ESG Policies

Although some critics may see ESG (environmental, social, and governance) issues as a burden imposed on companies from the outside, many companies have found that effective ESG policies can help lay the foundation for setting clear expectations and communicating a company’s stance on ESG related topics. But to reap the full benefits of an ESG program that is both values driven and value driven, companies need to craft well-designed policies to help them clearly articulate their position to stakeholders. So, what exactly are ESG policies, and why should they be considered a value-adding component of business strategy and operations?

Measurability is what makes the ESG methodology fundamentally different from other approaches to corporate responsibility. According to Nasdaq’s ESG Reporting Guide, the focus should be on reporting ESG performance data in terms that are measurable, manageable, actionable, and reportable. These basic principles should guide the formation of ESG policies.

At the most general level, policies need to address the broad categories of environmental, social, and governance factors and define which issues are most relevant to the company’s goals and operations. Environmental issues should include not only the impact on the environment and sustainability but also exposure to environmental risks, including regulatory issues and the potential impact of environmental changes on business operations, including in the supply chain. Likewise, social policies need to consider larger issues of social impact (improving diversity, equity, and inclusion) as well as risks (such as legal and regulatory implications, employee safety, consumer safety, customer preferences, and employee safety). Policies on company governance not only must address the governance structure but also should specify the company’s strategies for business ethics and risk mitigation such as data privacy.

Defining terms is a basic but important first step for thinking about ESG policy development. For example, policies should define exactly what is meant by terms like “bribery” or “corruption” and provide a clear scope on how the defined terms are applied across the organization. 

Ultimately, however, issues and principles need to be articulated as clear and specific policies for communication with relevant stakeholder groups. Companies can begin the process by evaluating the best practices of their own industry. Each industry has a different set of challenges and opportunities, and some ESG reporting frameworks, such as SASB and GRI, provide industry-specific criteria with distinct topics and metrics. In fact, some companies have chosen to report ESG performance according to a particular framework precisely because it can help them identify industry standards and achievable opportunities.

Having the right language to talk about ESG can help organizations identify and articulate priorities, but truly adopting an ESG mindset means putting strategies into practice. Policies can help companies begin this function, helping to define what a company will do, where the focus will be for the organization, and how programs will be implemented. Moreover, clearly defined policies are important for accountability and transparency.

ESG best practices for defining policies remain a moving target. Not only do practices vary from industry to industry, but standards, regulatory requirements, and stakeholder expectations continue to change rapidly. Still, some general guiding principles can be applied to most situations. The Anti-Corruption Report recommends that companies take five steps when establishing ESG policies.

Because ESG trends continue to accelerate and evolve, companies face a complex and changing set of challenges and opportunities if they seek to devise optimal policies. Fortunately, support is available to help companies find the best way forward. Over the last decade, Nasdaq has developed a comprehensive suite of ESG solutions to help client companies achieve their objectives. The ESG Advisory Program leverages Nasdaq’s extensive in-house expertise, bringing together data, insights, and a team of analysts to help clients prioritize and guide their ESG efforts, including policy development.  

Because ESG focuses on achieving measurable results, quality of data and credibility of reporting are crucial. This is another area where outside experience and expertise can help. Nasdaq OneReport simplifies the process of ESG data capture, engagement, oversight, and disclosure. In addition, Metrio, a leading provider of end-to-end ESG analytics and reporting services, was recently acquired by Nasdaq to improve support for client companies.

With a variety of services and solutions, Nasdaq is working to empower companies to develop and implement a defined, aligned, and future-forward ESG strategy. Not only can such an approach attract long-term capital, but it also can enhance value creation. When companies combine a values-driven strategy with value-driven policies, they can create the right conditions for sustainable success.