Debunking ESG Plans: their meaning and purpose

In a world increasingly aware of social inequality and environmental degradation, the measurement of Environmental, Social, and Governance (ESG) impact is becoming more prevalent in companies, as investors and entrepreneurs adopt more responsible strategies for their investments. The ESG Plan is a comprehensive tool designed to incorporate these principles into business decision-making, integrating social and environmental impact into the company’s strategy. In other words, the company must maximize the profitability of its two main shareholders—economic stakeholders and the planet—by maintaining a dual accounting system: one social/environmental and one economic. Ultimately, the goal is to have a purpose that generates profit, rather than making money at the expense of others and the degradation of the planet.

I’m tired of seeing ESG plans that are over 500 pages long, where companies confuse and mix terms that have “nothing” to do with ESG, such as philanthropy and simply doing the right thing. An ESG plan should only include strategic initiatives that generate double impact or shared value, both for shareholders and the planet.

Components of an ESG Plan:

• Purpose: What value contribution will we make to improve society and the planet?
• Environmental Regeneration:
  • Natural Resource Management: Includes measures to minimize the consumption of natural resources like water and energy, as well as strategies for waste and emissions management (circular economy).
  • Climate Change: Reduction of greenhouse gas emissions, adaptation to climate change, and promotion of regenerative practices.
• Social Justice:
  • Labor Relations: Encompasses policies related to equal opportunities, job security, fair wages, and diversity and inclusion in the workplace.
  • Community Impact: Evaluates how the company contributes to the well-being of local communities through social, educational, and development initiatives (especially for vulnerable groups).
• Social and Economic Impact:
  • Business Ethics: Refers to ethical and transparent business practices, integrity in decision-making, and the fight against corruption and nepotism.
  • Measurement and Control: Examines the composition and effectiveness of the board of directors, executive compensation, and the disclosure of financial and non-financial information, as well as the measurement of social and environmental impact projects and their economic value for the business.

Implementation of the ESG Plan:

The successful implementation of an ESG Plan requires firm commitment from top management, as well as the involvement of all stakeholders, including employees, investors, customers, and communities. Some companies choose to pursue internationally recognized ESG certifications to validate their commitment and progress in this area. However, the most important thing is to create a culture where decisions that benefit the community and the planet are prioritized over short-term economic performance. It’s essential to focus on long-term value, keeping future generations in mind.

The ESG director should be the company’s CEO; it makes no sense to have an ESG leader without power, budget, or business knowledge. The social and environmental impact of a company is crucial for value creation and for ensuring a profitable and sustainable business over time. I’m tired of seeing Communications Directors or Financial Directors leading these areas just to ensure policies that are clearly more akin to “greenwashing” than to a genuine and authentic purpose.

Benefits of an ESG Plan:

• Business Resilience: Companies with a strong ESG focus are better positioned to face emerging challenges and risks, such as climate change and social crises.
• Reputation Enhancement: Adopting sustainable and ethical practices can strengthen a company’s brand image and build trust among key stakeholders, essential for attracting and retaining talent.
• Access to Capital: Institutional investors and investment funds are increasingly interested in companies with high ESG standards, which can facilitate access to capital and reduce financing costs.
• Future Value: In a world transitioning towards a purpose-driven economy, only those companies that provide real value to people and the planet, as drivers of value generation (The 3 Ps: profit + people + planet), will survive.

In summary, an ESG Plan is a holistic approach to business management that recognizes the importance of environmental, social, and governance considerations in creating long-term value. By adopting and executing an ESG Plan, companies can not only mitigate risks but also seize opportunities to innovate and lead in a world that is constantly evolving towards a purpose-driven economy.