The world of ESG data has evolved significantly. The intersection between ESG and financial reporting is rapidly evolving due to rising investor awareness. The realisation that ESG metrics and not just financial metrics are indicators of the health of the business and its long-term sustainability are being recognised. We have also seen recently how ESG data is being brought into line with financial reporting – with requirements such as TCFD and CRSD.
So investor awareness is a key driver but there are many other reasons why we collect ESG data, From, compliance, helping us drive our goals or new product opportunities, influencing our ESG ratings, building trust with key stakeholders such as customers or employees, disclosure requirements such as CDP, guiding our supply chain improvements, planning, and setting out future ESG strategies or demonstrating the correlation of ESG against your company’s financial performance. What’s important to you as a business is understanding what your drivers are as they will be very different depending on your business, its size, sector, and stakeholders.
When defining what metrics to collect, there is no one-size-fits-all as companies will place emphasis on different ESG factors. It ultimately comes back to your materiality assessment. Defining what is material to your business is key to defining what you measure. Materiality assessments are informed by stakeholder views, business value, sector insights and regulation. Some of the most common ESG metrics reported include GHG emissions, water consumption, energy use, waste, H&S, EDI, HR violations, labour rights issues and community impact. Over the past few years, we have seen an over emphasis on environmental metrics in particular carbon which is rightly so given the challenges around climate change and the international targets. However, there is increasing recognition of the interconnectedness of ESG issues that we will see a marked shift in prioritising social and governance metrics in the future.
From our experience at BayNel, when thinking about ESG data, we recommend companies think about the following:
Relevancy
Ensure the metrics you collect are relevant to your strategy and informed by your materiality assessment. Stay focussed and think about improving the quality and transparency of your data.
Context
To maximize the power of your ESG data, it needs to be collected, measured, and processed in the right way. To help you with that, you need to first understand and define the context of your data. This can mean finding answers to questions such as: what data do I need to collect? What is the purpose of the data I’m collecting? What will the data insights be used for? What are the challenges in measuring the data? Can you use existing system architecture such as CRM, finance systems, HR systems to capture ESG information?
Reliability and Optimisation
New regulation and standards promise greater clarity, standardization, transparency, and reliability in ESG data - something which is fundamental for informed decision-making. The changes put greater onus on businesses to understand their ESG data and ensure robust data governance in this area. Coupled with this is optimization of your data. How do you present your final data insights – can they be easily understood by your stakeholders and decision-makers? Different stakeholders will have different needs and concerns. Digitizing your data will help you visualize and communicate your data. There are a variety of software solutions for sustainability reporting. As technology evolves, artificial intelligence (AI) and advanced data analytics will become commonplace in ESG data management. The opportunity to employ machine learning algorithms to analyse vast datasets, enabling real-time insights into the ESG performance of companies will become commonplace for larger businesses. Blockchain technology will also play a significant role in enhancing ESG transparency. By utilizing blockchain for supply chain tracking and verifying sustainability claims, companies can provide irrefutable proof of their ESG efforts, fostering trust among stakeholders.
Despite the increased focus on data, data alone does not unambiguously tell us if a company’s ESG efforts are succeeding. While technology will play a role in helping companies generate quality data across all levels of reporting, storytelling skills will help determine the narrative. Stories help engage readers, humanize data, and inspire action. They make the work we do more relatable and importantly show the ‘why’ and ‘how’ behind your actions which in turn will create a stronger bond with your stakeholders. If done right, your audience will be able to find meaning in your work.
ESG data should though never be limited to disclosure in sustainability reports. It should be the cornerstone to building plans, forecasting, risk mitigation, and part of your overall business strategy.
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