A Dave and Dharm DeMystify Special Series - From Vision to Impact with Shargiil Bashir

FROM VISION TO IMPACT EP 5 : DEVELOP AN ESG STRATEGY

• Dave Wallace • Season 1 • Episode 5

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This episode examines the intricacies and significance of crafting a robust ESG (Environmental, Social, and Governance) strategy that harmonises with both internal objectives and external expectations. Despite its perceived complexity, an ESG strategy is no different from any other business strategy. Setting a clear roadmap, prioritising short-term, medium-term, and long-term goals, and making these goals quantifiable is the key to success. 

L'Oreal and Unilever are mentioned to demonstrate the importance of integrating ESG principles, with Unilever's initiative encouraging its associates to help limit environmental damage, as well as through annual performance reviews. The UN’s sustainability goal also plays a significant role, becoming more relevant than ever due to factors such as climate change, social inequality, and environmental degradation, to set a blueprint for a better and more sustainable future.

Shargiil mentions the importance of linking ESG goals to core business functions such as finance, HR, procurement, and operations to ensure cross-functional buy-in, as well as advocates for embedding sustainability into corporate governance through dedicated committees or ESG departments. Strategies are dynamic and reviewed periodically to adapt to changes in regulations, market trends, and stakeholder expectations.

The conversation reinforces the idea that a clear, integrated, and well-communicated ESG strategy is crucial for long-term success and sustainability. By crafting thoughtful, data-driven strategies, companies can improve risk management, access capital, enhance brand loyalty, and future-proof their operations.



SPEAKER_02:

USD has become a term that so many speak about, right? And because so many speak about it, people believe, oh, this has become super complex. But it's just like every other strategy. You need to just prioritize and you need to look at the next step ahead of you and say, okay, how are we going to take the next step and the next step and the next step and just simply keep building from there, right? Because if you say, okay, I'm going to look at 2050 and then I'm going to work backwards. I don't think that really works, right?

SPEAKER_00:

In episode five, Shargill walks Dave through developing an ESG strategy. He outlines how a successful strategy must be fully integrated into the business and also highlights some of the things to watch for.

SPEAKER_01:

So welcome to today's episode. And today we are looking at chapter five of Shargill's book, which is developing an ESG strategy. And I guess strategy is... extremely important in terms of everything. Everything we've kind of done so far has been leading up to actually putting a strategy in place. Shajil, do you want to give us a sort of broad brush view on creating that strategy, why it's important, and then we can delve into the detail? No, absolutely. Absolutely, Dave. I think when we speak

SPEAKER_02:

about strategy, it's almost like you're creating a roadmap for where is it that you're moving towards, right? So I think some of the previous discussion we had was very much about understanding what is your starting point, how do you manage your stakeholders and so on. But when you have all this information, you need to figure out where is it that you're going. So you know your starting point, you know that the stakeholders you need to involve, but you need to figure out what's the direction you're gonna take. And this chapter is very much about helping you figuring out that which is the direction you're gonna go. So how do you define that roadmap specifically your organization for your team that what are the steps you need to take to come to that point so basically you have your starting point but you need to figure out that what is your direction going to be to get to that point and the way to do this is of course to looking into okay what is it that specifically you do within e s and g specifically right so from an environment perspective What is that your roadmap will look like? So you can have different topics that you can look into. As an example, you can look into your waste impact or your water impact. You can look into your energy efficiency. How can you create that? And define that roadmap specifically. Similarly, from a social perspective, employee well-being. You can link into your community engagements. How will that roadmap look like? Or you can look at it from a governance perspective. You can look at it from a risk perspective. What are the risks you want to cater for as an organization? What are the risks linked to ESG that is going to impact you as an organization? And start considering those. So basically, when I speak about strategies, it's almost about getting that roadmap placed yourself. Because strategy... can be so many things, right? There are probably millions of books about strategy. So I'm not going to say that I'm an expert on that, but for me, it's basically coming down to helping an organization setting that roadmap, right? And I think that's most people can relate to and say, how will they do that?

SPEAKER_01:

And I think, you know, what you've kind of highlighted is the areas, but I mean, in order to set the strategy, you need to do an assessment as well. So I think in your book, you then talk about having smart sustainability goals. So can you just sort of tell us a bit more about that? Because, you know, it's really important to, as part of the sort of strategy, to have things that are achievable, isn't it?

SPEAKER_02:

I think it is. We don't go too much into the detail of the methodology itself. What is critical is that you set some goals that you basically can measure, right? And that's why it's super important that you make them measurable for yourself. And it's something that you can say, okay, these are some goals that you can set yourself for short-term, medium-term, long-term. You can quantify them. You can understand how is it that you're going to work with them. And this is super, super important that you get that understanding specifically and say, okay, These are the short term. And what I typically say short term should be probably 12 months ahead, yearly goals. And then you can say medium terms, which can typically be around three to five years. And then you can have long term goals that can be five years plus, right? And then people will often say, why should we be setting goals that are five years and beyond? Because typically, we don't know. The world can totally change, right? We are seeing the political landscape changing around us and that have significant impact. So why should you set goals that are five years and beyond? What is important is that when we speak about the topic of sustainability and ESG, a lot of things are really, really long-term. And when we speak about net zero, we speak about net zero by 2030 or net zero by 2050 or 2040, because your impact now is going to have such a significant impact going forward. So what you start doing now will create a lasting impact over such a long time And it's not about, it's almost like a marathon, right? You're not just sprinting your way into something. You're just seeing that you're building up to that marathon and that needs to come with those interim targets you're gonna set that is gonna take you that point. A good example is, again, when you look into your waste management or you're looking into reducing your energy, right? You're not gonna go overnight and get solar panels installed or gonna refurbish your whole office as such. but you can start taking some steps, right? You can start looking into how can we just change the lighting setups we have? How can we start looking into the energy management system we are using? How can we start looking into bringing renewable energy as an energy source? And some of these things you can do on short term and say, okay, this is something we can plan for for the next 12 months. And then there's some things you will say, okay, this is something we will need to plan for for the next three years or five years and beyond. And that's the way you can build that up and set those ambitions and targets and goals that are going to help you to

SPEAKER_01:

get to that point. I mean, it's fascinating because I guess what you're touching on is the fact that the ESG strategy needs to integrate with the business operations. So, you know, it needs to align itself with those. So how do you get the strategy to align with those operations? Like what's the kind of dynamic there? So, you know, I guess an example, which is of interest to me, I've done some writing about it, is the carbon footprint of things like data centers or the digital carbon footprint of an organization. So in order for the ESG strategy to have an opinion about that, I guess you need to understand from your technical colleagues what on earth is going on. So how do you embed this as part of the business operation? I think exactly

SPEAKER_02:

the point you're making, Dave, is so critical when it comes to sustainability, right? Because sustainability has so many different touch points, right? Because you can be speaking to your facility management and say, how are we going to reduce our water consumption? At the same time, we're speaking with your IT team to say, how do we reduce our emissions from our data centers, right? Or you're asking your drivers in the company that how can we change your electric vehicle? You change your fleet, right? So there's so many different aspects of this. But you're actually right that if you do not embed your ESG strategy, your sustainability strategy, your roadmap into your operations, your business itself, it's bound to fail, right? You need to embed it into everything you do. As a simple thing, what is your core product as an organization, right? How can you embed sustainability into that product? It can be as simple as, can you start doing something about the packaging of that product? If it's a physical product, Can you do something about the packaging of it? Can you start using some more sustainable packaging options out there? It's about how do you create that product? How is it that you're getting your product delivered to yourself? And how is it that you're delivering your product into your clients? Can you look into that value chain, the whole supply chain that is coming through and look into it and say, what is it that we can specifically do to decarbonize that product specifically? And again, and this goes, and then you can continue, right? You can start with your primary product. You simply start by doing a materiality assessment and say, where is it that our most material part of the footprint sits? Is it in the product? Is it in the IT? Or where does it stand, right? Because if you are a company with a very strong physical product, most likely that will be one of your material places. But if you as a consultancy company and does not have a physical product, it might be in your data system or other places this might sit, right? Or if you have a big production place, then it will sit there. And then you basically start and saying, okay, if this is our core to our business, how do we start decarbonizing this part? How do we embed sustainability into this specifically, this item, right? And then you start that journey. And then you might say, okay, you know, this year, We're going to reduce plastic from the packaging by 50% this year. Next year, we're going to do additional on this. And that's how you can look at it and step by step in figuring out how can we start this journey and start deep. I think in your book,

SPEAKER_01:

you use, I guess, some examples of companies. Would you be able to talk through a few companies which have kind of got a strategy in place and because i think it's really helpful for people to understand you you've sort of given some examples but it's really helpful to understand some examples i guess what's leading this question is you know just this conversation it sounds really complex what you have to do from an esg point of view you have to look across the entirety of the business and identify the opportunities but that i don't think is it is a simple process is it No,

SPEAKER_02:

not at all. It's not as simple at all. And I think exactly because you need to involve so many different stakeholders, right? You need so many different internal people coming and joining you on this journey. I think if somebody believes that, you know, you can have one department somewhere in the organization sitting in a corner to do your ESG strategy, I think it's going to be a huge mistake. You can start from that perspective and slowly build in because you need to embed it in so many different areas, right? No one can succeed by its own. And I think I keep making this reference all the time. It's like looking to your digital strategy 10, 15 years ago. Companies that were just building a digital strategy in some IT department one way and say that this is all, right? They did not succeed. The success of the companies who truly embedded digitalization in their whole business model in their whole value chain were the one who were the biggest success, right? And I think that is so critical that how can you embed it across the organization? That's where the focus needs to be. And some of the examples, which I mentioned in the book, are really good when it's L'Oreal, right? So they created this L'Oreal for the future, which is very much about saying, okay, if L'Oreal wants to move into the future, it needs to embed sustainability exactly in what it does. You have another good example in Unilever. who have actually been leading on this front and have exactly looked into how do you look into the packaging? How do you look into every single of your products and say, how do we build sustainability into this? Coming from the whole, it can be from the agriculture farming perspective to the products get into the end user. If you look at the whole value chain, where is it that we can start creating an impact and how do we move from that perspective? This can be about looking into water as a resource in the agriculture aspect of things, right? It can be the packaging of the product. It can be how the product gets delivered to the consumer itself. And it's about looking into the full value chain. And I think those are some of the good examples you can look into and say, okay, you know, if you're in a company that is looking in where you are having physical products, well, how have some of these leading companies done this, right? How did they start their journey? And the good point about these companies are they're actually leading from the front and they also want to support others on this. If you look into their websites or if you look into their sustainability reports, they have so much information about use cases, how they succeeded on these things, which can be inspiring from very small companies to very big companies to say, how can we leverage from this perspective?

SPEAKER_01:

I mean, I have to say it's one of the brilliant things about the ESG community. It's just how generous they are with... the information they provide. I mean, as we're kind of talking, you know, I'm sort of sitting here thinking, gosh, this is, it's really complex. So, you know, I guess if we go back five, 10 years, ISG was seen as a communications function. We're talking about real kind of business strategy here. And I guess one of the things about strategy is prioritization. So how does a business prioritize across the E, the S, and the G, what it's going to do. What are some of the tools that are available to help them? Because it sort of feels like there's an awful lot that kind of needs to happen.

SPEAKER_02:

No, you're absolutely right. And I think just like every other strategy, prioritization is super important. And I think the challenge is that with ESG, a couple of things on the ESG side I would just like to highlight is that USD has become a term that so many speak about, right? And because so many speak about it, people believe, oh, this has become super complex. But it's just like every other strategy, right? You need to just prioritize and look at the next step ahead of you and say, okay, how are we going to take the next step and the next step and the next step? And then just simply keep building from there, right? Because if you say, okay, I'm going to look at 2050 and then I'm going to work backwards. I don't think that really works, right? You need to look into it and say, okay, what can I do in the next 12 months? What can we achieve? And the way to do that, and I keep coming back to this, it simply comes down to prioritization, materiality as we speak about this, right? What is the most material topic from an environment perspective for our organization or our product or our team? What is that we can focus? Where is it that we has the biggest impact? If you are in the banking industry, for example, Well, your direct environmental impact is not significant, right? Because you might have some branches and so on, but you don't have a production facility. You don't have a physical product. However, what you do have is the influence through your portfolio. But if you are in the agricultural sector, you have significant impact on the environment, right? You have the impact on the soil itself, but you also have the water that is coming through to the agricultural sector, which you're very dependent on. How can you impact it from that perspective? If you're looking into the construction sector, it's very much about their products specifically and say the material they're using, how environmental friendly are those products specifically, right? Which they're using for the construction. If you're then looking to the social side, again, you look at it and what's the most material thing for us. For some companies, this will again be the workforce they have, right? What kind of a workforce do you have and what kind of opportunity are you creating for this workforce, right? This can be very much linked into human rights. This can be linked into diversity. This can be linked into inclusiveness. So there are multiple topics that you can go and look into from that perspective. And then looking on to a governance perspective, I think governance is foundation for all companies, right? And again, the bigger and the more mature company you are, the more focus you have on the governance side. I think governance is super important to look into. Under governance, you can also link to the risk aspect of things. So how is the ESG risk impacting you? Climate risk is a good example. So we have seen in US, we have seen California, unfortunately, what has happened over the past couple of months is terrifying. And just looking at your company, and you might say, oh, we are doing everything right, but your physical positioning of your company can be in a place Well, this is simply a risk that you need to consider, right? As an example, if you're a company in California right now, how are you going to get insurance? Who's going to insure your business? That's a huge challenge. So again, it comes down to materiality in your specific situation. And one way that can help you is also looking into your peers. Industry, right? In your specific industry, what are your peers doing on this? If you want to understand, well, the water usage of my business, is this good or bad? Look into your peers. and say, can you find some inspiration there? How much are they doing? How can that be impacted? So I think peer aspect is very important. I think you just mentioned this about the ESG community, right? That where people are keen to share ideas. I think the unique part of the ESG community or the sustainability community is we all recognize and understand that within sustainability, there is not really a competition. We're doing this for the betterment of the planet. We're doing this for the future generations. Because at the end of the day, if I'm super successful and I believe that I'm only going to focus on myself, on sustainability, I'm going to be the most sustainable and the most ESG-friendly company in the world, but nobody else has done this, well, all your efforts will not have any impact. Because you need everybody to move. Otherwise, things don't get better. So I think it's almost like... movement that you need to bring people together because no country, no company, no individual can solve this. You need all hands on deck here.

SPEAKER_01:

Well, I think it's really interesting. I mean, the other thing I wanted to touch on was the UN sustainability goals as well, because there's a nice framework which is being published, which anybody can access. And it kind of gives you some thoughts around those material things, doesn't it? Absolutely. And I think

SPEAKER_02:

those are some very good frameworks to look into, right? So you have multiple frameworks that exist out there. You have the, I think we discussed this in one of our previous episodes about the greenhouse gas protocol, right? You have the global reporting initiative and so on. We now are seeing the global sustainability reporting initiative from ISSB, which is probably going to become the benchmark for sustainability reporting in the future. Similarly, you had the UN SDG, Sustainable Development Goals, which highlight these 17 specific goals that can help and focus that company supporting this specifically. This has everything to do from climate, to hunger, to poverty, to human rights. How is it? that I as a company can support and look into this aspect, right? And some of those SDGs will be very relevant to you and some will be less relevant to you. Coming back to the prioritization aspect of things, right? Depending on what kind of organization you are, which countries do you operate in and so on, and some of these SDGs will be more or less relevant to you, right? So if you are in a part of the world where hunger is a big challenge, well, then you figure out that we as an organization, how can we support or address this topic? But if you're in another part of the world, it might be the topic of clean energy that might be very top of mind, right? And especially in these times where we discuss energy security a lot, I think that could be a topic that will be prioritized.

SPEAKER_01:

Fantastic. So in terms of putting a strategy together, what sort of resources and investments do you require? I think

SPEAKER_02:

when we look into the resources, I think it depends very much on what kind of organization you are, right? And I think I definitely think there's no one size fits all from that perspective. When you look into the resources aspect of it, or you look into the complexity of the organization that needs to be taken into account. I think what is very important as an organization, when you're looking into your strategy, you'll look into and being very realistic as well to say, what is it that I can do within the constraints you might have as an organization? And of course, a lot of the organization will look into budget as an example, right? Can we go and recruit some resources for this? It might also be that, you know, you might say, okay, I might have resources, but can I get the capabilities I require for this, right? Do we have the talent that can help us support with this specifically? Again, we can discuss something super technical for that one organization. It could be as simple as, you know, can we buy the specific solar panels that we require for this kind of a setup,

SPEAKER_00:

right?

SPEAKER_02:

Do we have the workforce that can support us with this thing? Can we get access to this technology solution that is going to help us on our specific journey? So I think doing that assessment is super important. Once you've done your materiality assessment, you figure out what are the direction you want to take the roadmap. You start defining what is it that we're going to do with an E, S, and G on the short, medium, and long term. You then start figuring out what are the resources I'm going to use and what are the capabilities I'm going to use for this, right? I think that's going to be super important. Then you figure out, okay, some of these things are not feasible as I have expected because I can't get access to the talent or in the timing I wanted and so on. And then you start addressing that. But that I would always say is that's pretty similar to any kind of strategy you do in every organization, but it's just very important to remember in the ESG aspect. And the reason for that is that sometimes The business case for ESG can be a little bit longer, right? So what I mean by this is if you're doing an investment into, let's assume this is around packaging of your product. Let's use that as an example. If you're looking into and say, okay, I want to reduce the use of plastic in my packaging. Well, it might be a little bit more costly for you to do it right now. However, you might see the a political direction or you might see the regulatory direction where everybody's saying single-use plastic should get banned,

SPEAKER_00:

right?

SPEAKER_02:

So you might say, okay, this is going to be a little bit more costly now to do so, but I know the regulation is coming, so let me start on getting a head start on this compared to somebody else, right? So that business case might not be as strong right now, but when you look at it over a three-year or five-year period, you will say, oh, okay, this makes sense. Let me start making this investment right now.

SPEAKER_01:

Fantastic. Something that really caught my eye was this notion of must-win battles as well. So, you know, can you just explain what a must-win battle is?

SPEAKER_02:

Yeah. So for me, I'm sure there's a lot of too radical definitions of must-win battles or some business gurus have made. No, for me, must-win battles is basically that what is the most critical thing for you as an organization to do, right? So when you're looking to your sustainability strategy, what is going to be those two, three, five key things that are critical for your organization to succeed in this strategy. I don't think this is unique for a LSD strategy. I think this is relevant for all strategies overall to say, what are the three to five key things that are going to define the success of your specific strategy? I think that is super important to define. And each company, each within different industries, different geographies and so on, will define their own must-win battles. It might be, again, as I mentioned before, that for an agriculture company, that must-win battle might be something totally different, might be linked into a lot of the resources they might require linked to water or something similar. While if you have a technology company, that must-win battle will be something totally different. It might be that must-win battle will be on the nexus of sustainability and AI, right? How are we going to, or the governance around AI? So I think that those must-win battles can be so different. But for me, it comes down to that if you have to say, what is the key thing that is going to define the success of my strategy, that for me is the must-win battle, right? Fantastic. That is, you absolutely have to succeed on in order to say, we nailed this, right? We nailed this strategy.

SPEAKER_01:

Super clear. Super clear. I really like the sort of clarity that that idea brings. I think the final point I wanted to touch on was about testing the strategy as well. So you kind of mentioned that. And I think it's really important that you are testing the strategy as you kind of go along. So can you just sort of explain a bit about testing the strategy and some of the things that you might need to think about from a kind of ESG point of view?

SPEAKER_02:

Yeah, absolutely. I think strategy often gets defined in a very closed room or with a few of your internal stakeholders, right? So for me, it's critical that once you have your strategy, and again, when I'm saying the strategy, I'm again speaking about the roadmap, right? The roadmap you have laid out to say, let me test this with some of my key stakeholders to say, what does this mean? Does this resonate with my key stakeholders? So if you're a company and you are setting this strategic direction, this roadmap, well, you have some key stakeholders. You have your customers, right? You can do focus group to understand, well, does this really make sense, right? It might be that you need to liaise with your employees because if you don't get the buy-in for your employees who are critical in order to execute your strategy, well, then you're not going to succeed, right? It might be your shareholders. Is there a buy-in for this, right? And as we mentioned before, If you especially need to make investments as well, right? And do they understand that long-term vision? Do they buy into this? There might be stakeholders like the regulators, right? You might be in an industry that is highly regulated to say, okay, you know, let me test this with the regulators that know how does this resonate with. But for me, I think some of the key stakeholders, I would say that you need, absolutely need to prioritize is your customers and it's your employees, right? I think those are the super, super important, right? Because what you're going to get from your shareholders, as an example, who are also super important, but I think that they will typically give you a strategic direction to say, okay, you know, we agree with this direction. But when you come down to the actual execution, you need to make sure that you have those stakeholders aligned. Again, let's imagine a situation. If you are a company and you're suddenly starting to repackaging your product in a totally different way, and you does not understand, does your customers like this or not? This can be a huge, huge failure, right? So if you suddenly start saying, okay, you know, one way is to remove plastic, but if you suddenly start delivering your milk in, I don't know, something totally different, a glass bottle as an example, well, what does that mean, right? Does your customer understand this? Does your consumer understand it? What is the feedback that is coming from that perspective? I think that's why it's so important to test your direction, your strategic direction. I'm not saying that you will need to test every single bits and pieces, but a good example would be your must-win battles, right? You look at those and say, okay, test them with your key stakeholders. And those stakeholders might be very different from the different strategic priorities. Some of them might be tested with your employees. Some might be tested with different level of your clients as well, right? Different groups of your clients. So I think that's a very important and key aspect of your strategy that you tested to make sure that, you know, is it aligned with the direction you're moving towards? Fantastic.

SPEAKER_01:

That was really super clear. I mean, we've covered so much ground in this, so thank you so much. I mean, I think, you know, just, I guess for me, a kind of key take out is, you know, getting that strategy in place is tremendously important. You know, doing the assessment, finding those material areas, but then really making sure that you kind of integrate it with business operations, And then because of the nature of what you're dealing with, as you say, it's sort of there's short term, but there's also very long term things. So making sure that you kind of understand that as well. But then, you know, having your must win battles, I think, is a really, really kind of clear and sensible thing to do. And then, you know, I really love the idea of kind of testing these things. And as you say, this isn't new. This is just how strategy works. It's just applying strategy. the logic and the discipline of strategy to this directly. So thank you so much. Thank you. Thank you so much for having me, Dave. I appreciate it.

SPEAKER_00:

Thank you for tuning in to Dave and Darm Demystify. We hope you enjoyed the show. Don't forget to like and subscribe and tune in next time as we take another topic and demystify it.