ESG is an attempt to analyze the most important elements of an organization and how policies are regulated and applied. Organizations should address environmental, social and governance (ESG) practices and reporting within their framework. Originally designed to better approach the most sustainable realms of investment, ESG has evolved into a ubiquitous public discussion that greatly impacts the business ecosystem.
Why Policy Management is the Infrastructure of ESG
Stakeholders, customers, employees, and investors want to be sure that the companies with whom they interact and invest share the same values and commitments and that those values are reported in their policies. Regulators are paying close attention to ESG (Environmental Social and Governmental) practices as governments enforce standards for sustainability, social justice, and corporate governance.
Additional Read: Elements of an effective compliance program
What is Environmental Social and Corporate Governance (ESG)?
ESG refers to a standard of business conduct that incorporates environmental, social and governance considerations. As ESG becomes more important to directors, it’s essential to consider the regional nuances that drive focus. The core of ESG is about organizational integrity. ESG covers a wide range of corporate behavior:
Investors and stakeholders have a primary interest in the environmental impact an organization has. This includes an analysis and reports of the organization’s values and commitments related to the management of the natural world and the environment. From this, there will be a reporting and tracking of the organization’s environmental initiatives related to climate change, waste management, pollution, resource use and depletion, greenhouse gasses, and more.
The social element includes employee and customer/partner relations, human rights (e.g. anti-slavery), diversity and inclusion, anti-harassment and anti-discrimination, and privacy of individuals. Employees and others subjected to the working conditions and labor standards (e.g. child labor, forced labor, health, and safety) must be protected by social policy procedures. How the company participates and contributes to society and the community is reflected in the ESG and stems from the manner in which the company operates.
For the governance section, there will be measures and reports about the organization’s culture and behavior in the context and their alignment with the organization’s values and commitments. Typically, an organization needs strong management to oversee the entire operation in order for the legal priorities to function smoothly and remain consistent with the policies set in place. These policies define the behavior of individuals/roles, transactions, processes, and organizational relationships. This includes financial and tax strategies, reporting, resilience, combating bribery and corruption, security, diversity and board structure, and transparency and accountability.
For an organization to report an ESG, it must have something to report. This requires an ESG program to be built around the organization’s policies.
What is Policy management?
Policy management is a continuous process that requires regular adjustment to accommodate new technologies, updated legislation and best practices.
Managing your policies is an ongoing process. As the organization changes and grows, so must your policies. Setting them in place and communicating them across the organization is equally important. What lies at the heart of effective policy management is making sure that the policies you have worked hard on are adopted. The most perfectly-designed policies are nothing more than words on paper if they are not implemented and acted upon. Enforcing their take-up and ongoing compliance is the real nucleus of policy management; the key stage that will take your policies from aspirational to in-built.
Why is Policy Management important?
The risks of not managing your policies effectively should provide sufficient incentive to prioritize and recognize the importance of policy management, though. There’s the risk of health and safety breaches. The potential for regulatory fines. The reputational damage that results from publicity around legislative breaches. The possibility of lawsuits.
Good policy management demands the buy-in and understanding of your policies. It might mean training and testing the teams responsible for implementing the policies to ensure they fully appreciate what they need to do.
Policy Management in ESG
The main foundation of the ESG strategy is based on the policies of the organization, starting with the code of conduct and operating under the scope of policies that support the many E, S and G aspects of the ESG. In policies, what is acceptable and what is not should be clearly defined. Furthermore, you cannot have an ESG program without policies. Policies set a standard that should be upheld as a whole. With the proper policies implemented, the organization’s behavior, values, ethics and controls will work well to address risks and ensure that the organization reliably achieves its objectives, including ESG related goals.
Any organization developing an ESG program must have the following:
- Policy and Indicator Framework. An organization should have a common policy management framework and an index of all policies that is accessible to all employees. Unauthorized policies (fake policies) can place significant liability and duty of care on the organization. This indicator should highlight the policy scope that applies to the organization’s ESG strategy and reporting, starting with the department’s code of conduct and policy mapping.
- A consistent pattern and style guide for policies. ESG-related policies should be consistently written in line with the organization’s “policies on writing policy” and style guide. Policies must be published in an approved form to ensure they are easily recognized as the official organizational policies and must be able to be distinguished from unauthorized policies.
- Consistent policy placement. All policies should be easily accessible by employees and other stakeholders through a single portal, meaning there should be one way to access it online. When policies are scattered across different service portals, they tend to be managed very poorly which ends up confusing employees and stakeholders. Placing the policies in a singular portal allows consistent access to the policies from everyone involved which leads to a stronger ESG culture and its here where Policy management software plays a critical role. And a strong ESG culture means good political participation and easy access to policies.
- Training and education. For ESG policies to be effective, individual roles within the organization need appropriate training on the policies in their particular organizational context. If everyone is to do their best, then proper training and education programs must be implemented and utilized.
- Process monitoring and enforcement. Well written ESG policies are not enough (though they are extremely necessary); they must be applied. This means regular assessment and assurance activities to measure that policies are being followed. The application of these policies and their assessments of them are then included in the ESG report.
- Reports on specific problems. The organization should also have clearly defined channels for reporting issues, complaints and incidents of non-compliance with the ESG policy. In certain instances, options of anonymity are required in order to protect the individuals of an organization. This can be done through hotlines, management reports and other means such as surveys and feedback.
- A diverse approach to policy. Understanding how people from different races, backgrounds, and genders feel within the organization is needed to create a safe work environment. But diversity also leads away from an echo chamber of ideas and can lead to a more innovative and profitable environment.
Your ESG should result in a diverse, sustainable, environmentally sound perspective. Many aspects can be considered when performing ESG structuring. For example, it is important to be clear in the statement of policies but organizations should always be open-minded about how they can change and improve their operation. The impacts an organization has on its surrounding community are crucial and should be dealt with in its policy. All policies should be reviewed frequently and documented. Easy access to policies for employees is mandatory and the well-being of everyone involved should always be held as the highest priority.