Insights from ESG leaders: tech makes materiality assessment easier

At GreenBiz23 Datamaran spoke with Ben Kruse, Global Head of ESG & Sustainability at Elanco Animal Health, a global animal health company working to improve the health of animals through innovative products and services for pets and farm animals around the world.

See the full video here, or focus on key points of interest in the links below.

How is ESG changing? 

“I think this space is an ever-evolving one, I think everyone would agree. Particularly with the almost exponential increase in regulatory pressure and engagement, across ESG and sustainability spaces have been a tremendous driver. That is not only pushing companies to enhance their disclosures and the quality of their disclosures, but it's allowing that whole reporting function to really drive and influence internal corporate strategy as well. It's been exciting to see how dynamic it is, I think, everyone's finding themselves in the same boat. It's an evolving space, we’re all learning together and just trying to do the best we can.”

Who is typically responsible for ESG? 

“The responsibility for ESG and sustainability has evolved into almost one, it varies by company. In some cases this function rolls up through the General Counsel, it might roll up through the public affairs department and that varies by company. But certainly, people are realizing that this is no longer all about carbon emissions and operational sustainability. The topics across the E, S, and G pillars impact corporate governance across the business.”

Are you seeing more senior team involvement in ESG?

“Definitely an increase in engagement across senior leadership. A lot of these issues, and how companies manage them to impact business units across the company. At the board level, where they have responsibility for that oversight and guidance, they're starting to ask the right questions about making sure we are identifying the most material and important ESG issues for the company. ‘How are we mitigating that risk?’ ‘How are we managing that?’ ‘How are we seizing opportunities around that can drive revenue for the company in some cases?’”

How would you advise companies to prioritize ESG issues?

“The best way to go about prioritizing your material ESG issues is, first of all, just get started. You've got to start somewhere, and your materiality assessment is foundational to that. Engaging the key stakeholders, internal and external, of the business. Also leveraging that concept of dual materiality, so it's not just the impacts that you're having externally, but also how the external environment is impacting the company and looking at the dollars and cents that are associated with that as well.”

Are there benefits to engaging with different internal stakeholders?

“Materiality assessments are an opportunity to engage parts of the business that you may not traditionally engage with as an ESG or sustainability function and help shed light on where those intersections exist. These are issues that cross multiple business units, and multiple departments and affect the entire company because it's about enterprise risk management. There is, I think in many cases, an eye-opening moment for these other departments when they realize this does impact them more than they might have traditionally thought. So certainly, there's an opportunity to build consensus and to build new relationships and partnerships. There's a lot of education as well to help them understand how it all ties together.”

Does technology make materiality assessments easier and more useful?

The very manual effort, uncovering what are the material topics internally, that the business in the departments might already be aware of, but then looking at what topics are affecting your peers, or others in your industry, or other corporate leaders that you look up to or benchmark against.

Can companies manage ESG in-house? 

“It depends on the organization, everyone's at a different point in the journey, I think some companies might need a little bit more help in terms of just getting started and with thought partnerships to help them build a strategy and create a program. Other companies are a little bit more mature, but even then there are opportunities for that thought partnership to get a sense of what are others doing and how they could be doing it better. We're all in this together and we're on this journey, we're trying to do the best job that we can. In some cases, we can do it in-house, in some cases finding some external help is valuable.”

What are the consequences of being an ESG laggard? 

“There are consequences if you're not staying on the pulse of these material issues of these regulatory pressures, or pressures from your customers. This is a space that everyone's paying an increasing amount of attention to. It does come down to risk, and you're putting your company at risk if you're not identifying what these issues are, building a plan around how to manage them, and making sure that you have the right governance structures and data structures. I've heard it said that ‘What gets measured gets managed’. If you're not building a platform that allows you to do that, you're putting yourself at risk. It all ties back to that enterprise risk management mindset.’

Who should the ESG team collaborate with? 

“Collaboration for the ESG and sustainability teams across the business is critical. The best practice is to look at creating some sort of steering committee or a group that has representation from all across the business. Finance should have a seat at the table, the General Counsel, the legal organization, procurement, and supply chain, but also the marketing parts of the organization, and the commercial parts of the business because in many ways ESG issues could well represent a competitive risk. It could also create opportunities for the company as well. You have to look across the business, at the company that I’m at, we expanded our governance council from four or five key functions to a group that represents 15 different business units across the company.”

What is the role of the ESG steering committee?

“ESG steering committees have an opportunity to be a sounding board for building leaders in ESG and sustainability that are looking to create a program. They're there to provide feedback, they're there to ask questions, and help people learn more. There's real value in that it allows you to create or uncover synergies so that it's not just the ESG and the sustainability team owning this lock, stock, and barrel. It takes the work of many, and there are opportunities to reach out and engage those other business units and get them involved as you move forward toward a goal or an initiative.”

What does the future hold for ESG? 

“For the next several years I think ESG will continue to become even more front of mind than it is and companies will continue to understand how important it is to integrate these issues into existing enterprise risk management and analysis.”

What do investors and shareholders want to hear about ESG?

‘ESG and sustainability shareholders want to understand, does a company get it? Does the company have its arms around the issues that are most material, and most important to them? Are they looking at it from a position of risk and a position of opportunity? Are they putting together the right structures and the right management teams to address those issues? Are they creating goals that challenge them and help them move the needle, whether that's removing risk, or whether it's seizing an opportunity or just reducing their environmental footprint and doing the right thing? They want to get a sense of a company's understanding of what these issues are and whether they can accurately and succinctly convey what they're doing about it.”

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