Efficient ESG Data Governance

By Maha Lebbos, Vice President – Digital Transformation and Information Systems, Fondaction

How does effective ESG data governance improve sustainability plans?

When thinking ESG, the mind probably immediately turns to disclosure, reporting and regulation. And it’s no wonder: frameworks and regulations such as GRI, SASB and EU Taxonomy are heavy burdens to bear. BUT, ESG reporting can be much more than publication. ESG reports, and the processes put in place to complete them can do much more for businesses than setting up for regulatory success. The question we need to ask ourselves is: Are we using ESG data to its full potential? For most of us, the answer is probably no. Yes, proper ESG reporting is key to meeting new regulatory requirements, influencing ESG credit ratings, and improving reputation with sustainability-minded investors. But that’s only half the battle. The other half is the use of ESG performance data to improve sustainability planning and impact, and the correlation between ESG efforts and a company’s financial performance. And most companies are missing out on this critical use case of ESG performance data.

While many companies are preparing to meet ESG requirements, most of them have missed the incredible opportunity to use ESG data as an essential planning tool for long-term sustainable growth.

So how can one use ESG data, beyond reporting, to improve sustainability initiatives?

Set up the proper ESG data governance into an integrated reporting framework

Data governance is not about bureaucracy; it is a structured process that allows the right information to reach the right people at the right time. However, when looking at a data-centric initiative, the focus is key. Proper ESG data governance entails (1) general requirements such as definitions and terminology, data hierarchy, metrics and targets, fair presentation of general features and illustrative guidance. It should focus on providing outputs such as (2) transition plans and carbon offsetting, climate resilience and scenario analysis, financial impacts and anticipated effect, risk management and finally, cross-industry and industry-based metrics.

Use ESG data to enrich budgets and cost analysis.

When ESG data is integrated into a converged reporting framework, as part of an extended planning and analysis strategy, businesses can see how ESG data interacts and affects financial and operational information to produce budgets, reports on deviations and forecasts.

Let’s take a fashion industry example where an organization wants to use recycled materials as part of a company-wide anti-waste initiative. The decisions made to achieve this goal will have significant repercussions on the entire production chain. The organization has to adapt the production plants, which would have a financial impact, an impact on the supply chain, and delivery.

The ability to see ESG data in context with financial and other planning data is key to making ESG initiatives sustainable – and, dare I say it, profitable. Adding ESG data to the planning processes enables a workforce plan, capacity, sales, and inventory analysis. It simulates scenarios to determine the ESG course of action to produce the best results in sustainability and profitability.

Using ESG Data to Mitigate Risk

Talking about ESG is talking about risk. Planet risk, human well-being risk, ethical risk, credit risk. Risk and ESG are intrinsically linked. There are so many ways to shoot yourself in the foot with ineffective ESG practices, but there are just as many opportunities to use ESG data to combat risk.

ESG needs to be integrated into a broader risk management framework to mitigate risk. Data and governance controls, transparency in communications, predictive planning, foresight when it comes to preparing for threats and changing regulations – ESG risk should be taken as seriously as liquidity risk.

Use ESG data to transform your business model and support sustainable growth

Where seeing banknotes flying when thinking about sustainable business models, we now see revenue streams. At a time when climate change poses a catastrophic threat to humanity, the global call to fight climate change presents an extraordinary opportunity for organizations to attract investors and tap into new markets – while doing good for the Earth and its inhabitants.

ESG data can shed light on critical factors. For example, how switching to renewable energy sources would impact costs or how natural resources would affect sales. Organizations can use this information to transform their operations and business model into one that promotes and achieves the Sustainable Development Goals.

This may mean identifying business areas ripe for sustainable change in relevant social aspects for some organizations. For other organizations, ESG data can point to new opportunities. ESG data can help identify areas of business that are ripe for sustainability investment and determine whether customers are likely to buy into sustainable innovations. More so, companies can use ESG data to engage in mergers, acquisitions, or investments in sustainable companies to strengthen their ESG efforts and make their portfolio more sustainable as part of overall governance.

All these examples have one thing in common: the use of ESG data to identify areas of sustainable growth through analytics and predictive planning.

Findings

The solution utilized to manage ESG data should tick all the compliance boxes. But don’t forget: Sustainability isn’t just about running a single clothing line that uses recycled plastics, or an annual emissions reduction target. It’s about becoming a sustainable business.

The public sentiment is that companies that do not deliver ESG results now and soon are not a good investment. They are not durable; that is, they will not stand the test of time. Therefore, ESG data should not be limited to publication in sustainability reports. By using ESG data to develop plans, forecasts, risk mitigation measures and overall strategy, companies can serve themselves while serving others, improving the planet and the way business is conducted.

With this in mind, I firmly believe in harnessing the full potential of ESG data, which means extending the use of this information to enrich decision-making, long-term plans and reputation through a solution that facilitates xP&A and reporting and publication of figures.