ESG strategy: Identify your sustainability issues and define your action plan

How do you start a comprehensive ESG approach?

The first step is to understand what are the environmental and social impacts of my business and, conversely, what is the environmental and social impact on my business. That's what we call double materiality which became very popular with the CSRD.

Defining what we will call the sustainability challenges of your company will define the ESG issues on which you will have to focus your attention through policies, actions, measures, and reporting.

In this article, we'll explain to you in detail:

• What is a sustainability issue,
• risks, opportunities and impacts (IRO),
• the steps to define its sustainability challenges,
• the list of CSRD sustainability issues,
• ways to go further and improve its ESG performances

Happy reading!

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What is a sustainability issue?

A sustainability issue or a material issue concerns how we use human and global resources to meet our current needs while ensuring that these resources will be available for future generations.

Simply put, it's a question of how we can live in a way that does not deplete or degrade natural resources, while promoting a fair world of work, equitable and with respect for human rights.

A sustainability issue looks at how investment decisions impact in a positive or negative way the environment and the social, through risks, opportunities and impacts (IRO).

For example, a digital services company may have issues with the mitigation of climate change, its energy consumption and the working conditions of its employees.

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Understanding the risks, opportunities and impacts (IRO) of my business

To define the sustainability challenges of your company, you need to understand concretely. What are the risks, opportunities and positive or negative impacts of your business linked to its environment, its value chain, society, human rights and business ethics.

These concepts are very important to help you define what issues you need to work on.

Risks (Financial)

Risks are potential negative results related to questions on ESG topics. Poor management of a sustainability issue can strongly affect financial performance...

These risks could be associated with climate change, resource scarcity, social unrest, governance failures, and other sustainability issues.

For example, for an industrial company, the scarcity of resources is a risk to take into consideration, it can have an impact on its financial performance.

Opportunities (Financial)

Opportunities represent the financial benefits or positive results that come from addressing sustainability challenges

A company may perceive as a financial opportunity the development of a sustainable product or service and the improvement of resource efficiency, for example.

Other positive business outcomes can come from more responsible practices, such as becoming a competitive advantage, improving brand image, and helping build customer loyalty.

The impacts (Extra-financial)

The impacts are the effects that a company's operations, products, or services have on the environment, society, and ethical standards.

This includes the direct and indirect consequences of a company's actions on external factors and various stakeholders.

For example, on the social side, poor working conditions can lead to high turnover rates and legal challenges.

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The steps to define my company's sustainability challenges

Our experts share with you the key steps to successfully select sustainability issues specific to your business.

Understand the context

Analyze your activities to identify the points where they impact the environment and society. Take into account the regulatory framework and the actions of your competitors, as well as the expectations of your stakeholders.

Know the list of issues

We recommend to use frameworks such as CSRD, EcoVadis or other CSR labels or evaluations to have an exhaustive list of the various sustainability issues that could impact your business. Then, complete with standards such as GRI and SASB, as well as sectoral best practice standards to find out what businesses in your field are doing and draw up an initial list of challenges.

Select your sustainability challenges

Evaluate What ESG impacts are the most important for your stakeholders and society, and what aspects are likely to influence your financial performance. The ideal is to interview your stakeholders internal and external through questionnaires and interviews. For example, the environment can be represented by NGOs.

At the end of these steps, you will have a clearer vision of the sustainability issues specific to your business in order to establish a summary.

Synthesize your challenges with the Double Materiality Matrix

No format is imposed to list your sustainability challenges, but we recommend to use a double materiality matrix that allows you to understand and prioritize your material challenges.

The list of sustainability issues defined by the CSRD

The CSRD (Corporate Sustainability Reporting Directive) is a European directive that imposes a framework on more than 50,000 EU companies to assess and share their environmental, social and governance (ESG) performances.

Through ESRS (European Sustainability Reporting Standards), standards for this reporting, the CSRD defines all the sustainability issues on which a company can be evaluated. Depending on the steps above, it is up to you to Define the issues relevant to your business through a matrix of materiality.

We recommend using this list to define your own!

In the diagram below, we show you The main ESRS and how they are organized and then dive into the details of sustainability issues.

ESRS E1 - Climate change

• Adapting to climate change
• Climate change mitigation
• Energy

ESRS E2 - Pollution

• Air pollution
• Water pollution
• Soil pollution
• Pollutions of living and food organisms
• Substances of concern
• Substances of very high concern
• Microplastics

ESRS E3 - Aquatic and marine resources

• Water
• Marine resources

ESRS E4 - Biodiversity and ecosystems

• Direct impact vectors of biodiversity loss
• Effects on the status of species
• Impacts on the extent and condition of ecosystems
• Impacts and dependencies on ecosystem services

ESRS E5 - Circular economy

• Incoming resources, including resource usage
• Outgoing resources related to products and services
• Waste

ESRS S1 - Company Workforce

• Working conditions
• Equal treatment and equal opportunities for all
• Other work-related rights

ESRS S2 - Value Chain Workers

• Working conditions
• Equal treatment and equal opportunities for all
• Other work-related rights

ESRS S3 - Communities Affected

• Economic, social and cultural rights of communities
• Civil and political rights of communities
• Indigenous peoples' rights

ESRS S4 - Consumers and End Users

• Impacts related to information on consumers and/or end users
• Consumer and/or end user safety
• Social inclusion of consumers and/or end users

ESRS G1 - Business Conduct

• Corporate culture
• Whistleblower protection
• Animal welfare
• Political commitment and lobbying activities
• Managing relationships with suppliers, including payment practices
• Corruption and bribery

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Going further and improving its ESG performances

Once you have defined your sustainability challenges with your stakeholders, it is up to you to play and implement actions to contribute positively to society and the environment.

If you are subject to the CSRD, we invite you to look at the list of indicators defined in the ESRS and to choose the right indicators to monitor for your business.

Otherwise, to formalize your ESG approach, we advise you for each sustainability issue to define policies with quantitative objectives, concrete actions and indicators to follow.

Formalize its policies

After identifying your key sustainability issues, you will need to give your company a direction by formalizing your ESG policies.

For starters, clearly define the scope of application of the policy, specifying the sites and activities concerned.

And then, Set concrete, measurable, and time-bound goals for each theme, ranging from general commitments to quantitative goals by theme.

Finally, for the policy to be complete, we recommend that you specify the governance structure as well as the mechanisms for reviewing and updating the policy.

The almost essential policies to write for businesses are:

• An HR policy,
• An ethical charter,
• An environmental policy,
• A responsible purchasing policy.

Define concrete actions

To prove the seriousness of your approach, we recommend that you justify at least 4 actions for each of your sustainability challenges.

It is essential to use supporting documentation to prove the implementation of these actions, such as procedures, action plans, and official documents.

For large organizations, it is important to demonstrate that the actions were deployed over a significant part of the perimeter to ensure that it is an effective action.

Some examples of actions related to ethics: mapping anti-corruption risks, drafting an alert procedure, offering training on fraud, etc.

Some examples of actions related to the social part: conduct satisfaction surveys on working conditions, define an individualized career plan, offer training on diversity and inclusion, set up exchange sessions between employees and management, etc.

These are only examples, it's up to you to define the actions that best suit you!

Define your goals

We will find the objectives in the policies and also in the actions that result from them. They are going to allow a regular follow-up over the short, medium and long term to adjust and adapt your ESG strategy.

The goals should be SMART:

• Specific, clear and understandable,
• Measurable, quantified or quantifiable,
• Achievable, in line with your approach,
• Realistic, accurate and in line with your business,
• Temporal, the perimeter and the temporality must be defined.

For example, “reduce CO2 emissions by 20% by 2025" or “achieve gender parity of 50% in management positions by 2030".

Follow the right indicators

For each of your sustainability challenges, Define indicators to monitor your ESG performance over time. This may involve monitoring the number of accidents at work, the percentage of employees who have signed your ethical charter, your carbon emissions in terms of CO2, all the indicators that make sense for your company.

To help you define them, we have prepared a list of 100 ESG indicators that we think are relevant!

Then, you are free to build your own list of ESG indicators according to your challenges.

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Conclusion

To build an ESG approach, the first step is to understand what are the issues on which your company has a positive or negative impact on the environment and the social part. To get there, two tips: analyze the context of your business, regulations, best practices and the second, of know the list of all sustainability issues. This is essential to define which ones are the most relevant for your business.

Once you have consolidated results in agreement with your stakeholders, we recommend that you synthesize all this in the form of a matrix of double materiality.

Then, take action by defining policies, actions, objectives by following the right indicators.

All these steps can seem complex, there are a lot of parameters to take into account and the data is sometimes fragmented.

To meet the demands of your customers, your investors, your banks, we advise you to centralize everything within what is called a CSR management system.

At Ditto, our experts support businesses in formalize their CSR procedures to meet all these requirements. If you need help, don't hesitate to contact us.