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November 1, 2021

How to bulletproof your ESG strategy and stay ahead of your competition

I’ve never been a fan of management theories du jour. Success in business usually comes down to basic things: good people and good execution. 

With that said, one process I’ve found useful is the SWOT analysis — strengths, weaknesses, opportunities and threats. The strengths and weakness components evaluate your internal environment while opportunity and threats assess the external one.

The SWOT process can serve as an excellent starting point in developing an Environment, Social and Governance strategy. With that said, although SWOT can be applied to each ESG element, some variables may not apply or fit. 

Strengths and weaknesses

Tony Paradiso
Tony Paradiso

By definition, strengths and weaknesses assess what you do well, and perhaps more importantly, what you don’t do well. For strengths, identify those aspects of your organization and/or strategy that you believe provide an advantage versus your competition. For example: Does your company hold a patent or does your product development process allow you to get to market faster than your competition?

And environmental strength might relate to what you do to lower your company’s carbon footprint or achieve net-zero status. Examples might include having a rooftop system, participating in a renewable energy or efficiency program or use of recycled supplies. 

A weakness could be printing unnecessary hard copies, leaving lights on or a lack of energy efficient equipment/appliances. Remember, strength and weaknesses evaluate internal things not external ones.

On the social front a strength could entail community programs you sponsor, contributions, or volunteer efforts. However, a strength could be more “abstract” — for instance, a large percentage of your workforce is under age 40 and is more open to volunteer work.

Ask yourself, what do we do or what are we positioned to do that gives back to the community at large? And remember, the social component can apply to a broad swath of constituencies that includes not only employees and company stakeholders, but suppliers, prospective employees, and even future generations.

A social weakness could be as simple as doing nothing. But it could also be that what you do is not commensurate with the benefits derived from the community. It might also be supplier related.

I’m a great believer of striving to make deals that are fair for both sides, even if I don’t have to. I get that doing business with volume buyers has its price, but that doesn’t mean the bigger company should put the squeeze on its suppliers. Not to single out Walmart, but many companies who thought they hit the jackpot by securing a deal with Walmart later found that it signaled the end of their company.

Applying SWOT to governance is a bit tricky. Governance is more of a focal point for publicly traded companies, but aspects of it can apply to all companies. The S&P Global approach to assessing governance encompasses four primary factors: structure and oversight, code and values, transparency and reporting, and cyber risk and systems.

In that context you could assess your data security procedures or how your organization is structured to ensure employees at all levels are abiding by the company’s codes and values. 

For transparency’s sake, you might consider how open management is in communicating your company’s goals and strategy to your workforce. For codes and values do you have a code of ethics? If so, assess how well it is integrated within your company’s day-to-day operations. The same process can be applied to company values.

Opportunities and threats

Opportunities and threats assess external factors. However, both could also derive from the items listed in your strengths and weaknesses. 

An example of an external social opportunity might be that your community is seeking participation in a new program. The environmental component could relate to evaluating state energy efficiency programs that your company can effectively leverage. The same might hold true for governance. Is there a new security technology or communications tool available that would improve your defense against cyber-attack or enhance company transparency?

The threat section will require some thought. 

One possibility for an environmental threat could be cost-related. For example, would your product margins be impacted if supply shortages caused energy prices to increase? Another example might be customer or competition related. Could a competitor’s improved environmental effort give them an edge and put you at risk of losing certain customers? 

Generally, you should evaluate environmentally-related items that might impact your cost structure, supply-chain or pose risks within your customer base.

Social threats could be employee related. In today’s environment your company’s lack of social programs may well impact your ability to recruit. Another threat could be a competitor or a company in your region that is providing more aggressive benefits making it increasingly difficult for you to hire and retain talent.

For governance a possible threat might be pending legislation that would require internal systemic changes and increased costs. Or perhaps a new form of cyberattack has put your particular industry at risk.

Once you’ve completed your SWOT, the next step will be integrating the findings within your on-going strategy. We’ll cover approaches to accomplishing that in the next column.

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