5 principles of reliable ESG data

With the comment period for the SEC emissions disclosure proposal recently closing, several organizations are working to formalize their ESG programs. Investors and the public demand transparency; And soon, regulators will require an unprecedented amount of disclosure from publicly traded companies. This, combined with the complexity of accounting for GHG emissions, means that this work must be prioritized and started as soon as possible.

Although ESG data cover a wide range of other information, carbon emissions – and the holding of organizations responsible for their calculation, disclosure and reduction – is of particular importance. There is a clear need for transparent and accurate ESG data – without it, organizations could suffer the consequences of poor brand reputation, financial losses or regulatory action. “Transparent” and “accurate” are the key words here; Without a commitment to data transparency and accuracy, organizations will fail to produce reliable ESG data.

Building an ESG program that drives progress and improves outcomes requires confidence in the data the company produces. The practice of instilling confidence in your ESG data can be broken down into five principles:

traceability

The foundation of transparent and accurate ESG data is ensuring that
mill back to the source. For example, a business’s energy and water use must come from a utility provider — and then, be accurately reported. This ensures the ability to trace information and helps organizations to report accurately. When calculating Scope 2 and 3 emissions from third parties, that information must come directly from those suppliers and clear expectations of transparency between companies must be maintained.

It takes a lot of work – all incoming information has to be compiled, analyzed and disclosed. While immature ESG programs may be able to manage this with a handful of spreadsheets and part-time resources, it is not a scalable or sustainable solution; Manual tracking quickly eats up valuable resources and takes bandwidth away from other strategic activities.

repeatability

ESG programs are ongoing and iterative; So, repeatability is key. Any successful ESG initiative should be able to scale up further as required; As a business grows or regulatory action is implemented, there must be a framework that is adjustable for increasing complexity.

In this case, duplication means that the organization can implement a scalable solution to collect relevant data from all sources and distribute it in a digestible format to investors, interested public parties, and regulators. The toughest ESG disclosure report is the first – but once it is completed, organizations have an established framework for what is measured and a system for computing the various metrics.

Perhaps most importantly, delivering this information on a regular cadence reflects progress and a commitment to viewing ESG as a journey, not a destination. For an ESG program to be repeatable, it must also be incorporated within the company culture. When an organization demonstrates continued commitment and has transparent communication about the status of the program, it sends the essential message that ESG is important and is here to stay.

Accountability

Recent attention to ESG in the media on how leading organizations demonstrate accountability provides examples for others to follow. recently, master card
announced that it would link all employee compensation to ESG targets; and other companies – including Apple, McDonald’s, nike And
Chipotle
Announced that executive variable compensation will also be linked to ESG metrics. ESG is a great way to make sure goals and metrics are established as core values ​​for the company. Accountability across the organization.

However, it is important to keep in mind the mission of building a more sustainable and ethical business. As mentioned recently PwC
Research, “there is a risk of hitting the target but the point is lost. An example might be a bank that focuses on reducing its own carbon footprint, when its greatest impact on reducing emissions is carbon.” Companies that emit emissions risk distorting their attitudes. Research shows that encouraging pro-social goals can undermine intrinsic motivation…”

comparability

How does your organization compare to others in the industry? comparability
As important as the practice of benchmarking against your peers to determine which efforts should be focused.

At present, this is difficult due to varying standards and an erratic landscape for disclosure. Still, there is reason for optimism — as we may see regulatory requirements for disclosure take effect as soon as next year. With potential disclosure requirements, various frameworks are beginning to be consolidated that will make reporting easier in the future.

It is still important for organizations to benchmark their ESG data with comparable organizations, with or without a consolidated reporting framework or regulated disclosure requirements. Doing so helps set benchmarks across the industry and at least provides a starting point for progress. Furthermore, for organizations seeking continuous improvement in their ESG efforts, measurable progress is not possible without first establishing a baseline.

Those responsible for ESG monitoring should keep up to date on relevant news and actively seek information from similar businesses. With many organizations creating voluntary disclosures and there is not currently a consistent framework to measure against, there is a wealth of useful information available to ESG leaders. As the ESG reporting field matures, comparisons will become easier, but there is a lot of available information that can be used to get started.

Knowledge

As we approach grim, new milestones, the increasingly visible effects of climate change continue to make headlines. With that level of attention, organizations are undergoing greater scrutiny from the public and investors. As such, ESG risks can be significant for a business; And the failure of an organization to acknowledge and address them can be disastrous.

Those leading ESG programs must knowledgeable About all areas of risk, not just eco-focused areas. It is imperative to think about ESG holistically and focus on how the organization addresses diversity, gender pay equality, data governance, privacy and more. In short, well-run, mature ESG programs are not focused solely on carbon accounting.

ESG leaders should conduct regular maturity assessments to identify areas of progress And areas of improvement. Cross-functional teams must report to the ESG leader who leads and conducts the program. The culture of the organization will also benefit from this structure, as the involvement of multiple departments incorporates the ESG into the culture and promotes these priorities.

Is your ESG program on track?

Compiling ESG data is complex and sometimes difficult to disclose – after all, organizations rarely jump at the opportunity to share mistakes and areas of opportunity – but doing so is imperative. It is inconvenient to accept that progress is stagnant, or that the baseline is below the industry average. But the old adage always rings true: What gets measured gets better.

So, ask yourself – is your ESG program on track?