Writing a Sustainable Action Plan for Your Business: 7 Steps
Modern-day businesses are much better at developing sustainable programs, being mindful of the environmental risks, and transparent about their actions than ever before. In current world practice, ESG-principles (ESG stands for environment, social, and governance) of doing business are not merely a trend that earns one good publicity – they are important when assessing the prospects and risks of companies. Environmental, social and management criteria affect the sustainable development of modern companies and are to be considered when writing a sustainable action plan. We are going to discuss the latter process which all sustainable businesses must go through in more detail below, so keep reading!
Talking About Sustainable Development
What legacy will we leave to our descendants? This issue has led to the emergence of new initiatives that have formed the basis of sustainable development. The term was used during a speech at the UN in 1987. Sustainable development was then described as “meeting current needs without compromising the ability of future generations to meet their needs.” After that, it began to be used everywhere.
In September 2015, the UN Summit approved 17 Sustainable Development Goals, which came into force in January 2016. For fifteen years, countries with different income levels will focus on tackling poverty, inequality, and climate change.
ESG analysis is mandatory for everyone in the world, it has become part of fiduciary duty. To help investors, rating agencies write independent reports on issuers. Exchanges also order independent ratings and create indices that include stocks that have the required minimum rating. For example, in September 2019, the Warsaw Stock Exchange created the WIG-ESG index, followed by the NN TFI fund, which manages $500 million. In total, the ESG investment industry manages assets worth $30 trillion worldwide!
What are ESG Criteria?
Social and environmental criteria mean:
- The company’s work for the benefit of the environment;
- conducting an ethical corporate policy of the company;
- no discrimination on any grounds;
- refusal to use child labor;
- businesses must exclude any possibility of corruption.
Benefits received by companies engaged in the development of sustainable development programs are numerous and include access to financing, both debt, and equity. The closer the ESG practices are followed, the larger the volume and the cheaper the cost of the capital raised. After all, less risk and lower volatility of company profits. In the financial world, many people focus on the so-called Sharpe Ratio – the ratio of profitability to volatility – and the smaller the denominator, the higher this ratio.
ESG factors affect not only the company’s image but also its capitalization. Companies that are parties to the UN Global Compact have the best performance compared to competitors in the following areas.
- The cost of capital is lower in 90% of cases;
- the best operational indicators in 80%;
- the best stock valuation of 80%;
- return on capital is higher by 7%.
Steps to Take For A Sustainable Action Plan
- Making a strategic environmental assessment (SEA) of your business. Sustainable development ensures the protection of the environment, the safety of human life and health, taking into account environmental requirements when developing and approving state planning documents.
- Analysis of the impact of the company’s activities on climate change. Environmental legislation is becoming increasingly stringent. Investors and the public are also watching how conscious the company is about the environment. These changes need to be prepared now to prevent large fines in the future. In addition, international financial institutions are more willing to finance projects that reduce greenhouse gas emissions. It is necessary to develop a methodology for accounting and inventory of greenhouse gas emissions. It is also important to make a list of measures to reduce, prevent and compensate for them. This is a must for both your business and the welfare of our planet.
- Supply chain stability analysis. Responsible supply chain management opens up several new opportunities for companies that adhere to sustainable development practices. This affects the commercial, environmental and social aspects of doing business.
- Environmental Due Diligence (EDD). Contaminated soil, water, and air, hazardous substances, and waste claims from the public and authorities, reputational risks can be inherited by the buyer of the business when buying it from the previous owner. The need to anticipate, measure, and minimize these risks has shaped the range of services to analyze the environmental component of the business.
- Disclosure of non-financial statements plays an important role in shaping the company’s image. The most authoritative non-financial reporting system is the principles of the Global Reporting Initiative (GRI). Compliance with the principles indicates the company’s focus on a sustainable economy and gives stakeholders an idea of the real value of the business that publishes its non-financial report.
- International investors require businesses to conduct an Environmental Impact Assessment (EIA) following World Bank and EBRD rules. if an enterprise expects to obtain financing for construction or reconstruction from international financial institutions, it must assess and identify potential adverse environmental risks. It is also important to influence the natural environment (air, water, and soil), to assess the potential social consequences for human health and safety.
- Introduction of energy efficiency principles. Putting together a sustainable action plan should include improving various processes and reducing pollution, and at the same time creating added value for the company. Benchmarking will help to achieve this goal and evaluate the results.
Resulting in Green Growth!
Current businesses have not stayed away from global trends. Sustainable development for companies around the world goes beyond environmental protection. This applies to all components of the business environment, including environmental, social, and managerial sustainability. Businesses of today are still learning to develop systematic approaches to sustainable development. We need to understand the importance of the topic, promote the growth of ESG practices in the business environment, and share the resources that will help companies to move forward in a way that won’t endanger future generations as well as allow ultimate sustainable profit!