10 min read
A CEO's 5-Step Guide to Smart ESG
5 min read
ESG often feels like a tick box exercise, when it is in fact a strategic boardroom imperative. This article sheds light on why the current approach to ESG, marked by metrics tunnel vision and an overemphasis on data collection, is broken. We explore how Smart ESG, a governance-first, tech driven approach, can not only revive corporate governance but also empower modern CEOs to lead the way in navigating their business in a rapidly changing world. Join us as we delve into the five practical steps CEOs can follow to implement Smart ESG in their organizations.
In a landscape where corporate governance often feels like a mere compliance exercise, the elephant in the Boardroom is the apparent failure of traditional Environmental, Social, and Governance (ESG) approaches. These outdated models - marked by metrics tunnel vision, disclosure obsession, a ‘wait-and-see’ for regulation mentality, outsourcing of expertise, and dependency on stakeholder opinion - are out of touch with the realities of a fast-paced world.
The challenge lies in striking a balance between long-term growth and being agile enough to embrace opportunities and withstand unforeseen challenges. Climate crises, societal upheavals, global pandemics, geopolitical conflicts, and a general trust deficit in corporations have thrust ESG into the boardroom spotlight, making it a strategic imperative, not just a compliance checklist.
Even regulators recognize this dilemma. They’re introducing requirements that support - and ultimately, force - corporate leaders to take a governance first, metrics second approach. As evidenced by the EU Corporate Sustainability Reporting Directive (CSRD) and California Climate Disclosure Bill, there’s a global shift that’s compelling C-Suite to transcend mere good intentions. And that’s a good thing, since a more focused approach leads to growth opportunities.
Aggravated by heightened scrutiny and a widening ESG skills gap, this dilemma can hamper decision-making, jeopardizing a company’s competitive edge. The antidote? A smarter, tech-driven approach called Smart ESG. Smart ESG means authentically owning environmental, social and governance in-house by first deciding what matters most to one’s business, being transparent about the process, and keeping an eye on how those issues evolve - empowering one’s team with technology to do this more effectively.
While it’s not an overnight transformation, Smart ESG accelerates positive business outcomes.
How can CEOs get started? Here are five key steps for business leaders, to put Smart ESG into practice:
1. Focus on what matters most. Rather than leaping into standards or investor demands, C-suite should start by identifying their company’s genuine priorities through a materiality analysis. ESG can be overwhelming, especially for C-Suite leaders navigating disjointed regulatory landscapes and investor interests. Regulation won’t fix this, neither will investors. The buck stops with the C-Suite.
The key is to access relevant, real-time information and trends to stay informed, validate
priorities with objective insights, and steer leaders in the right direction.
That’s why a leading pharmaceutical company has taken a tech-enabled and data-driven approach to materiality, empowering its leaders to make efficient decisions based on reliable, real-time information on market expectations and requirements. This isn’t a one-off exercise - it’s a dynamic process rooted in bringing meaningful, up-to-date insights to their governance committees every quarter, helping to validate that the company is on the right track (gut check) and shed light on competitive opportunities to accelerate growth.
Ultimately, it’s about influencing action and ensuring better corporate governance with a systematic process and reliable strategic insights that are quick to access and reflect a more objective perspective.
2. Transition from awareness to action - set realistic goals. With a clear view of priority issues, corporate leaders must move from awareness to action. This entails setting well-defined, attainable goals. This depends on a comprehensive understanding of priority issues and deep insight into associated competitive opportunities, regulatory requirements, emerging policy making, and investor interests.
These goals should drive tangible progress and build internal capacity to do so. It’s not just about data collection for the sake of reporting; it’s about fostering a strategic mindset and aligning the company’s direction across the organization. This depends on empowering the different disciplines involved in ESG - across legal, finance, strategy - with quick insights to validate and refine their approach.
AI-driven technology is, in this way, fundamental to upskilling talent internally. With access to trustworthy information, individuals can educate themselves, gut check, align their thinking with external developments, and move from box-ticking to strategic thinking. By having a “single source of truth,” the different disciplines involved can start to speak the same language and come to consensus sooner.
3. Gather relevant data. Rather than drowning in a sea of irrelevant information, CEOs and corporate leaders can focus on gathering data that directly pertains to their priority issues. This ensures that they have the insights required to assess, plan, and act effectively, while managing resources efficiently. With Datamaran, this company identified Human Rights as an emerging issue about 3 years ahead of industry-wide shareholder proposals. By pinpointing this issue before others, they strategically allocated resources to strengthen their policy and differentiate. Not only did this foresight enhance its engagement with investors and reinforce its position as a leader; it drove financial opportunities.
4. Disclose important information. Once priority issues are in focus and relevant data is at hand, it’s time for meaningful disclosure. It’s not about routine data dumps for reporting or compliance; it’s about conveying the company’s actions, progress, and impact in a meaningful way. Smart ESG leverages technology to streamline the disclosure process, making it more transparent and engaging for stakeholders. This builds trust and demonstrates a genuine commitment to addressing ESG concerns.
5. Oversee, adapt, and stay focused. The Smart ESG journey doesn’t conclude with a single materiality analysis, data gathering and disclosure. It's an ongoing process that succeeds with Executive oversight, adaptability, and focus.
Technology empowers corporate leaders to keep up with evolving requirements, adjust strategies faster, and stay committed to their vision. As KPMG’s CEO Outlook reinforces, CEOs understand that AI technology provides a promising pathway to growth; it’s now a matter of making that a reality. Fortunately, there’s a decade worth of experience shared amongst the world’s leading companies to help pave the way for others.
This delicate balance between focus and agility is vital for long-term growth and resilience in a rapidly changing world. The Smart ESG approach ensures that organizations don't just respond to ESG trends but lead in shaping a more productive future.
The traditional ESG model is indeed in need of a reboot, but not a dismissal. Smart ESG serves as a bridge to a future that demands more than good intentions. It ensures that C-Suite doesn't simply keep up with the times; it enables them to become true leaders. Combining AI-driven technology with human expertise is the logical next step in the evolution of corporate governance.
Datamaran is the Smart ESG tech platform that helps leaders to lead. Find out how Datamaran’s platform can enable you to lead with governance and proactively monitor your ESG risks and opportunities in real-time by completing the discovery call form below.