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[ESG] Business challenges in leading ESG

ESG (environmental, social and governance) disclosures are key to attracting investors, while also serve as an impetus for  companies to improve their operations, and benefit society.  What are the challenges when executing these initiatives?

While many organisations are finding ways to run a sustainable and successful business, they don't know where to begin those landmark changes.   Some companies form sustainability teams to do all the work but they may lack the financial knowledge to meaningfully connect those practices to the company's finances and operations to effectively initiate change.   Let's take a look at these challenges and how professionals may equip themselves with the necessary skills to succeed in the field.
On 18 December 2019, the HKEX announced enhanced ESG reporting requirements for a company's board to disclose its oversight of ESG issues, its' ESG management approach and strategy, and how it reviews progress.
The board must have a formal ESG governance structure, sufficient knowledge and expertise in ESG internal risk management processes that connect to ESG risk management, and overall ESG strategy with clear goals and targets.
1.  About KPIs
  • When it comes to ESG reporting, one needs to set the right key performance indicators (KPI) and articulate the them while garnering more interest and trust from existing and potential customers, investors and stakeholders.  
  • KPIs were put in place to track all three aspects  of ESGs.   They were also set to measure hours of staff training, staff composition, board diversity and the company's corporate social responsibility.
  • KPIs need to be relevant to the company and bring the board to a consensus.
2.  Set the realistic KPIs
  • Gather insights through surveys, from within and outside the company; engage with stakeholders to understand their expectation, concerns and collect their opinions.
  • Understand which ESG factors are most important and relevant to the company, and the areas in which resources must be allocated and prioritised.
  • Set vision and benchmarks to measure its relevant performance.  Set these KPIs with purpose.
3.  ESG is a cross-departmental issue
  • Garner support from management and different departments within the company. 
  • Each department also must be trained on how to track and monitor performance; set roles and responsibilities of those managing these KPIs.
  • Regular communication needs to be established between company's operations and management regarding ESG issues.
ESG matters are wide-ranging and don't require just one department.  Some departments might not have a clue what ESG is.   It is important to let them know why ESG is relevant to them and their responsibility. 
To further encourage that, management must manage the expectations and communicate its value of ESG to investors as well.  It is important to connect the dots between financial and non-financial information.   Yet, during a sustainability assurance engagement, one needs to look at the risk of misstatement to make sure the report presents a whole truth.
Communication skills are vital.  Beyond ESG knowledge is the need for strong communication and people skills so you can get all departments involved as they all have a role to play.  In terms of financial statement audit, since the scope of ESG is so wide, the assurers need to communicate with a wide range of people within the company for ESG integration and get people's buy-in.
Right now, there is a shortage of these skills.
Source:  Extract from APlus Magazine, December 2020 issue
Tags:   ESG    /  Integrated management   /   Sustainability   /   Leadership
There is a wordbook with the word "ESG"
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