions that you can drive and where you can have real impact. And the scope will be often determined by the industry you are in,” says Lamina. Some of the main processes involved in the production of banknotes at G+D, for example, use significant amounts of water. So reducing water consumption at G+D has become a key focus for the company’s environmental initiatives. At Louisenthal and Königstein – G+D’s two large banknote paper mills in Germany – 40% and 58% of all the water used, respectively, is now treated and fed back into circulation.

There also are different weights being put on different facets of ESG in different regions and societal settings. “The number of our customers with stronger ESG requirements is certainly growing fast everywhere; but their degree of focus often depends on their operating region. In the US, for example, diversity, equity, and inclusion (DEI) is a major focus today, although not at the expense of other goals; in many countries in Europe, companies put environmental challenges at the top of their ESG agenda,” says Lamina.

Across the Asia-Pacific region companies are also acting on ESG challenges, with one recent survey showing that half of all business leaders believe sustainability issues should be a more serious focus than many other issues, including the ability to innovate.⁴

Focus is key. Many companies such as G+D are actively supporting the UN’s Sustainable Development Goals. But rather than pursuing all 17 goals and spreading your efforts too thinly, it makes sense to choose areas where the organization can have the greatest and most important impact.

G+D has thrown itself behind nine of the UN goals – a set that perhaps reflect G+D’s roots in Germany – including Climate Action, Responsible Consumption and Production, and Gender Equality, among others. G+D is also a member of the UN Global Compact, an initiative to encourage businesses worldwide to commit to sustainable and socially responsible policies, and to report on their implementation.

“When we look at the goal we have set of net-zero CO₂ emissions by 2040, we clearly have to look to production that relies more on green energy and green raw materials, for example,” says Lamina. To that end, the company wants to equip more of its production sites with the capacity to generate their own electricity. Already at its major banknote printing works in Malaysia, 10% of the total electricity demand is covered by domestically generated solar power. And at its paper mill in Louisenthal, 10% of the electricity demand can be covered by domestic electricity generation, in this case by hydropower, with five turbines driven by the nearby river.

Published: 16/11/2022