Environmental, social and governance (ESG) issues have come to the forefront, and present risk, as does financial performance. To some, these considerations have become more important than financial results. With the laser tight scrutiny of social media, both ESG and financial performance expectations are high. As established measures of financial success/profitability merge with evolving key performance indicators for ESG performance, they are becoming especially important when competitors vie for capital, customer loyalty and approval in a politically charged world.
Here I provide a framework for ESG accountability made practical by linking those factors to financial consequences.
MISSION AND VISION
This is where it all starts. To be successful, any organization needs to have a clear idea of:
- Mission – what you want to do, why you are in a chosen business.
- Vision – what you trying to achieve, the impact you want to have, or the difference you will make!.
Your mission and vision should reflect the values and ethics of your organization and provide a sense of purpose.
In the case of a for-profit business, making money is a practical requirement, but a mission and vision are much more. Your mission and vision is the enabler, it is how you propose to make money, your value proposition.
How do you intend to deliver on your mission and vision while operating within your values and ethical framework?
Based on the chosen mission and vision that provides a framework for what your business is all about, you then move to the next step, which is looking at alternative strategies. Your task here is to balance the:
- Opportunities a strategy presents
- The obstacles to success (your risk factors) a strategy carries
- The resource requirements or the strategy relative to those you have
- The resulting environmental, social and governance risks and your ability to manage them
Strategy is a long-term view of how your organization will achieve its mission and vision. A practical strategy is critical to success, and if you cannot see one, it's time to revisit your mission (what you’re doing), and vision (the impact you want to make).
- OBJECTIVES, OUTPUTS AND BUDGETS
Based on the long-term strategy you select, the next step is to figure out how you can make things happen. We need a PLAN!
- Define the medium to long-term outcomes (measurable results) you want to achieve. This is more than words of aspiration, this has to be something more tangible, something measurable ... enabling your to answer “Did what I do make a Difference?” We need real measures of outcomes and targets with timelines.
- Part of a good plan is to know what you will do/deliver to get the desired outcomes. It is your activities/outputs. Short-term measurable targets, usually quarterly or annually are required to keep on track. Performance measures must be defined with targets and timelines.
- The outputs should be costed and put into budgets. Then these planned activities/outputs should be rolled up and show an expectation of the impact (outcome) of day-to-day activities/outputs and the cost of those outcomes.
- PLANS, BUDGETS AND KEY PERFORMANCE INDICATORS
The numbers matter. While setting activity/output levels and outcomes to be achieved is important, to be practical a budget is necessary and must be linked to the cost of each component.
- Costs can then be tied to targets for Key Performance Indicators for outputs/activities levels
- Alongside these core Key Performance Indicators, we need to integrate environmental, social and governance costs. Risks in these areas usually require additional activities to manage the associated risk, and therefore must be part of the planning or activities/outputs, and thus, part of the costing processes.
- We will then have a fully budgeted cost of outputs/activities, which we can roll up to longer-term outcome Key Performance Indicators.
- REPORTING RESULTS
Reporting has evolved and will continue to be more demanding in the future. We need to track data and control the quality of data to be accountable for our results relative to:
- Financial budget/target expectations
- Output/activity Key Performance Indicators and costs
- Achievement of outcome Key Performance Indicators and cost expectations
- Impacts on ESG (environmental/social/governance) Key Performance Indicators and expected costs
Reports must be presented in a timely manner to allow users to analyze information, assess risk factors and make decisions they deem appropriate relative to their values and expectations. Report users are key stakeholders of the organization and include:
- Owners and shareholders who have a vested interest in financial performance and may also be influenced by performance relative to output, outcome, and ESG Key Performance Indicators when making future investment decisions.
- Customers who may make buying decisions on both value for money, and performance relative to output, outcome, and ESG Key Performance Indicators when making future investment decisions.
- Regulators who may have a vested interest in aspects of output, outcome and ESG or financial performance
- Similarly, lobbyists and social influencers may become a vocal factor relative to aspects of output, outcome and ESG or financial performance.
In practical terms, not all organizations face all the same risks or have to deal with the same extent of stakeholders. Reporting results should be tailored to the business risk profile and user interests/needs.
- EVALUATE PERFORMANCE, ADJUST STRATEGY, REPLAN
Finally, you must evaluate your own performance relative to your plan, your Key Performance Indicators and relative to your mission, your vision and your values. This includes:
- Evaluating performance,
- Updating risk assessments,
- Adjusting strategy where necessary,
- Revising outcome/output plans
- Renewing budget targets and key performance indicator targets
- Measuring and reporting results for the next period.
- Revaluate Performance, Adjust Strategy and again.
The ESG, risk and financial accountability process never end.
These steps continue and should be revisited annually at a minimum to determine if still on track or if adjustments need to be made.
Please contact us now for more information on how to instill this process into your business.
Environmental, social and governance (ESG) issues have come to the forefront, and present risk, as does financial performance. To some, these considerations have become more important than financial results. With the laser tight scrutiny of social media, both ESG and financial performance expectations are high. As established measures of financial success/profitability merge with evolving Key Performance Indicators for ESG performance, they are becoming especially important when competitors vie for capital, customer loyalty and approval in a politically charged world.
To learn more about ESG, Risk and Financial Accountability and how to instill this process into your business, please contact Business360.Pro now at 778-968-2850 or book an appointment.