How governance, systems, and people define companies’ ESG and sustainability efforts

Cop27 put a thick line under how aligning governance, systems, and people is crucial for companies’ success where ESG and sustainability are concerned. 

The point was highlighted at a recent event held by en world in Tokyo. Global Perspectives’ and enteleco’s Tove Kinooka was one of the panellists alongside Paul Beddie from SAP Japan and Dominic Henderson from Morrow Sodali. 

Reflecting on the outcomes of cop27, all panellists agreed that companies are in a perfect position to be the driving force for real change where ESG and sustainability are concerned.  

Companies also have strong incentives to pursue change outside of improving the climate. For one, being a purpose-driven organisation is increasingly crucial to attracting and retaining talent. Simultaneously, customers are ever more aware of ESG and sustainability. 

A lot of companies in Japan and the broader Asia region are lagging behind their counterparts elsewhere in the world on ESG and are consequently losing trust with customers and partners in developed countries. Catching up requires strong focus but achieving success will be heavily influenced by three areas: governance, systems and people. 

Governance 

Cop27 underlined how difficult it is to deliver on broad promises and long-term strategies - the huge diversity of parties involved, each bringing different challenges and priorities, makes it extremely difficult to gain agreement on how to move forward, and progress is therefore painfully slow. 

This applies to countries and companies alike. 

To be successful, companies must be cognisant of their plans and define clear, measurable stages in their pursuit of reaching them. This is also core to interacting with other interested parties, such as investors who want to know what your concrete plans are for this year, and next year and how you plan to reach them. Long-term goals to achieve net zero in 2040 or 2050 are very good, but risk being called out as greenwashing if they are not underpinned by detailed, clearly communicated plans for getting there.

When creating sustainability strategies, it is necessary to consider everything that you are doing, including examining issues and impacts you may not yet be aware of.

Documenting compliance and providing transparency are essential aspects of ESG and sustainability governance. For Japan, governance may be complicated by the current lack of governmental rules and regulations, but we can look to other regions to draw inspiration, see what is likely to be coming, and, more importantly, prepare. Simultaneously, companies with international operations will almost invariably encounter different sets of rules and standards in the different markets they operate in.

Systems 

Systems to track and document ESG and sustainability are proliferating. So too are the rules, regulations and reporting requirements that companies must comply with. Some international companies might have to comply with as many as six different sets of regulations and compliance rules. 

To effectively navigate the evolving landscape, your systems need to be able to track many different developments and data points. These include financial and non-financial metrics and may include scope two and scope three ESG and sustainability metrics. 

However, the trick is to avoid drowning in data. Capturing only that which has real value and importance requires a strong starting point (often found in governance), but its success relies on your company’s culture – especially your employees and partners. 

People 

Without establishing a strong ESG and sustainability culture across all functions and levels, it is almost impossible to succeed with your initiatives. 

Culture starts at the top, but there is also a strong push from more junior (ie younger) employees for more focus on positive impact in companies in Japan and the broader Asia area. 

However, there is a point in between where many initiatives and programmes for culture change can stall. Finding ways of bridging that gap and building a fully inclusive sustainability culture across the entire company can be difficult – especially without outside assistance. 

Also, many middle managers are caught in a tough situation; under pressure to implement sustainability strategy while also under pressure to deliver on KPIs that are completely unconnected. Building sustainability performance indicators into KPIs and manager evaluations can help to support and encourage the necessary shift in behaviours.