As the focus on sustainability grows — and as more and more inboxes are pinged with third-party ESG questionnaires — companies have no choice but to understand the importance of prioritizing their environmental, social, and governance (ESG) performance. Consumers, investors, and third-party rating agencies alike expect companies to manage their ESG issues in alignment with a clearly articulated sustainability strategy. Fortunately, there are tools that can help.
ESG data — what it is and why it matters
ESG data refers to to environmental, social, and governance performance measurements.
- The “environmental” dimension of ESG and sustainability may include performance measures such as a company’s energy usage, carbon emissions, water consumption, or waste recycled.
- The “social” dimension may include performance measures such as the proportion of women and visible minorities in management, human rights violations, or employee engagement scores.
- The “governance” dimension may include performance measures such as cybersecurity breaches, ethics training for employees, or climate transition plan details.
Manually collecting and managing such large amounts of very different data is not an easy task. And it’s not enough to just have the data. You need to be able to act on it. You cannot act upon your ESG or sustainability strategy without high-quality data that gives you clear insight into how you are performing and where you can improve.
Investors are increasingly making investment decisions based on ESG factors. Properly managing your business risks and opportunities includes determining and addressing the gaps in your ESG performance.
Challenges of implementing an ESG strategy
Resource constraints
Integrating sustainability into strategy and business models is hard, and integrating ESG data into existing management practices can also be a challenge. The effective collection and management of ESG data, for many teams, is a daunting task. It’s a time-consuming and resource-depleting activity.
Measuring performance
Without proper measurement, visualization, and analysis of where your business stands the various ESG metrics you’ve chosen to track, it’s difficult to evaluate your performance, much less communicate any progress you may be making. As the saying goes, you can only truly manage what you measure.
We already know that ESG integration is a viable investment and risk management principle. Companies that manage their ESG issues well create value in tangible ways — and in ways that more than compensate for any up-front costs – investments, actually – or challenges to implement in the beginning.
Lack of standardization
Although the reporting landscape is evolving quickly, the current lack of standardized disclosure requirements makes it difficult to know exactly what ESG data to disclose to inform capital markets and stakeholders about your sustainability performance.
How does an ESG strategy create value?
Companies with a clear sustainability strategy and strong ESG performance are more attractive to investors, customers, employees, and consumers that are all increasingly sustainability-minded. They are also increasingly more likely to win government procurement contracts or grants.
Strong ESG performance cuts both ways, either in improving revenue and cash flow generation – such as from developing new products with strong sustainability characteristics – or reducing costs, liabilities, or risk exposure – such as from properly managing employee health and safety, ethical business practices, or customer data privacy.
Strong ESG performance, arguably reflected in a solid ESG score, speaks to high reputational capital and low-risk profile. This may help them attract human capital, such as highly skilled and engaged employees, as well as financial capital in the form of investment and loans at attractive rates.
Generating and using reliable ESG data allows you to make better business decisions, lowers your risk profile, and improves your overall value in the market.
Importance of ESG platforms in today’s business world
Without the support of fit-for-purpose technology, the collection of high-quality ESG data is costly and time-consuming. But it doesn’t stop there — that data needs to inform your ESG strategy and how you measure success. To do so, it needs to be accessible for viewing, analysis, and internal reporting.
Your ESG data should also allow you to communicate the value you’ve created for the company and its stakeholders.
At the same time, the amount and complexity of data companies are expected to disclose continue to increase. It’s no surprise that regulators and standard setters are actively working on making standardized sustainability disclosures mandatory in many markets around the world.
An ESG software platform for data management and reporting is becoming a necessary component for walking the talk on your sustainability strategy as it will enable you to efficiently collect and consolidate your ESG data in a centralized location so you can align your team, track and manage your performance, and demonstrate your commitment to sustainability.
What exactly is an ESG platform?
An ESG platform is a software tool that can help you implement an effective ESG or sustainability strategy.
Some key components of an ESG software solution may include:
- Data collection
- Data management
- Data analysis
- Data reporting
A good ESG platform will make it easy for your team to collaborate and share information with others, both internally and externally. It will play a key role in contributing to your long-term success and resilience.
Purpose and benefits of using an ESG platform
Improved data collection and management
An ESG software will help you to improve the quality, accuracy, and consistency of your data. Room for human error is greatly reduced, and centralizing your data will help you to build a secure system of record.
Informed decision-making
With clear insight into how you’re performing in various ESG metrics, you’re able to continuously improve your performance. Data-informed decisions – what we call a data mindset – are the backbone of a successful business.
From time to time, it can be helpful to benchmark your performance or disclosures against your peers, to identify any gaps needing to be addressed.. This becomes particularly useful in the context of continually changing stakeholder expectations of what “good” looks like.
Enhanced reputational capital
With the confidence in your data and the clarity in your performance that an ESG platform can bring you, you’ll be able to communicate clearly with investors and other stakeholders, in a way that can build brand integrity.
In fact, the risk of not disclosing your ESG practices today is perceived as being greater than the risk of disclosing what you may feel as imperfect or inadequate performance. It’s not about being perfect. It’s about continuously improving as you strive to manage your business-critical issues and contribute to sustainability..
Which ESG platform is right for your company?
With less time spent on data collection and trying to navigate how it fits into the various reporting frameworks, you’ll be able to spend more time improving your company’s performance and making better, more informed business decisions.
So how do you decide which ESG platform is right for your company?
Keep your specific needs in mind
You’ll want to first identify your material ESG issues, goals, and priorities. Determine what areas are most important to your company, and define the outcomes you would like to achieve. Ideally, the tool you choose will correspond to you.
Evaluate platform capabilities
Check that the ESG software you invest in has the features and tools that will enable you to do what you are expecting to do.
Check for quality assurance
Be sure that the ESG software enables the traceability and validation of the data you collect, so that it becomes audit-ready for reporting purposes.
Keeping these three key factors in mind will have you well on your way to choosing a high-quality ESG tool to aid you in your data collection, management, and reporting. A sophisticated ESG data management platform will help ensure that you’re prepared for future ESG data demands, and can help you improve your reporting and performance today, which ultimately may contribute to improving your ESG scores.
Whether you consider yourself an ESG pro, or a novice in need of some guidance, we can help. Request a demo today to learn about how Novisto can help you improve your ESG program.
