Environmental, social and governance (ESG) issues are rapidly rising to the forefront in board rooms around the world. As the focus on stakeholder capitalism increases and scrutiny by regulators, investors, consumers and employees continues to grow, companies operating within the cannabis industry must reevaluate their business plans from a triple bottom line standpoint.
Yet most businesses are ill-prepared to address issues like sustainability, corporate social responsibility (CSR), and diversity, equity and inclusion (DEI). They have delayed or not yet considered measuring their impacts, risks and opportunities, and they are not benchmarking their findings, reporting upon them, and setting goals for improvement.
Here are five questions cannabis companies should consider as they begin to navigate the ESG landscape and develop their action plans.
Who are you?
Solid ESG programs are built upon the foundational elements that characterize your company.
A clear mission, vision and set of values provide a lens through which you develop, evaluate and measure your ESG programs and metrics. Otherwise, your program and metrics can appear disjointed or “bolted on,” undermining your credibility and authenticity.
If your organization’s leadership team hasn’t gone through the self-reflective process of declaring your company’s purpose, identifying the mission and how your company’s vision and values solve a larger problem, you need to start there. Sometimes, it helps to hire an outside consultant to help your team dig into a company’s collective consciousness, drive the conversation and find common ground among the company’s leadership and employee base.
Who and what impacts you?
The first step of an ESG evaluation is to determine the issues and external forces that have the most likely and significant impacts on your company. This is called “materiality.”
Conducting a materiality review is essential, as it helps narrow the focus of your ESG evaluation/screening to only those elements that have the greatest likelihood of significantly impacting the company.
In other words, what are the greatest potential threats to your business when it comes to stakeholders? Examples may include customers, regulators and surrounding communities.
And what are the greatest potential threats with regard to ESG matters? Examples can include sustainability (waste production/mitigation), team diversity, a lack of governance policies and treatment of employees (safety, pay, benefits). Different departments within your company (legal, finance, marketing, etc.) may have different concerns or perspectives, so it helps to create a cross-functional team to engage in the materiality discussion.
What is your current status?
Once you have determined the material issues and stakeholders for your company, the next step is to start to measure your impact. It is critical that you measure any material ESG factors that could directly impact your business. This includes any factors that pose potential risks, as well as any that pose potential opportunities.
You will want to establish a baseline for a number of reasons: a) identification of current state of material issues; b) to identify risks about which investors should be put on notice; c) to set a strategic plan regarding opportunities for improvement of ESG metrics moving forward (all of which will make your business more valuable, cut costs, etc.); and d) to prepare for eventual governmental reporting requirements.
For example, is energy usage your most costly annual expense and therefore a significant exposure for your company? Then reviewing your usage to get a baseline and considering potential impacts from carbon and climate legislation or exploring technology to reduce energy usage could directly impact your business. Thus, developing a plan around energy could be significant.
Another example would be to conduct a pay equity study within your company. Doing so could put your company on the path to a more equitable and satisfying work environment, enabling you to reduce costs from talent attraction and retention.
What do I do with the data?
Report it! Although the collection of ESG metrics is certainly helpful to set goals inside an organization, the real value is communicating those metrics to the world, ideally, via an integrated ESG report that links your metrics to current financials, costs and projected cost savings to your organization.
The best ESG reports should not only enable a company to toot its own horn when the metrics look good, but it should also be an honest and critical review of where the numbers fall short of expectations. Where there are gaps in data, report that fact with a goal for data-gathering in your next cycle. Where the numbers are particularly ugly, report that, but with a commitment to and guide for improvement.
What comes next?
Improvement and goal setting. Measuring and reporting ESG metrics is not something you do once and forget about it.
It should be done regularly.
You can begin with the lowest-hanging fruit if you want to pick up some early wins, but also set goals for larger and more difficult projects. Your materiality assessment should guide you in identifying priorities (such as current risks and opportunities) and developing aggressive but achievable goals to address them.
After creating a company-generated ESG report, the next level would be preparing to report these same metrics in alignment with one of the internationally renowned, third-party reporting frameworks.
The age of ESG reporting and stakeholder capitalism has arrived.
It has been embraced by major corporations around the world, investors looking for the best-run companies and the regulators charged with overseeing them. The practice of measuring and reporting ESG impacts is coming to the cannabis industry and it is here to stay.
Are you ready to get started?