ESG Pilllar PDFdownload

ESG strategy and
management: Complete
guide for businesses
June 2023
In this guide:
This ESG strategy and management guide explains what ESG involves and how it can benefit
The 3 pillars of ESG
companies. You'll also find guidance on creating an ESG strategy and measuring a company's
How can ESG initiatives benefit
performance on ESG issues, plus information on frameworks for ESG reporting and software
businesses?
that can help manage ESG initiatives. Throughout the guide, hyperlinks point to related
How to create an ESG strategy
articles that cover those topics and others in more depth.
ESG audits and materiality
assessments
Examples of ESG initiatives

across an organization
Who should oversee and

manage ESG programs?
How to measure ESG

performance and progress
Top ESG reporting frameworks
Convergence of ESG and green

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ESG tools and technology
1 ESG STRATEGY AND MANAGEMENT: COMPLETE GUIDE FOR BUSINESSES JUNE 2023
In this guide:

ESG strategy and management: Complete guide for
How can ESG initiatives benefit businesses
businesses?
CRAIG STEDMAN, INDUSTRY EDITOR
ESG audits and materiality For companies of all sizes, environmental, social and governance issues have become key
assessments
business considerations. Corporate ESG policies and practices are closely watched by
across an organization investors, employees, customers, government officials and other stakeholders. That makes
an effective ESG strategy underpinned by strong management processes increasingly
manage ESG programs? important to long-term business success.
How to measure ESG
performance and progress ESG isn't a new phenomenon. The history of ESG investing, in which investors use ESG
Top ESG reporting frameworks criteria to help evaluate companies, dates back to 2004 to 2006. In those three years, the
Convergence of ESG and green term ESG was popularized, a legal framework for factoring ESG information into investment
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decisions was outlined, and a set of six ESG investing principles that's still used today was
ESG tools and technology published -- all efforts driven by the United Nations. ESG investing's roots go even deeper to
the socially responsible investing practices that started to take shape in the 1960s and 1970s
and expanded over the next two decades. But ESG initiatives in companies have been thrust
into the spotlight in recent years because of increasing pressure -- from both inside and
outside organizations -- to improve environmental sustainability and act in socially
responsible ways.
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Studies show that most large companies have ESG programs. In a report published in
October 2022, consulting firm KPMG said its research found that 96% of the world's 250
largest companies by revenue report publicly on ESG or sustainability matters. Similarly,
businesses?
Governance & Accountability Institute Inc., an ESG consultancy, said in a November 2022
report that 96% of the companies in the S&P 500 and 81% of the ones in the Russell 1000
assessments Index published sustainability reports in 2021.

across an organization But many ESG efforts aren't fully formed, and some companies have yet to get started. In a
Who should oversee and 2022 survey of IT professionals involved in technology purchasing decisions that was
manage ESG programs? conducted by TechTarget's Enterprise Strategy Group division, only 30% of the 400
How to measure ESG respondents said their organization's ESG program was mature. Another 41% said their
company had partially implemented ESG initiatives, while 29% said nothing was in place at
that point.
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THE 3 PILLARS OF ESG
ESG focuses on various issues related to environmental, social and corporate governance
practices. An ESG program documents a company's impact on the environment and on
different stakeholders as well as its approach to governance; it also assesses potential
business risks and opportunities in each of the three areas. Here's a breakdown of the key
ESG factors to consider as part of corporate initiatives:
In this guide:
• Environmental. Examples of environmental factors include energy consumption;
The 3 pillars of ESG water usage; greenhouse gas emissions and overall carbon footprint; waste
How can ESG initiatives benefit management; air and water pollution; deforestation; biodiversity loss; and adaptation
businesses? to climate change.
• Social. The social factors of ESG involve a company's treatment of employees, supply
chain workers, customers, community members and other groups of people. Examples
ESG audits and materiality include fair pay and living wages; diversity, equity and inclusion (DEI) programs;
assessments
workplace health and safety; fair treatment of customers and suppliers; responsible
Examples of ESG initiatives sourcing; oversight of supply chain partners; community engagement; charitable
donations; and social advocacy.
Who should oversee and • Governance. This involves the internal management practices, policies and controls
manage ESG programs? that govern how a company operates. Examples include the composition of senior
How to measure ESG management and the board of directors; executive compensation; financial
performance and progress transparency; regulatory compliance; risk management; data privacy policies; ethical
business practices; and rules on corruption, bribery, conflicts of interest and political
lobbying.
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ESG is closely related to business sustainability and corporate social responsibility (CSR), two
ESG tools and technology other concepts that look beyond standard profit-and-loss calculations. But there are clear
differences between the three concepts. Business sustainability focuses more broadly on
positioning a company for ongoing success through responsible management practices and
business strategies, while CSR is a self-regulating approach to taking actions that have
societal benefits. By comparison, ESG is a formalized strategy that includes measurable goals
and processes for tracking, managing and reporting on them.
In this guide:

businesses?

assessments


How to measure ESG


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ESG tools and technology HOW CAN ESG INITIATIVES BENEFIT BUSINESSES?
From a general standpoint, ESG programs can contribute to business sustainability efforts
and ensure that there's a commitment to -- and accountability for -- responsible and ethical
practices in companies. Those things can pay long-term dividends, but there are also more
immediate reasons for companies to invest in ESG strategies. The following are five specific
business benefits of ESG initiatives:
In this guide:
1. Competitive advantages over business rivals. Companies with successful ESG
The 3 pillars of ESG programs can improve their market position and brand strength compared with
How can ESG initiatives benefit competitors.
businesses? 2. More attractive to ESG-focused investors. ESG investing has become a significant part
of capital markets. In a report published in December 2022, the US SIF Foundation said
$8.4 trillion in assets were being managed in the U.S. using ESG and sustainable
ESG audits and materiality investment approaches, amounting to 12.6% of all investment assets under
assessments
professional management in the country.
Examples of ESG initiatives 3. Better financial performance. ESG initiatives can help improve a company's overall
financial performance by reducing energy bills, operating costs and other expenses --
Who should oversee and in addition to potentially driving higher sales.
manage ESG programs? 4. Increased customer loyalty. Companies that adhere to ESG principles can more easily
How to measure ESG attract and retain customers who apply ESG considerations in buying decisions. For
performance and progress example, in the Enterprise Strategy Group survey, 70% of the respondents said they
think their company would pay more than a 5% price premium for products from IT
vendors with strong ESG practices.
Convergence of ESG and green 5. More sustainable and adaptable business operations. It's also easier for companies
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with well-managed ESG strategies to adapt to changes in regulatory and legal
ESG tools and technology requirements, as well as the effects of climate change, depletion of natural resources
and other environmental issues.
In addition, ESG initiatives can increase employee engagement, make it easier to hire and
retain workers, reduce business risks and improve the standing of companies in the
communities where they have operations.
In this guide:

businesses?

assessments


How to measure ESG


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In this guide:
HOW TO CREATE AN ESG STRATEGY
How can ESG initiatives benefit Companies should look to incorporate various ESG trends, practices and ideas into their
businesses?
plans. Some examples include reducing greenhouse gas emissions, creating more
How to create an ESG strategy responsible and sustainable supply chains, implementing climate adaptation measures and
ESG audits and materiality adopting a circular economy model, which aims to reuse product components and materials
assessments
instead of throwing them away or recycling them.
With such considerations in mind, here are eight steps to take in developing and
manage ESG programs? implementing an ESG strategy:
How to measure ESG
performance and progress 1. Get input from internal and external stakeholders. Consult with board members and
business executives about ESG issues that are important to the business, and talk to
various other stakeholders -- employees, institutional investors, customers, suppliers,
Convergence of ESG and green community leaders -- about ones that matter to them.
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2. Assess the materiality of different ESG issues. Use the input you've gathered to
ESG tools and technology identify the issues that are most important to both the business and stakeholders, as
well as the issues that are less important to either party or to both. The individual
elements of the ESG strategy can then be prioritized based on that assessment.
3. Establish a baseline on ESG performance. Document current performance levels,
policies, practices and statistics on the ESG factors that will be addressed as part of the
strategy. Doing so provides a starting point for future comparisons to evaluate the
progress of ESG efforts.
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4. Define measurable goals for ESG initiatives. This involves setting objectives and
The 3 pillars of ESG performance targets for the ESG strategy as a whole and the various pieces of it. Some
How can ESG initiatives benefit of these goals might include desired improvements on KPIs, while others might call for
businesses? maintaining current performance levels and practices that already meet requirements.
5. Create a deployment roadmap. Next, build out a detailed implementation plan for the
ESG program with project timelines, milestones and responsibilities.
ESG audits and materiality 6. Choose the reporting standards and frameworks to use. As covered in more detail
assessments
below, numerous ESG reporting options are available to companies. Many businesses
Examples of ESG initiatives use more than one to meet different reporting and disclosure requirements. Choosing
the right framework or combination of them is a key part of developing a successful
Who should oversee and ESG strategy.
manage ESG programs? 7. Collect, analyze and report on ESG data. Once the ESG program is operational,
How to measure ESG processes are needed to collect and analyze data on the relevant KPIs and then to
performance and progress prepare reports for stakeholders. Full reports typically are done on an annual basis,
but internal progress updates for the board and senior management are more
frequent.
Convergence of ESG and green 8. Review and revise the strategy as needed. ESG requirements can change as business
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needs, stakeholder concerns and regulatory mandates evolve. An ESG strategy should
ESG tools and technology be reassessed regularly to make sure it's still effective and to identify required updates
-- including weak spots that need to be optimized.
ESG AUDITS AND MATERIALITY ASSESSMENTS
The second step in the list above is formally known as an ESG materiality assessment. Such
assessments apply the financial accounting concept of materiality to ESG issues and extend it
In this guide:
to what's called double materiality. That considers not only how material -- or important --
different ESG factors are to a company's business operations, but also their materiality to
different groups of stakeholders.
businesses?

Combining that materiality information provides a blueprint for ESG strategies, which can be
ESG audits and materiality visualized by creating a materiality matrix. It plots different ESG issues in a grid along x- and
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y-axes that represent their importance to the business and stakeholders, thus depicting the
across an organization issues from least to most important.
manage ESG programs? In addition to helping companies prioritize ESG plans, materiality assessments can aid in
How to measure ESG creating a business case for initiatives and deciding what performance measurements to
track. To be accurate, though, an assessment must begin with a comprehensive stakeholder
Top ESG reporting frameworks engagement process to gather information on relevant ESG issues as well as related risks,
Convergence of ESG and green opportunities and goals.
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ESG tools and technology Later in an ESG program, ESG audits are another important step to take. They involve
internal or third-party audits to verify that ESG data, performance metrics and reports are
accurate and comply with accepted standards. That process is commonly referred to as ESG
assurance, which can take two forms: limited assurance that involves less scrutiny and
verification by the auditor, and higher-level reasonable assurance that results in an auditor
affirming that the ESG information is materially correct.
In this guide:
An ESG audit is similar in nature to a financial audit. As a result, best practices in preparing
for an audit include implementing appropriate controls on ESG data collection and reporting,
establishing board oversight of the reported information and conducting an audit readiness
businesses?
assessment beforehand.

assessments


How to measure ESG


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In this guide:
EXAMPLES OF ESG INITIATIVES ACROSS AN ORGANIZATION
How can ESG initiatives benefit An ESG strategy typically includes separate initiatives in different departments and
businesses?
operations throughout a company. Here are some examples of what that can involve:
ESG audits and materiality • IT. In the IT department, data centers are at the heart of green computing efforts
assessments because of the high amounts of energy consumed in them. To help increase energy
Examples of ESG initiatives efficiency and reduce carbon emissions, green best practices in data centers include
across an organization consolidating servers and storage devices; replacing old technologies with newer
equipment that uses less energy; using AI and machine learning tools to create power
manage ESG programs? usage effectiveness models and autonomously manage HVAC functions; and
redesigning facilities to take advantage of hot and cold aisle configurations and
How to measure ESG
performance and progress energy-efficient doors, windows and lighting.
• HR. The HR department plays the lead role in ESG initiatives related to employees.
This can include managing DEI programs aimed at increasing the representation of
Convergence of ESG and green different groups of people in the workforce and ensuring that all employees are
IT treated equally. Employee experience and engagement efforts, fair pay practices, and
health and well-being initiatives -- mental health support and flexible work schedules,
for example -- also fall under HR.
• Supply chain. As part of ESG programs, supply chain managers are in charge of
responsible sourcing initiatives that take environmental and social factors into
consideration on purchases of materials and finished products. They're often also
tasked with overseeing supply chain partners on labor practices, efforts to reduce
greenhouse gas emissions and other sustainability measures.
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• Marketing. The marketing department is responsible for ESG marketing efforts that
The 3 pillars of ESG highlight a company's ESG initiatives, goals and progress on meeting those goals. Done
How can ESG initiatives benefit properly, ESG marketing can help increase brand recognition, customer loyalty and,
businesses? ultimately, revenue. But it needs to be honest about ESG plans and practices. If not, a
company could face a backlash, including charges of greenwashing -- making false,
unsubstantiated or exaggerated claims about environmental actions.
ESG audits and materiality • Finance. The CFO is directly responsible for financial transparency and accounting
assessments
integrity initiatives as part of the governance aspect of ESG. The finance department
Examples of ESG initiatives also has a hand in considering and funding ESG initiatives in other parts of the
organization as a result of its control of budgeting, financial planning, cash flows and
Who should oversee and other financial functions.
manage ESG programs? • Legal. Development of corporate policies on ethical business practices and rules that
How to measure ESG prohibit actions such as bribery and corruption are commonly led by the legal
performance and progress department.
Convergence of ESG and green WHO SHOULD OVERSEE AND MANAGE ESG PROGRAMS?
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ESG tools and technology Oversight of ESG programs often begins at the board level or in the C-suite, with the CEO,
COO or executive committee as a whole taking the management lead. Some companies have
now added a chief sustainability officer or a chief ESG officer to lead their corporate
programs. This role also might be referred to as the vice president of sustainability or ESG in
other cases.
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Companies might also have a chief diversity officer who oversees DEI programs, generally in
collaboration with the HR department. Otherwise, individual ESG initiatives are typically
managed by department heads, such as the CFO, the chief marketing officer, the general
businesses?
counsel and the CIO. The latter has a particularly big role to play in driving environmental
sustainability efforts because of IT's high energy consumption and the proliferation of e-
assessments waste as systems and devices are replaced. In addition, the CIO must ensure that IT systems
and tools are deployed as needed to support ESG efforts.

HOW TO MEASURE ESG PERFORMANCE AND PROGRESS
How to measure ESG

performance and progress Performance is measured through various ESG metrics, which are KPIs that can be both
quantitative and qualitative in nature. Some examples of quantitative metrics include the
following:
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• Greenhouse gas emissions.
• Energy and water usage.
• Amount of waste generated.
• Compensation data.
• Employee turnover rates.
• Charitable contributions.
• Workforce and board diversity.
In this guide:
Examples of qualitative metrics, on the other hand, include labor practices, community
engagement, codes of conduct and policies on business ethics.
businesses?
ESG metrics are the key content in the reports that companies file on the status and progress
of their initiatives. Metrics also help executives manage ESG-related risks and can be used by
ESG audits and materiality organizations to measure themselves against the triple bottom line. The TBL is a
assessments
sustainability-focused management concept and framework that treats the social and
across an organization environmental impact of companies and the economic value they create as bottom-line
Who should oversee and categories. It was designed to encourage business leaders to think more deeply about how
manage ESG programs? their company operates instead of focusing only on financial performance.
How to measure ESG
performance and progress KEY TERMS TO KNOW
Top ESG reporting frameworks Read our glossary of sustainability and ESG terms that business and IT leaders should know
Convergence of ESG and green to help set a foundation for developing an ESG strategy.
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TOP ESG REPORTING FRAMEWORKS
Reporting frameworks and standards provide a structured approach for publicly disclosing
information about a company's ESG strategy and initiatives. They help businesses
demonstrate their commitment to ESG practices and sustainable growth, while also creating
transparency and accountability and giving stakeholders a detailed view of ESG programs. In
In this guide:
addition, ESG rating agencies use submitted reports and other data to issue ESG scores to
companies, either as a number or a letter rating that investors and other stakeholders can
use in evaluating an organization.
businesses?

The following list outlines some of the prominent ESG reporting frameworks:
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• IFRS Sustainability Disclosure Standards. These are new standards covering
Examples of ESG initiatives disclosures of sustainability-related financial information and information about
climate-related risks and opportunities. The International Sustainability Standards
Who should oversee and Board (ISSB), which was created in 2021 by the International Financial Reporting
Standards (IFRS) Foundation, is developing the standards and plans to release the first
How to measure ESG version of them in mid-2023.
performance and progress • SASB Standards. Released in 2018 by the now-defunct Sustainability Accounting
Top ESG reporting frameworks Standards Board (SASB), they provide specifications on disclosures of financially
material sustainability information that are tailored for 77 industries. The SASB
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Standards were consolidated into the IFRS Foundation in 2022 and will be replaced by
the IFRS standards, although the ISSB is building on them to create the new ones.
ESG tools and technology • CDSB Framework. This framework enables ESG reporting to be included in annual
reports and 10-K filings. But, like the SASB Standards, it will soon be replaced by the
IFRS standards. The Climate Disclosure Standards Board (CDSB), which developed it,
was also absorbed by the IFRS Foundation in 2022, and no further work is being done
on the CDSB Framework.
• GRI Standards. Developed by the Global Reporting Initiative (GRI), they include sets of
universal, sector-specific and topic-based standards for sustainability reporting on
economic, environmental and social factors. GRI published the first version as
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guidelines in 2000 and made several updates before formally releasing the GRI
The 3 pillars of ESG Standards in 2016.
How can ESG initiatives benefit • CDP. Founded in 2000 as the Carbon Disclosure Project and now known just by its
businesses? acronym, CDP runs a system for disclosing information on business risks and
opportunities related to climate change, water security and deforestation. Companies
fill out questionnaires on those topics, and CDP gives them letter-grade scores that
ESG audits and materiality can be viewed by stakeholders.
assessments
• Task Force on Climate-related Financial Disclosures. Typically referred to as the TCFD,
Examples of ESG initiatives the 31-member task force was set up by the Financial Stability Board in 2015. Two
years later, it released a set of 11 recommendations on the information that
Who should oversee and companies should disclose about financial risks related to climate change.
manage ESG programs? • United Nations Global Compact. Launched in 2000, the UN Global Compact is a
How to measure ESG corporate sustainability initiative that aims to align business strategies and operations
performance and progress with 10 principles on human rights, labor practices, the environment and anti-
corruption practices. Participating companies file an annual report on their adherence
to the principles.
Convergence of ESG and green • Workforce Disclosure Initiative. The WDI, which was created in 2016, offers a CDP-like
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reporting platform focused on workforce practices and management. Companies fill
ESG tools and technology out an online survey on workplace health and safety, employee well-being policies and
other topics to receive a disclosure scorecard from the WDI.
Reporting has primarily been voluntary thus far, but ESG disclosure mandates are expanding
-- at least in the European Union. The EU's Corporate Sustainability Reporting Directive
(CSRD) went into force in January 2023. In stages starting in 2025, the CSRD eventually will
require approximately 50,000 companies to file annual reports on business risks and
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opportunities related to social and environmental issues and how their operations impact
both people and the environment. That's more than four times the number of companies
required to report under an earlier directive approved in 2014.
businesses?

The CSRD could apply to some EU subsidiaries of U.S. companies or to the parent companies
ESG audits and materiality themselves if they meet criteria included in the directive. In the U.S., meanwhile, the
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Securities and Exchange Commission proposed a more limited rule on climate risk
across an organization disclosures for publicly traded companies in 2022. The rule has yet to be finalized, though.
CONVERGENCE OF ESG AND GREEN IT
How to measure ESG
In addition to green computing practices in data centers, ESG strategies are converging with
other approaches for making the use of technology in companies greener. That includes
IT green IT, a broader concept that encompasses the efforts to make data centers more
energy-efficient along with initiatives such as green storage, green networking and green
software development.
Another aspect is green cloud, which involves the steps that cloud platform vendors are
taking to improve energy efficiency and reduce carbon footprints in their data centers. AWS,
Google and Microsoft have all made commitments to increased sustainability and energy
efficiency, with various goals on using renewable energy and becoming carbon neutral or
In this guide:
negative. The growing number of IoT devices is also leading to an increased focus on how to
address sustainability concerns and meet ESG goals in IoT deployments.
businesses?
How to create an ESG strategy ESG TOOLS AND TECHNOLOGY

assessments Software that can help companies manage ESG initiatives is available from various IT
Examples of ESG initiatives vendors. That includes IBM and major business applications vendors, such as Microsoft, SAP,
across an organization Salesforce and smaller rival IFS. More specialized providers also sell ESG and sustainability
Who should oversee and management software, which typically provides a broad set of features for data collection,
reporting, analysis and carbon accounting, among other tasks.
How to measure ESG
For example, these tools can be used to measure greenhouse gas emissions in both a
company's own operations and across supply chains using the Greenhouse Gas Protocol's
IT scope 1, 2 and 3 categories as a basis. Key ESG reporting frameworks that are commonly
supported include CDP, the GRI Standards, the SASB Standards and the TCFD
recommendations. The software can also be used to conduct ESG materiality assessments,
track metrics and, in some cases, support DEI programs and other social ESG initiatives.
In a February 2022 report on sustainability management tools, Forrester Research said the
following product features were among the criteria it used to evaluate products for the
report:
In this guide:
• Support for materiality assessments.
The 3 pillars of ESG • Carbon calculation and accounting.
How can ESG initiatives benefit • Data management functionality.
businesses? • Performance monitoring, benchmarking and auditing.
• Sustainability reporting and risk disclosure.
• Climate action strategy development and tracking.
ESG audits and materiality • Sustainability intelligence dashboards.
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CONTINUED READING
How to measure ESG
Top ESG reporting frameworks 5 ESG benefits for businesses

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18 sustainability management software providers to consider

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ESG strategy and

Examples of ESG initiatives

Who should oversee and

How to measure ESG

Top ESG reporting frameworks

Convergence of ESG and green

ESG tools and technology

The 3 pillars of ESG

Examples of ESG initiatives

ESG tools and technology

The 3 pillars of ESG

How can ESG initiatives benefit

How to create an ESG strategy

ESG audits and materiality

Examples of ESG initiatives

Who should oversee and

How to measure ESG

Top ESG reporting frameworks

Convergence of ESG and green

The 3 pillars of ESG

How can ESG initiatives benefit

How to create an ESG strategy

ESG audits and materiality

Examples of ESG initiatives

Who should oversee and

How to measure ESG

Top ESG reporting frameworks

Convergence of ESG and green

ESG tools and technology

ESG AUDITS AND MATERIALITY ASSESSMENTS

How to create an ESG strategy

ESG audits and materiality

Examples of ESG initiatives

Who should oversee and

How to measure ESG

Top ESG reporting frameworks

Convergence of ESG and green

ESG tools and technology

Who should oversee and

How to measure ESG

ESG tools and technology

How to create an ESG strategy

How to create an ESG strategy

How to create an ESG strategy ESG TOOLS AND TECHNOLOGY

ESG audits and materiality

Examples of ESG initiatives

Who should oversee and

Top ESG reporting frameworks 5 ESG benefits for businesses

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