Environmental, social and governance (ESG) reporting is becoming increasingly important for businesses of all sizes. Investors, customers and other stakeholders are looking for more and more information about how companies manage their ESG risks and opportunities.
However, before you can start reporting on your ESG performance, you must develop a robust ESG data collection and management system. You need a comprehensive ESG strategy, ESG actions, ESG objectives and some ESG software to develop ESG data before you can even think about ESG reporting.
While this seems obvious, surveys have made it clear that data availability is the number one challenge for companies when it comes to ESG reporting. Unfortunately, companies have yet again rushed to the quick fix of using a piece of technology without thinking through which actual data is being reported and, more importantly, what that data means.
Think about it. When you run a company, you don’t start with your financial accounts as the centre of your business. You start with an idea, a product, a market, customers, delivery and support. Put simply, you run the business. The financials are an output of your business. Financial reports tell a story of the company and might guide you on your decisions, but they are not there as a business; they are there to tell the story of your business. The same goes for ESG reporting: you need to develop and run your ESG programmes, and the reporting is just an output that tells the story of your ESG.
There are several reasons why developing an ESG system and gathering ESG data (through running that system) is essential before you focus on ESG reporting. While these reasons seem obvious, the rush to reporting as an end goal is a classic red herring. You need to focus on ESG and then develop data in the proper form and substance to support reporting – not the other way around.
An ESG programme is the framework, or starting point, of ESG. Reporting is an output of running a programme. Without an ESG programme, there is no ESG reporting.
ESG data is the foundation of ESG reporting. Without accurate and reliable ESG data, your ESG reports will be incomplete and misleading. The data needs to be developed – it may not be sitting there ready to be reported on. And, even if the data already exists, significant caution should be exercised before connecting this data source to a reporting system to ensure you really understand what the data is and what it means. Is the data accurate? What does it tell you? Is it expected? Is it consistent with your industry? Is this what your stakeholders expected? Is it reliable?
This ESG data analysis can help you identify and manage ESG risks and opportunities. By understanding these risks and opportunities, you can take steps to mitigate the risks and capitalise on the opportunities. If you don’t have a clear picture of the data then all you are doing is reporting something as a point in time, which is meaningless unless it is part of a broader objective or programme. For example, reporting diversity numbers means nothing unless it is in context. What are you trying to achieve? What are your goals? How will you achieve those goals? What initiatives are you driving? Who owns those initiatives? How will they be measured?
Accurate, reliable and established ESG data can help you improve your ESG performance. By tracking your ESG performance over time, you can identify areas where you can improve and set goals and objectives. This would need owners, buy-in, support, measuring and monitoring and a review cycle.
There are several different ways to collect ESG data. You can collect it from internal sources such as employee surveys, environmental impact assessments and supplier risk assessments, or from external sources such as sustainability ratings and industry benchmarks. You can gather it from stakeholders, industry, internal systems, or a mix of those sources. Either way, knowing where the data is and knowing its access, reliability, performance and goals are key to being able to use it.
Once you have collected your ESG data, you must manage it effectively. This includes storing the data in a secure location, ensuring it is accurate and reliable, and making it accessible to employees and stakeholders. This is where ESG software like Speeki greatly benefits companies by allowing them to start building and developing their ESG data so they can be prepared for ESG reporting.
Here are some additional tips for developing ESG data:
- Don’t just start plugging in ESG reporting software in a vain attempt to ‘make it all work out of the box’ – it won’t work, and rushing a decision on reporting software is not advised.
- Set out a clear ESG strategy, with well-defined materiality and risk assessments in key risk areas across the ESG spectrum of issues.
- Follow a methodology or framework, like Speeki’s Engage framework, that walks you through a system to build ESG programmes (as a whole and for each of the individual areas within ESG). Use the framework to help scope the project, look at objects, identify data and report it to stakeholders and regulators as external filings at the end of the process.
- If you follow a framework like Speeki’s Engage, you will be challenged to set goals and objectives. What do you hope to achieve by developing ESG data? Do you want to improve your ESG performance, identify and manage ESG risks, or comply with ESG regulations? Where is your risk tolerance and where do you want to focus? Where are you required by law to focus and where do your stakeholders expect you to focus?
- Identify which data you need to collect to achieve your goals and objectives. The framework will challenge you to think through all these issues systematically. Once some data is being developed via your individual programmes, you can focus on cleaning and validating that data. This is important to ensure that the collected data is accurate and reliable.
- Your ESG data is a valuable asset, so it must be stored securely.
- Once you have developed your ESG data, it is important to make it accessible to your stakeholders. This will allow them to understand your ESG performance and make informed decisions about their relationship with your business.
By following these tips, you can develop ESG data that will help you to improve your ESG performance, identify and manage ESG risks, and comply with ESG regulations.
The overwhelming message is that you should not start with ESG reporting and work backwards. Start with developing an ESG strategy that makes sense for your business, its scope, its stakeholders, its risk tolerance and its size, and then build a programme that suits the business and can produce the right data in the right format for any form of ESG reporting required by stakeholders or regulators.
Developing ESG data is an important first step in ESG reporting. By taking the time to develop a robust ESG data collection and management system, you can ensure that your ESG reports are accurate, reliable and helpful to your stakeholders.