J.S. Held recently partnered with VelocityEHS on the topic of Environmental, Social and Governance (ESG), an area of deep expertise for both companies, to support customers on their own journeys as ESG becomes increasingly important to their business.
As part of this effort, J.S. Held experts have offered tips to help business leaders start or grow their ESG programs, including this primer on the reasons why robust data management is key to ESG disclosure. Whether you’re new to ESG or looking for new ways to implement more ESG initiatives at your workplace, we hope you’ll find the below information valuable.
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ESG Is Creating New Demands for Disclosure and Performance
As the ESG movement continues to gather steam, securities regulators around the world are mandating disclosure requirements which exceed the demands of legacy compliance regimes. ESG disclosure will be subject to audit, in many cases, in exactly the same way financial information is verified. For example, the proposed SEC Climate Disclosure Rule requires full greenhouse gas (GHG) disclosure and assurance audits. This means that companies will have to produce accurate data using a formally controlled process in a much timelier manner than previously mandated by regulators. Additionally, due to the public nature of ESG disclosure and the type of audiences your company would like to reach, you need to disclose your data in a context that creates a positive and realistic narrative about current and future operations and growth plans.
Stakeholders, including value chain partners, financial institutions and investors are also driving some of the demand for ESG disclosures. For example, banks increasingly use a company’s ESG data when deciding whether to provide loans, and investors rely on the data to screen companies they’re considering investing in for risks that may not be evident from traditional financial statements. A corollary idea to the notion that stakeholders need ESG data to assess a company’s true level of risk exposure is that the data needs to be good – i.e., accurate and verifiable. That’s what the term investment-grade data means. If a company has investment-grade data, it has the kind of data that investors can confidently rely upon when making investment decisions. It also follows that a company planning on securing loans or investments to fund future growth and capture market share would have competitive advantages if they had good quality ESG data that demonstrated their maturity.
While disclosure itself is the current challenge for many companies, ESG stakeholders will be pushing for improvement in ESG-related areas such as environmental and social impact. This creates the need for a performance management program that includes targets, forecasts, improvement initiatives, ongoing measurement, and internal reporting. Data underlies every aspect of ESG disclosure and performance management.
Technology Is Key to Robust Data Management
Technology is key to identifying and implementing operational improvements to move the needle on ESG outcomes, and it is foundational to gaining the visibility and control needed for companies to have confidence in their data and their plans for future growth.
Accenture recently published a report outlining the challenges involved in uniting technology and sustainability. The company asked executives to identify barriers to integration of technology into their sustainability strategies. The top findings were:
- 40% of respondents cited a lack of ready solutions as the top barrier
- 33% of respondents cited the complexity associated with adopting integrated solutions
These statistics point to the fact that companies do not want to develop complex custom solutions starting from a blank slate. Successful technology integration initiatives require off-the-shelf solutions that include global industry learnings for best practice disclosure and implementation approaches that deliver successful change without the risk of “doing this for the first time.” It is very helpful to observe that many companies have been successfully managing environmental, health and safety (EHS) and corporate sustainability reporting (CSR) programs for years.
EHS Data Is the Majority of ESG Information
What is the difference between data and information?
“There is a subtle difference between data and information. Data are the facts or details from which information is derived. Individual pieces of data are rarely useful alone. For data to become information, data needs to be put into context.” – Source: Bahman Zohuri, Farhang Mossavar-Rahmani, and Farahnaz Behgounia, “Knowledge is Power in Four Dimensions: Models to Forecast Future Paradigm.”
We can think of ESG disclosure as EHS data plus narrative context. Of course, there are additional data points to be found outside of traditional EHS, but the large majority of ESG reporting is environmental, health and safety data channeled through a standardized, global reporting framework such as Sustainability Accounting Standards Board (SASB), Task Force on Climate-Related Financial Disclosures (TCFD), and International Sustainability Standards Board (ISSB), which builds on SASB and TCFD guidance.
ESG disclosure—and the corporate story you tell your stakeholders—is based on robust EHS risk management, as implemented through processes, systems, technology, and data. There are challenges and opportunities at every level of this “stack,” and companies are making timely investments to enhance their performance in these critical areas to both manage risk more effectively and be confident in their ESG and other disclosures.
Moving from disclosure to performance programs, we find that data continues to be foundational. For example, a modern carbon management program needs the following processes:
- Carbon accounting
- Detailed materiality assessment
- Detailed uncertainty analysis
- GHG baselines and baseline updates
- GHG forecasting
- GHG benchmarks from comparable companies
- GHG target setting
- GHG reduction opportunities, including marginal abatement cost curves
- Carbon offsets
What’s the common ingredient tying them all together? Data.
Addressing the Challenges
To address the most critical challenges in implementing technology to support your ESG goals, J.S. Held and VelocityEHS have developed proven solutions for measuring and managing the data relevant to ESG disclosure and performance.
Ready: Off-the-Shelf Solutions Tailored to Your Operations
“Gone are the days of custom projects and multi-year implementations. We have been doing the work of measuring and managing this information for decades and our clients expect us to come with strong best practices and built-out solutions. Of course, we have to tailor specific elements to align to our clients’ operations and stakeholder expectations, but the large majority of the data and processes should be considered mature, and systems must align to that reality. The expectations of clients are that all information will be managed in a single platform, with integrated business processes, automated data gathering and reporting through to ESG programs. It shouldn’t be necessary to look to bolt-on, narrow ESG reporting applications given the maturity of existing approaches and the large overlap between our clients’ ESG management functions and their ESG reporting functions.” – Steven Andersen, Senior Vice President, J.S. Held
Key Takeaways
- Pre-configured off-the-shelf solutions based on industry best practice are mandatory in the current marketplace.
- Best practice ESG solutions must manage ESG and EHS operational data directly, not simply be an ESG reporting tool that pulls information from other systems (or worse—expect it to be manually entered).
- ESG systems should be up-to-date on leading global reporting frameworks, and contain all the relevant mapping information to ensure confident, compliant reporting.
Streamlined: Proven Implementation Approach for Successful Change
“Bringing all of your ESG data together can be a big technical challenge. Getting your entire company behind improving your environmental and social impact can be a big operational and cultural challenge. But many of our clients’ strong compliance and sustainability programs have given them a huge head start and have shown the way towards successfully bringing diverse teams together to solve these challenges. Our cross-disciplinary approach allows us to bridge the distance between all of the important stakeholders in an ESG solution, including operations, EHS departments, sustainability teams, finance teams and the CFO, and supply chain. They, and others, all have a part to play and our job is to support the coordination of improvements in people, process, technology and data, while implementing expert best practice solutions.” – Daniel Artzer, Senior Business Consultant, J.S. Held
Key Takeaways
- Begin with the end in mind: Remember that reporting itself is not the end game. ESG pressure will require companies to improve environmental and social performance, so think about benchmarks, baselines, targets and performance while you’re preparing for disclosure.
- Remember that ESG is just another flavor of risk management: Your company will likely benefit from more rigorously managing risk. ESG solutions that enable you to quickly create a materiality matrix based on stakeholder surveys will also help you identify and map out your most important issues in a format that’s easy to understand because of its similarity to a risk priority matrix.
- Recognize where you are already: ESG is not entirely new. You’ve been doing most of this for years—look to reuse and improve what you have.
- Technology is just a tool: Leaders of change initiatives must remember that successful solutions are built on people, process, technology and data. You’ll need to address each of these. Don’t mistake technology (a tool) for a solution to a problem on its own.
- The importance of formal change management: Robust change management activities, such as identifying impacts to employees and other stakeholders, producing frequent tailored communications to varied stakeholder groups, and maintaining discipline in measuring success are necessary for inter-disciplinary change such as ESG program implementation.
- Inter-disciplinary communication: Consultants must be able to speak “multiple languages” to be effective across disciplines.
- Process integration: Consolidated software platforms need to integrate business processes and data across teams and functions.
- Master data management: Accurate, timely master data management is critical as the backbone connecting different teams and data across a company. This information includes at a minimum: people information (employees, contractors), facility information, asset information (what we own and what the characteristics of these assets are), and corporate hierarchy. Without agreement on this master data, you’ll struggle to bring diverse teams’ data and reporting together for ESG disclosure and performance purposes.
- Automation: The process of gathering data, calculating, and reporting should be largely automated, with adequate controls and quality assurance.
- Ongoing governance: Ensure that your big investment in proper data management runs smoothly and responds effectively to change.
Take the First Step to Solving your ESG Challenges
“The first step for any company is to understand what ESG means to its operations and stakeholders. Depending on your industry, your operations, your access to capital, your stakeholders, customers and competition, and the quality of your existing data, you may be in very good shape and ready to baseline your information and disclose it. In other situations, you may find that you need to address a few areas with additional management programs and update your data management practices. Either way, and anywhere in between, the first step is to look at your readiness through a strategy lens.” – Andrea Korney, Vice President of Sustainability for J.S. Held’s ESG & EHS Digital Solutions Group
One way to develop this understanding of your operations and stakeholders and build your ESG strategy is to conduct a materiality assessment. With a materiality assessment, you can set up surveys and collect data to help you identify the most important ESG risks and opportunities for your organization and prioritize your issues to enable a more strategic focus. Ensuring input from stakeholders on the most relevant aspects of your business, you’ll also build the engagement and transparency you need to achieve and maintain ESG maturity.
Looking for Help?
J.S. Held is a leading provider of global ESG and EHS business information solutions, assisting with all aspects of ESG/EHS including risk advisory, strategic program development, regulatory compliance, and business process automation. Its team of consultants and information technology professionals bring proven solutions, like the ESG Solution available through VelocityEHS and its Accelerate Platform, to manage risk and enable opportunity in this fast-moving space. See how easy ESG can be, contact J.S. Held or VelocityEHS today.