Got a case of compliance complexity? The sustainability landscape is evolving so rapidly that it can feel like you need to spend all your time staying up to date on new standards and reporting requirements. There’s no time left to actually build reports and achieve meaningful targets.
Setting up your company’s Environment Social and Governance (ESG) program is a huge undertaking. You need to be able to meet the needs of corporate leadership, investors, customers and suppliers, along with other stakeholder and community members.
But where do you start? Government and other jurisdictions are setting targets for carbon reduction, but don’t prescribe specific methodologies. Investors want you to follow frameworks that result in data that will meet their needs. Those frameworks have methodologies, but don’t give a complete list of the data you’ll need to gather for a complete report.
If you’re overwhelmed and your ESG data is starting to look more like a spiderweb of spreadsheets than something that will absolutely be useful for your business, there are solutions that reduce the complexity and streamline your efforts.
What Are the Types of ESG Data To Be Collected?
Before diving into the challenges of managing and reporting ESG data, let’s make sure we understand the different types of ESG data that organizations typically deal with. ESG data can be broadly categorized into three main pillars:
Sustainability is often used synonymously with issues surrounding climate change, so the environmental data most commonly collected is related to calculated carbon emissions. This includes data related to the Scope 1, Scope 2, and Scope 3 emissions, offering a comprehensive view of their environmental impact.
Related to carbon emissions, though sometimes reported under its own heading depending on the ESG standard being used, is energy consumption. Data includes energy use and efficiency, renewable energy adoption, and energy-saving initiatives.
Other aspects of environmental data gathering include waste, water management and forestry. Depending on the nature of a business’s operations, this could include information about waste generation, recycling efforts, water conservation measures, reforestation efforts and other stewardship initiatives.
Social data looks at a company’s workforce and its relationship to the community. Under this heading, the ESG team will need to liaise with HR to pull data on diversity, gender equality, and the company’s efforts to promote an inclusive workplace.
Other social data to collect includes Information about employee working conditions, wages, benefits, and labor union relationships.
Finally, social data looks outside the company to assess community engagement. This might include pulling details on data related to philanthropic initiatives, community investments, and partnerships.
Governance data helps measure and assess how a company’s leadership is organized, how decisions related to sustainability are incorporated into large policies and procedures, and how factors like compensation can be used to incentive the board and C-suite to prioritize sustainability.
When gathering governance data, the ESG team will look at details about the board’s diversity, independence, and expertise. They’ll also ask for information on executive pay structures and alignment with performance. Governance data also includes information regarding the company’s adherence to ethical and compliance standards.
What Are the Biggest Challenges in ESG Data Collection and Management?
Managing ESG data presents several challenges for companies, ranging from data collection to reporting. Here are five challenges companies commonly face.
Data Collection and Integration
ESG data often comes from various departments within an organization, making it challenging to consolidate and integrate data effectively. It may involve data from finance, HR, purchasing, sales, health and safety, IT, sustainability, and more. And that’s just the people you’ll have to reach out to in your own organization.
Companies often rely on external sources for ESG data, which can be less controllable and require validation and integration into internal systems. You’ll need to reach out to suppliers and customers. There’s no guarantee that they will buy into the goals of your ESG program or provide the high quality data you need to make your program effective.
Data Quality and Accuracy
As we’ve already discussed, ESG reporting lacks universal standards, leading to variations in data collection and reporting methodologies. Some examples include:
- The data you need to meet government requirements might be different from what your investor is requesting
- Your supplier might have an ESG program of their own using a different standard, meaning the data they have available is also different
- The standard you used for your program last year might have been rolled into a newly released standard this year, resulting in different supporting materials being made available
All of these can result in discrepancies and hinder accurate comparisons, both by your investors and also year-over-year. Ensuring the accuracy of ESG data can be challenging, and companies may need to invest in verification processes or external audits.
Data Volume and Complexity
Data overload is a real problem. ESG reporting requires the collection of extensive data, especially for large corporations with global operations. Managing the sheer volume of data can be overwhelming. And in cases of employee turnover on the ESG team, you can’t hope that new hires will be able to untangle the mess of spreadsheets their predecessors left behind.
Not to mention, ESG metrics can be complex and multifaceted, making it challenging to assess their impact and relevance accurately. The first step of any effective ESG program is to accurately define boundaries and assess materiality. The team needs to understand and balance competing priorities from leadership, investors, and community stakeholders.
Reporting Framework Selection
Companies must choose from various ESG reporting frameworks such as GRI, ISSB, TCFD, and others. Selecting the right framework that aligns with their industry and goals can be a daunting task. They also need to know what to do when their standard becomes defunct or incorporated into another, similar to the way TCFD has now been replaced by ISSB.
In addition to the shifting sands of ESG frameworks, governments are changing their reporting requirements all the time. Companies need to stay updated on regulatory changes and adapt their reporting accordingly, without creating unnecessary duplications in an effort to meet both legal and investor requirements.
Along with documented and quantifiable requirements from ESG frameworks and sustainability regulations, companies have to navigate the expectations of a wide range of stakeholders, including investors, customers, employees, regulators, and advocacy groups. Meeting these diverse expectations can be challenging.
Maintaining transparency and building trust through accurate and meaningful ESG reporting is crucial but can be difficult to achieve. There is often sensitive and confidential data to be collected, like leadership compensation or the details of environmental discharges. Knowing what to disclose, how to disclose it, and who has the authority to share is a critical part of any successful ESG program.
Addressing all of these challenges requires a proactive approach to ESG data management. Companies should invest in robust data collection systems, establish clear data governance procedures, and continuously monitor and improve their ESG reporting processes.
How To Collect ESG Data
Collecting ESG data can be a complex and time-consuming process. Sometimes it can feel like the ESG team spends the entire year just collecting data and generating reports and never has an opportunity to build the processes that will result in your company hitting its ESG targets and commitments.
But proper ESG data collection is a critical step toward effective ESG management and reporting. The team simply needs to find a way to do it in an efficient manager. Some of the key steps of data collection are discussed below.
Identify Relevant Metrics
Start by identifying the ESG metrics that are most relevant to your industry and business. These metrics should align with your sustainability goals and stakeholder expectations. A materiality assessment will keep you from wasting time gathering data that is either irrelevant to your operations or won’t bring value when it comes time to set goals and targets.
Industry-specific frameworks like the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB) can provide guidance on the most material metrics to consider for your operations.
Establish Data Sources
Determine where the necessary data resides within your organization. ESG data can be sourced from various departments, including finance, HR, operations, and sustainability teams, as well as outside your organization like from suppliers. Departments need to buy into the value of ESG for the organization, rather than seeing it as a paper exercise.
Collaboration and data-sharing mechanisms are crucial. Everyone is busy and doesn’t want to waste time collecting data that will be emailed into a black hole never to be seen again. Finding ways to collect data in the units individual departments have readily available, and providing support on how to find the information you need will make the flow of information easier.
Data Collection Methods
Data collection will depend on your operations and the methodologies you choose to use for questions like emissions estimates and financial impacts. Methods may include direct measurement, production data, surveys, audits, and third-party data providers.
Automation tools and software can streamline data collection. For example, FigBytes has internet-of-things and API integrations that enable organizations to pull information directly from equipment and software, rather than waiting for hard copy records like invoices.
Data Validation and Verification
High quality data results in high quality reporting. To ensure data accuracy and reliability, implement validation and verification processes. This may involve conducting internal audits, engaging external auditors, or using data validation software.
Data Aggregation and Standardization
Aggregate and standardize ESG data to create a coherent and consistent dataset. This step is crucial for comparing performance across different time periods and benchmarking against peers. An ever-changing dataset opens your reporting up to errors which can falsely inflate environmental impacts or show year-over-year progress that isn’t real.
How To Manage ESG Data
Effective data collection is only the beginning. Once you’ve collected ESG data, effective management is essential to derive meaningful insights and drive sustainability improvements. There are five key steps to managing ESG data.
Centralized Data Repository
Establish a centralized data repository or ESG management platform where all collected data can be stored, accessed, and analyzed. Remember, spreadsheets can be lost or corrupted, both by human error or digital failure.
Cloud-based solutions are increasingly popular for their scalability and accessibility. This is especially important when data collection and report generation happen in different locations. Regional offices and suppliers want a convenient and easy-to-use interface to provide requested information.
Too many cooks spoil the soup, and too many access points to ESG data can result in poor version control, accidental deletions, and incomplete datasets. Implementing robust data governance practices ensures data quality, security, and compliance. Assign responsibilities for data management, establish data stewardship protocols, and audit these procedures regularly.
Just like ESG policies and risk assessments should be incorporated with larger corporate policies and risk assessment procedures, ESG data should be integrated with your broader business data systems, such as Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) systems.
ESG data and reporting can’t exist in a vacuum. By integrating it with other systems, your organization will understand that achieving ESG goals has the same priority level as financial performance and customer satisfactions, and provide a holistic view of your organization’s overall performance.
Building an ESG program isn’t a one-and-done undertaking. The real value comes in measuring annual performance, identifying areas for improvement, and celebrating successes.
Set key performance indicators (KPIs) for ESG metrics and track them regularly. Visualization tools and dashboards can help clarify trends, both negative and positive, and make reports easy to follow for company leadership, financial institutions, and other stakeholders to follow.
Engage with internal and external stakeholders, such as employees, investors, customers, and regulators, to understand their ESG expectations and concerns. An effective ESG program is a lot of work, but one that doesn’t meet stakeholder needs is a waste of time. Use stakeholder feedback to refine your ESG strategy going forward.
Still Feeling the Complexity Squeeze?
Gathering, managing, and reporting ESG data is no small task, especially for large organizations managing reports for facilities and operations across the country and around the world. Your team needs time to verify data, seek stakeholder feedback, and implement the programs that will result in progress for future reports.
It’s not easy. Using home-grown data collection tools means the reporting team will be one step behind any time regulations change or stakeholders adopt a new reporting framework.
A cloud-based software solution like FigBytes helps streamline the complexity. Through partnerships with reporting programs, FigBytes makes sure your data is compiled in a way that will give meaningful and verifiable metrics. It simplifies data gathering, keeps your information secure, and can be customized to meet your needs. If you need help untangling your ESG data web, speak with one of our experts today.