5 steps to create a cross-functional ESG team

Christopher McClure
5 steps to create a cross-functional ESG team

Creating a cross-functional ESG team is one of the most important steps in getting serious about your ESG strategy. But where do you start?

Between stakeholder pressure and the Securities and Exchange Commission’s (SEC) climate risk proposal, you’re likely hearing a lot more about environmental, social, and governance (ESG) strategy. An important first step in that strategy should be creating a cross-functional ESG team. Since ESG touches almost every area of a business, creating a team – or optimizing the team already in place – is essential to success in your ESG efforts.

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1. Understand where you are and where you’re going.

Most organizations that have communicated their ESG progress and goals have done so in sustainability and other reports on their websites. This voluntary reporting is most often managed by investor relations and marketing, perhaps with support from the sustainability leader or team, depending on the level of resources at the company. Now, ESG is front and center, and it’s evolving from selective narratives to mandatory, data-driven reporting that will be scrutinized by regulators, investors, ratings agencies, and a variety of other stakeholders.

Given the increasing demand for transparency and the associated regulatory risks and potential market opportunities, it’s vital to create an ESG team with representation from across the organization’s functional areas. This cross-functional team or steering committee can then inventory existing capabilities and identify strengths as well as any gaps in processes or data. Additionally, a robust ESG team can be well positioned to perform a proper materiality assessment, engage with stakeholders, and create a comprehensive road map to execute the organization’s ESG strategy.

2. Build your ESG team based on your specific needs.

Every business has different priorities and requirements when it comes to ESG. Is the organization public or private? Does it provide goods or services (or both)? Where is it located, where does it do business, and how does it structure its supply chain? But no matter the answers to these questions, it’s essential for every single organization to have executive- and board-level commitment to its ESG strategy. In fact, in some cases, specific obligations exist regarding the board’s ESG education.

Given the depth and breadth of ESG, it’s impossible for one or two people to manage all the organization’s obligations and goals which is why it’s important to create a team with different backgrounds and expertise. Doing so helps ensure coordination, consistency, and accuracy across regulatory reporting and stakeholder communication.

Build your ESG team based on your specific needs.

As organizations build their ESG teams, they should consider including members from these key departments:

  • Sustainability and corporate responsibility, for information about corporate practices
  • Human resources, to capture policies and programs around employee welfare
  • Legal and compliance, for updates on regulatory reporting and obligations
  • Information technology, for identifying, gathering, and analyzing existing and new data streams
  • Supply chain, for information about responsible sourcing practices
  • Financial reporting, to align metrics and prepare for increased disclosures related to ESG
  • Internal audit, as a first line of defense in testing data and controls to generate investor-grade information
  • Environmental health and safety, to offer guidance and data on current programs and align with existing regulatory reporting

3. Choose an ESG leader who can make things happen.

While many companies have (or are recruiting for) an ESG lead to oversee this type of team, leadership is often dictated by resources that currently are in place and by topics that are important to stakeholders. The ESG leader must recruit support from colleagues across the organization, build consensus on execution, and solidify executive commitment to the strategy and goals.

Who in the organization can best articulate why ESG matters to the organization? The right person can make the case for ESG, identify risks and opportunities, and garner support across the entire organization.

4. Clearly structure roles and responsibilities of your ESG team.

Generally, organizations can align roles in three main areas: functional, process-related, and technical. But first, someone needs to take charge of baseline ESG education to help build awareness. In order to commit to doing their part, people need to understand why they’re being included, why they are critical to the team, and how they fit into the team strategy.

It can be helpful to include a mix of internal working sessions, outside educational opportunities, and specialized consultants – and to communicate that this education is an ongoing commitment, not just a one-and-done event. Once everyone understands their role, organizations should develop a process for how the ESG team works together. Who identifies new regulatory obligations for the team? Who triages and prioritize customer requests? Who collects industry and competitive benchmarking? Who determines next steps? Establishing roles and responsibilities early can help everyone stay abreast of regulatory changes, customer requirements, and other new impactful information.

5. Get started today.

The time to assemble this team is now. Is your organization prepared to address upcoming regulations, stakeholder demands, competition, and other goals? ESG data and reporting needs are evolving, and they arise at different levels of the organization, so it’s critical to establish processes to identify, triage, and plan for stakeholder expectations. This is no small task, as it takes time to assign responsibility, select technology, consider external support and managed service options, and fill internal staffing needs.

It’s also important to pay attention to the full spectrum of stakeholder demands – not just regulators and customers, but investors, employees, activists, and ratings agencies, too. The more information an organization has about competitive behaviors and best practices, the more effectively it can create a right-sized, customized ESG strategy.

The SEC has made it very clear that ESG information rises to the level of investor disclosure, which is a seismic shift in policy that cannot be overstated. As the ESG, regulatory, and financial reporting worlds collide, your obligations will increase, but your team can be well positioned to succeed.

Contact our integrated ESG team

If you’re wondering how to take the next step in your ESG program, our ESG team can help. Contact us today to find out how we can help you elevate your ESG strategy.
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Christopher McClure
Partner, ESG Services Leader