Originally Published: https://www.bluegreenadvisors.com/news/strategic-ESG-management
Navigating the complexities of ESG (environmental, social, and governance)** requires focus, expertise, and integration. Businesses, particularly those in growth phases, often fall into common pitfalls: trying to tackle everything, relegating ESG to junior staff, or using it primarily as a PR exercise. To succeed, ESG must be prioritized, led by seasoned professionals, and embedded into operations.
Prioritize: Focus on Material Impact and Value Creation
Trying to address the universe of ESG issues simultaneously dilutes effectiveness. ESG efforts should be guided by what materially affects your business and its stakeholders. Strategic prioritization ties initiatives to measurable financial and operational outcomes, ensuring resources are used effectively.
Key Challenges
Fragmented Frameworks: ESG rating systems often conflict, companies score well on one and poorly on another (Berg et al., 2022), making it impossible to meet all criteria acorss the board. Companies should be comfortable with selective underperformance in less relevant metrics.
Breadth Over Depth: Many companies, especially growth-stage, often spread themselves thin, chasing investor and customer expectations without clear priorities.
Practical Steps for Prioritization
Conduct a Materiality Assessment: Use CSRD, or other relevant frameworks, to identify ESG factors with the highest impact on financial performance and stakeholder value. Engage finance and operations, to ensure alignment.
Evaluate Opportunity Costs: Like all efforts, ESG investments carry trade-offs. Go through the process to evaluate the financials to determine P&L/ cashflow impact, do not simply go by 'gut feel' (Edmans, 2023).
Develop a Strategic Roadmap: Define priorities based on balancing short-term and long-term relevance. Do it before you communicate publicly and avoid overextending by clearly communicating what’s included—and excluded—in an ESG strategy.
Professionalize: Elevate ESG Leadership
Assigning ESG solely to junior staff or tacking it onto existing roles undermines its strategic importance. ESG, like legal or finance functions, requires specialized knowledge, cross-functional understanding, and senior-level buy-in to drive meaningful results.
Key Challenges
Lack of Expertise: Junior staff often lack the authority and strategic oversight required to integrate ESG across operations.
Diluted Focus: ESG as a "side role" can result in underwhelming outcomes for both ESG initiatives and other responsibilities.
Actions for Effective ESG Leadership
Establish Senior Oversight: Elevate ESG to the C-suite or board level to signal commitment and align with corporate strategy (Eccles and Taylor, 2023).
Hire or Engage Experts: Partner with experienced ESG professionals or consultants to shape strategy, build literacy across teams, and ensure impactful execution. This may need to take place before a full-time hire, particularly with growth-stage companies.
Implement Governance Structures: Develop formal governance to embed ESG into decision-making processes and operational goals. Educate leaders.
Operationalize: Integrate ESG into Core Business Functions
Treating ESG as a siloed PR initiative undermines its potential to create operational value. ESG should enhance core business processes, not merely bolster public perception. Overpromising on ESG commitments before delivering measurable results increases the risk of greenwashing and reputational harm.
Key Challenges
PR-Driven Approaches: Positioning ESG within communications or corporate affairs teams signals a focus on optics rather than outcomes—as historically, businesses have viewed it as such.
Greenwashing Risks: Without tangible results, public ESG commitments can erode trust and invite scrutiny.
Steps to Operationalize ESG
Embed ESG across Functions: Identify operational value in areas such as investor relations, R&D, and supply chain management.
Prioritize Action over Messaging: Communicate ESG achievements only after demonstrating measurable impact.
Adopt Robust Metrics: Use KPIs to track ESG outcomes, tie them to financial objectives, ensuring accountability and showcasing value creation over time.
Prepare for Success
To maximize ESG’s potential, companies must focus on material issues, build senior leadership engagement, and operationalize their strategies. ESG should enhance performance, not serve solely as a compliance checklist or marketing tool. By avoiding common missteps and creating an actionable framework, businesses can build credibility, achieve operational improvements, and drive sustained value.
The team at BGA has significant experience and expertise supporting companies at every stage of their ESG journey. Reach out to learn more.
**Note: While for the purposes of this analysis ESG has been used as an umbrella term and used interchangeably; the following three terms are in fact nuanced: ESG, Sustainability, and Impact.
Sources
Berg, Florian, Julian F. Kölbel, and Roberto Rigobon. "Aggregate Confusion: The Divergence of ESG Ratings." Review of Finance 26, no. 6 (2022): 1315–1344
Edmans, Alex. "Applying Economics – Not Gut Feel – To ESG." Financial Analysts Journal 79(4), 16-29, 2023
Eccles, Robert G., and Allison Taylor. "The ESG Imperative for Boards." Harvard Business Review, September–October 2023.
Reuters. State of Corporate ESG: Trends and Insights. Reuters Institute for the Study of Journalism, 2024.
Welch, Emily, and James Yoon. "ESG Leadership and Value Creation." Journal of Corporate Finance 78 (2022)