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 gaining prominence among businesses. Investors and entrepreneurs are embracing more responsible investment strategies, and the ESG Plan has emerged as a comprehensive tool to integrate these principles into business decision-making. In short, companies are incorporating social and environmental impact into their core strategy. Essentially, a business should maximize returns for its two main shareholders—its financial backers and the planet—through a dual accounting system: one for social/environmental impact and the other for economic gains. The goal is to have a purpose where making money goes hand in hand with benefiting society and the planet, rather than at their expense.

I am tired of seeing ESG plans that stretch beyond 500 pages, where companies confuse and blend terms that have little to do with ESG, such as philanthropy or merely “doing the right thing.” An ESG plan should only include those strategic initiatives that generate dual impact, or shared value, for both shareholders and the planet.

Components of an ESG Plan:

• Purpose: What value are we adding to society and the planet?

• Environmental regeneration:

  • Natural resource management: This includes measures to minimize the use of natural resources such as water and energy, and strategies for waste management and emissions reduction (circular economy).
  • Climate change: Reducing greenhouse gas emissions, adapting to climate change, and promoting regenerative practices.

• Social justice:

  • Labor relations: This encompasses policies on equal opportunities, job security, fair wages, and diversity and inclusion in the workplace.
  • Community impact: It assesses how a company contributes to the well-being of local communities through social, educational, and development initiatives, particularly for vulnerable groups.

• Social and economic impact:

  • Business ethics: This refers to ethical and transparent business practices, integrity in decision-making, and the fight against corruption and nepotism.
  • Measurement and control: This examines the composition and effectiveness of the board, executive compensation, financial and non-financial reporting, as well as the measurement of social and environmental impact projects and their economic value for the business.

Implementation of the ESG Plan:

Successful ESG implementation requires strong commitment from top management and involvement from all stakeholders, including employees, investors, customers, and communities. Some companies opt for internationally recognized ESG certifications to validate their commitment, but the most important thing is to create a culture that prioritizes community and planetary well-being over short-term financial performance. Long-term value, thinking of future generations, must be the goal.

The CEO must lead the ESG strategy. It makes little sense to have an ESG director with no power, no budget, and no business knowledge. The social and environmental impact of a company is crucial for value creation and ensuring a profitable and sustainable business in the long run. I am tired of seeing communication or financial directors leading these areas, often resulting in policies that look more like “greenwashing” than 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 strengthens a company’s brand image and builds trust with key stakeholders, which is essential for attracting and retaining talent.
• Access to capital: Institutional investors and funds are increasingly interested in companies with high ESG standards, facilitating access to capital and lowering financing costs.
• Future value: In a world transitioning toward a purpose-driven economy, only companies that create real value for people and the planet will survive, as these are the driving forces of value generation (The 3 Ps: Profit + People + Planet).

In summary, an ESG Plan is a holistic approach to business management that recognizes the importance of environmental, social, and governance considerations in long-term value creation. 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 rapidly evolving toward a purpose-driven economy.