As organizations strive for sustainability at the core, ESG scorecards offer accountability and results.
As environmental, social and governance (ESG) sustainability evolves from a nice-to-have to a critical component of your business, remember that what gets measured gets done. An ESG scorecard can embed sustainability metrics throughout your organization, translating strategic objectives into individual responsibilities.
This is critical because sustainability is everyone’s business in the business — but few organizations cascade this responsibility beyond executive leadership. We believe that only when companies are sustainable at the core will they be equipped to achieve the goals stakeholders expect. This means embedding ESG into the scorecard and engaging people at every level.
Increasingly, sustainability is driving customer purchases, employees are seeking organizations with strong ESG goals, regulators are requiring greater public transparency, and investors and proxy advisors are pushing companies to do more.
Going above and beyond on sustainability pleases stakeholders, and it’s the right thing to do for our planet and people. What’s more, it can increase sales, lower costs, and improve employee attraction and retention — a critical advantage during talent shortages.
What is ESG?
Environmental sustainability measures how an organization performs as a steward of nature, including energy use, pollution, waste, natural resource conservation and treatment of animals.
Social sustainability measures how an organization manages relationships with employees, suppliers, customers and communities.
Governance sustainability measures rights and responsibilities as well as expectations between stakeholders in corporate governance.
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ESG trends
Mercer’s Global Talent Trends 2022 found that organizations are increasingly invested in achieving sustainability goals.
97%
of executives are focused on ESG in their organizations.
64%
worry that embedding these goals into transformation plans will impact commitments to sustainability objectives.
1 in 3
executives says ESG/sustainability goals are influencing companies’ three-year plans.
50%
of HR leaders say they’re focusing more on ESG, sustainability and stakeholder capitalism because of the pandemic.
45%
of HR leaders are ensuring that executives have obligations for ESG/sustainability metrics.
6 in 10
companies are sharing ESG risks and rewards across all stakeholders.
Actions lag behind intentions
Despite the benefits of embracing ESG, the consensus is that organizations aren’t making positive change fast enough. Today, just 25% of executives say their companies have made inroads on ESG/sustainability initiatives.* Most organizations are doing only what’s mandatory, ensuring they’re complying with ESG regulations, but a small yet growing group of companies wants to make a greater impact instead of simply completing requisite compensation transparency exercises, they actively work to achieve internal pay equity and improve diversity, equity, and inclusion (DEI) programs and measures.
It can be a struggle to create the right sustainability objectives and incentives. Although more than 80% of organizations say they’re focused on improving DEI, a critical part of social sustainability, only half have set formal, quantitative DEI goals and targets. And though the social facet of ESG is gaining on the previously predominant environmental focus, only about one-third of C-suite executives have targets on their personal scorecards related to good work standards (37%) and DEI (36%).
* Mercer’s Global Talent Trends 2022.
ESG scorecards pave the way
For organizations at any stage of ESG engagement, a scorecard can deliver results, guiding leaders to make more conscious sustainability-driven decisions about stakeholder engagement, focus areas, structure and governance, resource management, and metrics and funding. Focusing on these transformational components can help embed sustainability into leadership, people practices and operations.
A scorecard can also unwind traditional incentives driven by profitability and individual performance, creating budgets based on a broader range of factors, including the organization’s ability to achieve its ESG goals. To that end, ESG targets have also begun moving down the executive ladder, affecting managers and employees who are typically untouched by these objectives.
Embedding sustainability into your organization’s DNA
Becoming sustainable at the core is a transformational exercise. Translating values into commitments, and standards into practices, starts at the top and wends its way through every level of the organization. Consider taking these steps:
Before anything else, board members and executives can commit to becoming sustainable at the core. This commitment is explicit and cascaded down through the organization. HR can support this exercise from the beginning.
Make sustainability part of your organization’s purpose and identity, anchored in your business strategy and target operating model. Strive to ensure that it aligns products and services, processes and people.
A sustainability index or risk assessment can measure your organization’s ESG performance. You can use the framework to make better informed decisions to increase sustainability.
Create a program that embeds sustainability and responsibilities throughout the hierarchy. Consider tying executives’ compensation, including short-term and long-term incentives, to achievement of ESG metrics — a legal obligation for publicly listed companies in some jurisdictions and a good idea for everyone else. Incentivize managers and employees to deliver on the ESG strategy as well, and reward them for contributing to the “green” and social footprint of their company. Monitor progress, measure results in a quantifiable way and adjust as needed.
Explain the company’s position on ESG — the rationale, the strategy and how everyone benefits from it — to employees throughout the organization. Everyone can feel they’re part of the solution and understand how their performance makes a difference.
Equip your people with the right competencies so they can deliver and perform on the processes and targets. Upskill and train your workforce where needed.
Reflect on and reinforce desired behavior. Make sure daily decisions reflect sustainability principles — a change that calls for a cultural and behavioral shift in the organization.
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Circular economy, circular responsibilities
For organizations focused on a circular economy — one that reduces the use of materials, designs products to use fewer resources, and recycles used products to manufacture new materials and products — performance and compensation outcomes might be tied to ESG metrics for various employee groups.
- Leaders can start by creating and communicating the strategy and rationale: A circular economy is an important part of ESG for the environment but also for the organization as it brings cost savings, pleases customers and attracts talent.
- The execution of the strategy extends to product managers, who are tasked with creating products designed for recycling and highly aligned with circular economy objectives.
- The sales of sustainable products can be incentivized by attractive compensation schemes to constantly increase the share of such products in the company’s revenue.
- Service employees also have a role to play as they connect with customers to retrieve and recycle used products.
Challenge yourself: 10 questions on embedding ESG into your organization
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Have you identified your organization’s most pressing ESG issues?
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To what extent are your organizational purpose and culture aligned to ESG?
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How aligned are your incentive plans with your ESG objectives? Are they working? Do you incentivize for ESG outside compensation?
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How are you bringing your people along on the journey? How much are people across the organization thinking of ESG in their day-to-day work?
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Have you identified the jobs throughout your organization that have the greatest impact on ESG performance? Are they evolving to deliver?
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Have you embedded ESG into your talent management programs?
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How have ESG expectations influenced your products and service offerings?
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Are you staying ahead of evolving regulations and reporting requirements?
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How are you assessing, benchmarking and managing your ESG progress?
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Have you set time-bound commitments to remain accountable?
Do good to do well
Progressive organizations are resetting their purpose for sustainability and engaging the entire workforce in their transformation. To ensure measurable results, they’re incentivizing actions that deliver a competitive advantage while taking corporate responsibility to help people and societies not only survive, but thrive, for generations to come.
