Businesses and organizations of all types and sizes are now giving increasing attention to ESG or sustainability. Sustainability is also among the top priorities of investors, financial institutions, regulators, and governments who want businesses to be accountable for their activities.
Due to this increased focus on ESG and sustainability, most business executives are either busy formulating their initial ESG strategies or improving the existing ESG framework of their organization. An ESG audit can help you in both the scenarios as it’s helpful both when creating an ESG strategy or while improving the ESG strategy already in place.
What is an ESG or sustainability Audit?
An ESG or sustainability audit is an exercise to check the current status of your company in terms of ESG. It’s nothing more than a check designed to find out exactly where you stand on sustainability at present. An ESG audit is often the first step when creating an ESG strategy and plays an important role in formulating an ESG framework for your business.
Why you need an ESG audit of your business?
A sustainability audit will allow you to assess the strengths and weaknesses of your organization when it comes to ESG. It’s a lengthy exercise that often involves several departments of a business and can take weeks or even months. An ESG audit can help you answer several important questions, such as:
- Who are the company’s stakeholders, and what are their expectations about the organizations’ ESG responsibility?
- Does the company have a clear view of all ESG risks associated with the ESG strategy in place and how it plans to deal with these risks?
- What is the level of coordination between different departments that are responsible for executing the ESG strategy in place?
- How the company measures the impact of it’s ESG activities using the metrics and KPIs identified in the ESG strategy?
An ESG audit will also allow you to conduct thorough research in the sustainable practices followed by your business and will allow you to analyze activities that are most beneficial for your organization. You can fine-tune your ESG strategy after conducting a thorough ESG audit based on the outcomes of such an audit.
How to conduct a sustainability or ESG audit
There is no one size fits all approach that can be applied to ESG audits as each company or business is different. While a company selling chemicals may have to consider the health hazard posed by their products to customers, their ESG audit will certainly differ from a tea plantation company where the business will have to focus on the societal and governance aspects to ensure that they tea plantation workers are paid well and face no discrimination or other social or governance related issues.
It’s important to identify your main ESG concerns before conducting an ESG audit as your ESG priorities will largely depend on the nature of your business as we have explained in the above example. Here are some questions that you can use based on your individual needs while conducting an ESG audit:
Environmental Impact: Waste Reduction – What the business is doing to reduce the waste produced due to operations or as a byproduct of manufacturing or providing a product or service?
Environmental Impact: Carbon Footprint & Toxin reduction – What the business is doing to reduce its carbon footprint & reduce the amount of toxins or toxic materials produced in the course of operations?
Environmental Impact: Product Development & Lifecycle – What the business is doing to reduce the environmental impact of its products during their development phase and in the lifecycle of each product?
Environmental Impact: Supply Chain & Procurement – What the business is doing to minimize the environmental impact of its procurement operations and what it is doing to lessen the environmental impact of its suppliers?
Social Impact: Workers – What the business is doing to ensure welfare of its employees and workers?
Social Impact: Community – What the business is doing for community in which it operates and what is the company giving back to community?
Governance – What is the overall state of governance of the business and what kinds of checks and balances are in place to ensure a smooth governance structure for the whole organization?
These are just some of the questions that you must include in a sustainability audit. As we’ve highlighted earlier, the ESG needs of every business differ from another one and there is no one size fits all approach when it comes to conducting an ESG audit. The process involves improvisation, and you may have to go with an approach riddled with trial and error to find the method that works for your organization.