ESG is more than a feel-good factor for your business – it has a wide-reaching impact on compliance and commercial goals. The first blog in our ESG series looks at why it matters, and how your data needs to support it.
By now, ESG is on the mind of any COO or CDO worth their salt – and if it isn’t, it should be. As specific ESG disclosure legislation starts to take shape – you’re going to need access to accurate, up-to-date, and high-quality data ready to report to regulating bodies in both government and the private sector. Yet clarity on your commitment to ESG isn’t just necessary to avoid penalties: it’s simply good business, with investors and consumers alike looking for evidence that you’re tackling ESG.
But where do you start? ESG data doesn’t come neatly packaged in its own category: it’s in every part of your business, a reflection of your organizations’ impact on environmental, social, and governance issues. To get to the data you need, when you need it, you’re going to need an airtight approach to data management, and quick.
Our guide, ESG unchained: A guide to finding your ESG hotspots, can tell you all need to know – from where ESG data might be hiding in your organization, to how to make it available as and when you need it. First, let’s look at why ESG matters – and what data has to do with it.
First of all: why does ESG matter?
ESG (Environmental, Social, and Governance) is a reflection of your company’s commitment to both ‘good business’ and ‘business for good’. This means being transparent, honest, and accountable in regard to:
- How responsibly your business is managed.
- Actions that your business is taking to minimize its environmental impact.
- How committed your business is to the well-being of internal and third-party stakeholders.
Of course, operating within the confines of the law and with respect to our surroundings should already be high on the agenda – but there’s a difference between making that part of your organization’s ‘purpose’ and strategic, data-backed ESG. As we touched on earlier, not only are governments looking to regulate ESG in a more coherent manner but consumers and investors are increasingly taking note of firms’ ESG reputations when the time comes to break out the wallet.
Does ESG really have a commercial impact?
It’s easy (and not uncommon) to dismiss certain aspects of ESG as ‘feel-good’ metrics – and we may have some overzealous marketing (aka greenwashing) to blame for that. But when it comes to ESG as a determiner of financial performance, the outlook is clear: firms that report positively against ESG criteria also perform significantly better financially as a result. At one end, consumers are not only notably more likely to support companies that operate responsibly with respect for the environment, for example, but they will also withdraw their business from those that are seen to be falling short.
On the other end, investors are also increasingly drawn to enterprises that can demonstrate diligence in social, financial, and fiduciary matters, investing heavily in dedicated ‘ESG Funds’. The reasons are manifold – from the confidence that good governance signals to investors, to more socially-conscious shareholders putting their stake in ‘business for good’.
ESG Compliance – the power of suggestion
If you were to suggest that a number of your colleagues fill out an optional employee satisfaction survey, how many responses do you think you would get?
Now, what if you were to make it mandatory?
Those interested in ensuring compliance with ESG share this revelation.
In the US, ESG issues continue to move away from voluntary disclosures toward mandatory requirements. For example, in early 2022, the Securities and Exchange Commission (SEC) announced new ESG requirements to enhance and standardize climate- and risk-related disclosures for investors. Similar mandates exist for companies operating in the UK, such as the Sustainability Disclosure Requirements and legislation requiring businesses to take responsibility over more parts of their value chain.
While ESG compliance remains a patchwork of standards and rules, one thing is clear: Transparency is the way forward. Your business, investors, and governing agencies are counting on it. This reality has significant implications for how ESG information must be collected, verified, shared, and acted upon by your organization.
To reap the rewards of ESG, data management is key
For firms that struggle to meet the demands of providing data on ESG criteria, it’s important not to approach the issue with tunnel vision. To have confidence in your ESG data, you must have confidence in your entire data management framework. You’ve probably heard us say this before, but if you put trash data in, you will get trash results out, and ESG is no exception. If you’re fuelling ESG initiatives with poor-quality data, your insight will be skewed, and you could fall foul of compliance or investor due diligence.
By addressing your data management across the board, you can be confident that the ESG data you have is accurate, up to date, and available – but a single data project or piece of software alone isn’t going to cut it. Data management needs a combination of technology and a consistent cultural shift in your organization to challenge the way people perceive data and encourage more reliable data management:
- Quality: is your data always accurate, complete, consistent, timely, unique, standardized, and available? Do you know where that data has come from – its provenance?
- Governance: how does your data make its way through your business? What platforms (human or technical) does it undergo, and how do they interact?
- Technology: do you have a single, easily accessible platform that stores, sorts, and delivers this data?
- Culture: does everyone from your C-Suite to your new starters understand and appreciate the importance of data (and particularly ESG data?)
A data-first approach to ESG reporting
As different bodies – both governmental and those in the private sector – request different and ever-changing details from your business to quantify ESG, you’ll find yourself re-treading the same ground to provide data. With ineffective data management, wasted time and resource increases: as do the risks of mistakes and, subsequently, penalties for misreporting.