#4 Integrating ESG into your company’s value creation narrative
ESG Explained | Article series exploring ESG from the very basics
Integrating ESG into your company’s value creation narrative
In the past 30 years or so, the narrative of how a corporation creates value has become an important aspect of corporate communication. Communication about activities has shifted from merely reporting on economic activities to forming a narrative about how the company’s activities create value in the economy and in society.
Even companies that provide simple, homogenous services such as district heating have transformed their communication into a value creation narrative. In other words, a district heating company doesn’t just provide heat but a warm family home. Or a soft drink company doesn’t just provide a tasty beverage, they provide a complement to family dinners and gatherings.
For your ESG reporting and integration efforts to be truly successful, you will need to incorporate ESG into your value creation narrative as the expectation from stakeholders is that companies should provide value with sustainability in mind.
Deloitte France helped one of the world’s most well-known fast food restaurant chains to transform their value creation narrative by incorporating sustainability into their value proposition. The brand faced negative perceptions regarding the treatment of its workforce, overall environmental impact and the promotion of junk food (these are concerns under Environmental and Social pillars of ESG). In general, the public perception was that a global fast-food chain’s offering is not compatible with France’s food culture.
Assess the ESG impact of your value chain
Your reputation as an ESG company will be built through robust performance and transparency over time. In order to integrate ESG into your value chain, you will have to examine what impacts and key risks exist along your value chain. It is important to identify positive and negative impacts and report on both. As we pointed out in our previous articles on ESG, it is important to become aware of what impacts are considered material in your line of business. Not reporting due to lack of awareness of these material impacts or avoiding reporting on them is not advisable as rating agencies and anyone scrutinising your ESG report will look at how well ESG issues are managed and will recognise if certain material issues are not reported on transparently. Not reporting on certain ESG impacts and risks could lead to a negative assessment of your ESG profile by a potential investor or a low ESG rating with a rating agency, regardless of how well the issue is actually managed.
Deloitte France helped the fast-food restaurant restructure its French supply chain such that today 75% of the company’s food supplies are from local suppliers, reducing impacts from transportation and improving the public perception of the restaurant. Deloitte France also helped the company improve its ESG performance by helping the company formulate a sustainable waste strategy centred around packaging eco-design, waste sorting and the collection of abandoned waste.
Long-term thinking = long-term successes
Your company likely has a vision for how it wishes to grow in the next 5 years. It is now expected by stakeholders that you begin to incorporate ESG considerations into that vision and plan to grow in a sustainable manner. In certain industries such as high fashion or professional services, large companies are already unlikely to be able to continue to grow or retain market share without making credible ESG commitments. Here at Deloitte (on global scale) we committed to achieving net-zero emissions by 2030. In the coming years this will be the case in most industries.
Having looked at the various impacts along your value chain and reported on them in a transparent manner, consider each impact and decide where you can set targets and deadlines and where you need to setup a timeline for setting targets and deadlines. For impacts where you lack data your first goal will be to establish better data collection.
In terms of impacts along the value chain you can set a number of targets, such as:
- Upskilling employees to support sustainable growth
- Energy efficiency and GHG emission reduction targets
- Reducing the use of virgin resources and increasing the use of secondary materials, for example in packaging.
- Electrification of the company vehicle fleet used for logistics and by staff
Where possible reference international standards in your goal setting to strengthen the validity of your goals. For example, setting GHG emission reduction targets in line with Science Based Targets initiative (SBTi) will ensure your reduction targets are aligned with the Paris Agreement.
In the case of the fast-food restaurant in France, the implementation of integrating ESG factors into their business took 10 years and involved onboarding 1,400 restaurants across the country.
Company-wide involvement is key
In order for your company’s ESG efforts to bear fruit, you have to secure buy-in from every level of the company. From to the C-suite to the interns, it is important that everyone in the company is on-board with your ESG initiatives.
Furthermore, it is important that incentives within the company align with ESG initiatives. It is considered best practice to align executive compensation with the company’s ESG performance. It is also important to create opportunities for all staff members to contribute to ESG initiatives by creating incentives for employees to suggest ways your company’s processes can become more sustainable. Designating champions or ambassadors amongst staff who can help carry out your ESG vision is also very useful. Additionally, concerning administrative staff, it is important to ensure that ESG reporting is not just an additional duty but an integral part of their role.
In France, the fast-food restaurant, as part of its EcoProgress initiative, appointed EcoProgress Ambassadors, who were trained to collect and analyse ESG data. While this helped the restaurant implement its ESG initiative, it was also a valuable upskilling opportunity for unskilled workers as it gave them the opportunity to develop in-demand data analysis skills. The data collected feeds into the fast-food restaurant’s global commitment to reduce greenhouse gas emissions by 35%.
Communicate your ESG integration efforts!
The winning formula for incorporating ESG into your value creation narrative is by combining data with success stories. Data by itself can be dry and uninteresting and without appropriate context it won’t have any information content. By showing through data how you have reduced your impact, upskilled your workers, or brought your corporate governance in line with sustainability, you can communicate success stories that will build your reputation as an ESG company.
Through the EcoProgress initiative and with the help of Deloitte France, the fast-food restaurant was able to transform its value chain and value creation narrative by incorporating ESG into it. Today, France is the company’s largest market in Europe and globally second only to the US. The average purchase in the restaurant in the United States is 5 USD compared to the French spend of roughly 25 USD.