The link between Environmental, Social, and Governance (ESG) and positive corporate impact and performance is clear. Yet many organizations’ leaders and managers are still familiarizing themselves with operationalizing ESG metrics management and driving ESG efforts forward. Prioritizing ESG can engender stakeholder and community support, as well as reduce fines, risks, and penalties.
Some industry analysts have reported a correlation between higher equity returns and better ESG performance. As EY reported, nearly 70 percent of 500 global companies taking robust climate action improved their financial gains more than anticipated because of their ESG efforts.
ESG-related assets under management are projected to jump from over $18 trillion as of 2021 to nearly $34 trillion by 2026. Interestingly, most senior executives—97 percent—say external stakeholders have a key influence on a company’s ESG reporting and disclosure policy. Therefore, ESG metrics management has become increasingly important for organizations, stakeholders, and regulators. Identifying metrics that matter most to business is now a priority.
What are ESG Metrics?
An ESG metric is a measure of ESG factors. These factors can include carbon emissions, energy use, community impact, and more. However, ESG metrics can also include your performance indicators around environmental, health, safety, and sustainability (EHS&S) performance.
For example, a business enterprise will measure its waste management process or emission goals or health and safety goals in relation to ESG performance. However, to achieve ESG metrics management, you first need to confirm you have the right processes in place to obtain quality data that supports disclosure and reporting. ESG data will receive the same scrutiny as financial data, and therefore should be auditable and of good quality.
Investors and regulators, for instance, are looking for quality and transparency in data. The dangers of not getting your processes and data right can lead to temptations of greenwashing, which can damage businesses’ reputations. It is imperative to have ESG processes and data in place. It is also crucial to capture high-quality data that reports an accurate risk snapshot.
Why are ESG Metrics Important?
ESG metrics help companies become and remain compliant and promote greater holistic transparency into how they are performing. ESG metrics also help companies identify and address gaps tied to diversity, regulation, safety, environmental concerns, and so on.
For example, a company looking to reduce its carbon footprint by half within five years must establish a solid ESG metric to successfully achieve this within a given timeframe. Regardless of industry or sector, companies must understand, analyze, and make actionable decisions off ESG metrics. This helps them clearly define what matters most. Companies should identify what metrics are important to them, which ones are worth tracking, and what needs to be measured.
Managing the right metrics and collecting the right data in a timely fashion also enables better questionnaire responses involving ESG rating providers like Carbon Disclosure Projects (CDPs).
How Do You Identify Correct ESG Metrics?
The metrics an organization chooses to collect and measure is closely tied to its industry segment. ESG standards and frameworks, often industry specific, also help provide valuable guidance about which metrics to collect. With the Global Reporting Initiative (GRI) framework companies can aggregate and interpret data to make sure their goals are in sync with investors’ projections and expectations of what a company needs to report on. When organizations make information public about their ongoing impacts and contributions, this helps increase awareness for stakeholders, analysts, reporters, and policymakers.
As another example, the Sustainability Accounting Standards Board (SASB) ESG guidance framework involves industry-specific and sector-specific standards for companies to disclose to their investors information about what their financially material sustainability looks like.
Participating in a materiality assessment also plays a major role in determining which metrics are significant. The focus must be on what is required now based on the business materiality without losing sight of the future of the business and upcoming regulations. For example, a Corporate Sustainability Reporting Directive (CSRD) will require companies to fully report in the year 2024. However, companies can start identifying the correct ESG metrics in line with CSRD now.
When you decide which metrics are worth managing, applicability assessments can prove especially helpful. For example, assessing the applicability of what data protection laws are affecting local, national, and international regions may help you better determine risk mitigation needs in relation to industry standards, relevant privacy laws, and so forth.
How Do Metrics Vary by Industry?
Here is just a small sampling of what metrics management looks like for three different industries – construction, manufacturing, and healthcare.
- Construction – First, some ESG corporate standards relevant to the construction industry are GRI, which ensure businesses are accountable, informed, and empowered when it comes to disclosures and risk. Additionally, the MSCI ESG Focus Indexes Methodology can prove helpful for construction businesses looking to understand their ESG metrics. For example, the construction industry has a significant impact on both the environment and society. Here, some ESG metrics include measuring a building’s carbon footprint, waste generated, whether sustainable building materials are used, worker safety levels, and responsible land use. And, across industries, including construction, the International Sustainability Standards Board (ISSB) plans to have global industry-specific standards. SASB standards have already been developed across 77 different industries. Governance metrics may include assessing a board’s diversity and adherence to regulatory compliance and ethical standards. Scope 1 in this industry includes purchased fuels, Scope 2 includes purchased electricity, and Scope 3 (more complicated to track than Scopes 1 and 2) includes staff and product transportation and business travel.
- Manufacturing – The manufacturing industry contributes to environmental disruption. Here, some ESG metrics include water usage, community engagement, greenhouse gas emissions, and sustainability in production practices. Here, tracking metrics like recycled aluminum volume, coil performance, and gas consumption remains critical.
- Healthcare – The healthcare industry deals with the health and well-being of individuals and patient populations. Common ESG metrics include patient satisfaction, executive compensation, waste management, distribution of services, care quality, patient access, and regulatory compliance. Also critical across healthcare is reporting on racial inequities and how they’re being addressed, measuring for transparency, and reconsidering how to operate more efficiently regarding travel, electricity, speed, and more. Some reporting opportunities in healthcare include highlighting steps to reduce your carbon footprint and how building more green spaces improves health impacts.
In time, because of ESG regulations, organizations may eventually value metrics management the same way they do financial data.
One of many regulations, for example, is the Corporate Sustainability Reporting Directive (CSRD). This is European Union (EU) legislation mandating companies publish ongoing reports about their environmental and social impact efforts to drive more sustainable corporate approaches and impacts. CSRD’s wide-scale single set of reporting standards may up the quality of non-financial data. This means in the future, ESG disclosures may align more closely than they do now with financial accounting and reporting data.
Where Does Data Come into Play?
Along the way, data must be your North Star. This data must be centralized and accessible. Yet unfortunately, many organizations still fail to operate in this way, instead housing ESG metrics in isolated spreadsheets or other non-digitized silos that do not allow for transparency, access, and granularity.
This approach proves problematic. For example, if regulators ask your organization to report your Scope 3 emissions data across all suppliers worldwide, just having the information you need on hand is not enough. You must have data tied to a quality standard. Why? Because investors will want to audit your reported data from end-to-end, your processes and data must be noted before—not after—you begin reporting accurate data metrics.
It is for this reason companies lacking the right kinds of data may feel pressured to either feign data or assemble required information together in haste. In cases like these, data may indeed be collected. But it will not be collected advantageously. This convoluted, segmented, and disjointed process is far from streamlined and automated. As a result, companies choosing this approach may be more likely to get dinged following an audit. Technology is therefore the ESG solutions industries need.
As a starting point, a robust EHS&S program can guarantee a streamlined process through efficient, cost-effective data gathering that can support ESG metrics management and disclosure reporting—with the transparency and trust needed. Examples of data include information about carbon footprints, energy consumption, water conservation, diversity, equity, and inclusion (DEI) initiatives, and more.
How Does Technology Facilitate ESG Strategy?
After your data has been collected, tracked, measured, and reported, it is necessary to conduct numerous next steps, including:
- Automation of data collection and calculations
- Measurement of ESG sustainability and performance
- Disclosing reporting with confidence
- Responding to evolving requirements with ease and agility
Technology is an important facilitator. A robust, automated EHS&S program can guarantee a streamlined process through efficient, cost-effective data gathering that can support ESG metrics management and disclosure reporting—with the transparency and trust needed.
This includes data related to carbon footprint, energy consumption, water conservation, diversity, equity, and inclusion (DEI) initiatives, and more. ESG mandates are anchored on relevancy, accuracy, and transparency of information. Any untrustworthy disclosure or omission can undermine confidence with stakeholders and investors. Organizations with manual and paper-driven processes often end up with unreliable data that can negatively impact ESG performance and disclosure reporting.
Technology fosters effective processes and visibility of the supply chain ecosystem or an organization’s health and safety initiatives. Technology does not just enable data collection; it also allows you to define measurable ESG goals and bring the entire organization along with you to achieve ESG objectives together.
For example, with SAI360’s Business Planning module for ESG, you can define precise, achievable, and impactful ESG and sustainability goals and targets. It enables organizations to manage objectives, goals, and targets in a centralized system and allows companies to drive accountability with less effort.
What are Some Advantages of SAI360’s ESG Solutions?
SAI360’s ESG solutions help organizations:
- Drive accountability of ESG and sustainability goals
- Measure the success of ESG and EHS&S goals
- Provide complete visibility of objectives, goals, and targets
- Align with ISO 14001 and ISO 45001 standards for objectives, plans, and targets
With SAI360’s Metrics Management module, organizations can measure and demonstrate the performance and effectiveness of their EHS, ESG, and sustainability initiatives and programs.
Metrics Management supports companies in measuring, understanding, and communicating their ESG strategy. It streamlines the management of data collection, reporting, and analysis of ESG and sustainability performance metrics. But it also provides ESG leaders with automated data calculations and flexibility to respond to evolving requirements like disclosure frameworks and standards. Streamlining reporting and analysis is about setting up measurable goals and objectives and leveraging dashboards capabilities that exist within the technology.
Our Metrics Management module helps companies calculate, make sense of, and explain their ESG performance. It also improves efficiency for data collection management, reporting, and performance metrics analysis.
Because SAI360’s framework is regulatory compliance and framework agnostic, we can support an unlimited amount of metrics. With so many frameworks and so many regulation changes, a configurable agnostic approach provides the flexibility organizations need now and for the future. This is only achievable with an integrated software platform.
SAI360 is already helping clients measure metrics, engage with stakeholders, improve ESG data, advance worker safety, streamline data collection processes, simplify waste tracking and emissions management, and more. A few key benefits of our centralized offering include:
- Specifying how data needs to be collected or generated
- Eliminating the burden of double-handling data and ensuring data consistency
- Transforming data to visualizations on the fly, which can be tied to target management and tracked for any given metric
- Calculating and reporting on Scope 1, 2, and 3 emissions, energy use, waste metrics, and other environmental impacts against targets
- Producing audit-ready reports and providing executive dashboards to demonstrate the performance and progress of ESG goals
- Being highly configurable, with instant usability and automatic calculations
- Setting up campaigns, establishing metric targets, and collecting the right kind of data at the right time to ensure maximum effectiveness of ESG efforts and initiatives.
Effective and efficient end-to-end ESG Metrics Management includes first identifying the right metrics, data collection methods, analysis, and reporting through dashboards to help people within the business understand targets and goals and how they are tied to different objectives.
This article was originally published by SAI360.
