Why tracking and reporting on ESG is worth the data work
When it comes to environment, social, and governance (ESG) projects, a well-meaning strategy and a flashy comms pipeline no longer cut the mustard.
Regulators are introducing new layers of ESG reporting that require figures to be audited and verified, ensuring that businesses prove the impact of their work. This is, of course, a good thing: the underpinning goal of ESG is to ensure businesses act in a way that benefits society, as well as their own bottom line.
But for the individuals and teams tasked with delivering ESG projects and reporting accurately to the regulator, the increased level of scrutiny may well feel alarming. How do we accurately assess impact? What data should we track? How do we go from data collection to usable insights and clean reports?
According to Informatica's recent survey of 200 Chief Data Officers across Europe, the vast majority of companies haven’t yet nailed have the answers to these questions. Although more than a third of CDOs (36%) believe ESG and sustainability will be one of the top trends in the year ahead, 90% of organisations are relying on manual processes to calculate ESG scores. That, in turn, makes room for human error and inaccuracy in reporting.
Clearly, there’s a risk here: if ESG reporting is moving ever further into the spotlight, organisations need to be able to better track and report on raw ESG data – so they can justify environmental claims and demonstrate due diligence.
A big mountain to climb – and a mountain of data to track
Before we dive into how to go about implementing that change, it’s worth looking at the challenges involved.
There’s a reason most organisations are relying on manual processes (at best). Reporting on ESG means reporting on myriad business operations, ranging from waste disposal and electricity usage to business travel and diversity initiatives. It’s very unlikely you’ve got a nice, handy dashboard that tracks all those things, or even individual dashboards tracking the relevant markers for each area. In fact, it’s more than likely that organisations will lack data of any sort in at least some of these areas, let alone well-formatted insights.
For the CDO’s team, that means accurate ESG reporting is likely to involve spreading out into a number of areas that haven’t previously been analysed to a high level of depth. That lack of attention isn’t a sign of lax process; it’s down to the simple fact that profit-generating activity is usually first in line for analytics investment. Environmental and social impact have long been concerns at board level, but it’s not unfair to say they may have received less investment, and therefore entail less well-developed data systems, than (say) customer service or distribution.
For some, addressing this discrepancy will be a mountain to climb, but the benefits will be worth it. Not just in terms of compliance boxes ticked, but in terms of the business’s ability to improve its impact on wider society, reduce unnecessary expense and inefficiency, and grow a healthier, more diverse workforce.
Reviewing the ratings (agencies)
It’s not just internal data collection that needs attention, either. It’s just as important to bring good governance to the data supplied by ESG rating agencies, which may be out of date or inaccurate. Outsourced sustainability reports are built from publicly available records, and although these records are derived from information you do control, they reside in systems and under jurisdiction that you don’t.
As a result, companies need to be able to demonstrate due diligence and show that any data from third parties has been audited and verified. If you simply take them as gospel, there’s a risk of discovering down the line that omissions or inaccuracies have been unwittingly passed through to the regulator.
This means integrating data from these external reports into your own reporting, ensuring the multiple datasets can be brought together cleanly, efficiently, and in a format that can be quickly put to use. This is partly a technical job, but it’s also likely to involve personal partnerships with the ratings agencies in question, to support the establishment of shared processes.
Diverging standards bring diverging challenges
Another issue is that many companies need to manage diverging ESG standards. As UK and EU regulators take different approaches to governing ESG, processes that work in one jurisdiction may be inadequate in the other. The worrying upshot is that central teams face the prospect of having to duplicate large swathes of work to satisfy different regulatory regimes.
It's becoming a familiar story, but technology can help alleviate the burden and reduce repeated work. Automating data collection and reporting can enable organisations to satisfy evolving demands from different regulators, investors, and stakeholders, without disproportionately draining staff time. It’s not necessarily a simple process to establish, but defining rules for the repetitive tasks that data management software can handle on its own, will free up human time and help maintain efficient reporting.
Good reporting makes for good outcomes
Ultimately, though, with the right technology in place to smooth the way, healthy ESG ratings are worth the work. Reputationally, a watertight ESG report means you can own your successes without worrying about accusations of greenwashing. And many regulatory systems entail funding offers for organisations that can demonstrate clearly that they’re playing ball.
As noted above, the efficiencies and diversification that ESG projects bring are also far from vanity metrics. They bring tangible business benefits, as well as alleviating environmental impact and bringing social good. Finance lenders are increasingly prioritising organisations with better ESG ratings, too.
The business case for compliance isn’t hard to make. More comprehensive ESG regulations do meant there’s data work to be done – but the results will speak for themselves.