An environmental, social and governance (ESG) policy is the centre piece of an organisation’s ESG strategy, a concise statement of ESG intentions, focus areas and commitments. Done well, it sets expectations for how ESG considerations will be integrated into business decision-making (and, for financial institutions, investment decision-making), and provides a clear line of sight from ambition to implementation.
This week’s complimentary Practice Note, 'How to draft an ESG policy', explains the key decisions to make before drafting and the elements that help an ESG policy stay credible, actionable and review-ready.
Where to start?
Before drafting, define (i) the actions the organisation will take to improve ESG performance, (ii) how performance will be reported, and (iii) the governance structure that will make delivery possible. A practical starting point is a materiality assessment: identifying which ESG topics require focus and management.
Key steps highlighted include:
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Apply “double materiality”
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Test stakeholder expectations
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Complete a regulatory review
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Prioritise
Set the right level of ambition
Once priority topics are clear, decide on a level of ambition. For example, a gentle emissions reduction versus a net zero commitment. Notably, ambition has different costs and implications, so organisations often benefit from a measured approach: start with fewer, achievable commitments, then expand.
Draft the policy: key elements to include
There is no single standard format, but the Practice Note identifies common elements that support clarity and credibility:
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A fit-for-purpose title that signals aims.
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A statement of who the business is and what it does.
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An acknowledgement of negative impacts associated with the business's operations, coupled with a commitment to limit them.
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Focus areas and commitments that make clear what action will be taken and how.
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Monitoring and transparency: how performance will be tracked using data/metrics and reported, including (where relevant) public disclosure aligned to frameworks such as GRI, CDP and/or TCFD.
Use frameworks carefully to strengthen credibility
The Practice Note also notes the value of signalling alignment with recognised frameworks where it provides weight or independent validation (for example, B Corp status). Many organisations also align commitments to the UN Sustainable Development Goals (SDGs); credibility depends on substance, including linkage to material targets (such as a net zero goal).
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