[author: Karen Alonardo]
Any organization with an ESG program will recognize that compiling, analyzing and sharing these metrics is no small feat. Depending on the size of the company and the industry, calculations on greenhouse gas emissions alone can be dizzying to comprehend. This complexity, combined with the level of transparency demanded by investors, the public – and likely in the near future, regulators – can be daunting to disclose, especially when the company may not have the program in place. appropriate.
The need for transparent and accurate ESG data is clear, and without it, organizations could suffer the consequences of tarnished brand reputation, financial loss or regulatory action. “Transparent” and “accurate” are essential words here; without a commitment to transparency and data accuracy, companies can end up whitewashing their ESG efforts.
Greenwashing is misinformation disseminated by an organization in order to present an eco-responsible public image. And it often happens. Avoiding greenwashing requires an organizational commitment to honestly disclosing ESG metrics, even when the truth may be uncomfortable. Admitting that environmental initiatives have a long way to go or that diversity is lacking across the organization may cause initial backlash – but as long as there is commitment and progress in improving these metrics , businesses can ride out this storm.
Building an ESG program that drives progress and improves results requires trust in the data produced by the company. The practice of building trust in your ESG data can be divided into five disciplines.
Here’s how to TRACK the viability and progress of your ESG program.
With regard to the different sources of ESG data, this information must be traceable to the source. For example, reliable environmental information about a company’s energy and water consumption must be aggregated from the utility provider and reported accurately, ensuring the traceability of this information. When calculating third-party ESG impacts, it is important that information comes directly from suppliers and that transparency expectations are defined and regularly communicated.
Accurately collecting, analyzing and sharing this information requires dedicated resources and greatly benefits from an automated software solution. Although these calculations can being tracked and completed manually leaves room for human error and is not scalable as the business grows (or feasible for larger companies). Manual tracking also diverts valuable resources and bandwidth from more strategic activities. Automation not only saves time and streamlines resources, it also provides more accurate reporting and quickly delivers ROI from a software purchase.
ESG programs are continuous and iterative, and therefore repeatability This is the key. Any successful ESG initiative must be able to evolve and grow as needed; as a business grows or a regulatory measure comes into play, it is essential to have a framework that can adapt to increasing complexity.
Repeatability specifically refers to the implementation of a scalable solution capable of collecting relevant data and aggregating the results into a digestible format. Doing so regularly streamlines the ability to make improvements using similar metrics, and alignment with standards makes ESG reporting a repeatable process for internal stakeholders and third parties. For example, if your organization manufactures products that require multiple suppliers, ensuring that the supply chain also operates in an ethical and responsible manner is an essential part of the ESG story.
Companies need to address several key issues when addressing ESG, and many include embedding these values into corporate culture and allocating resources to achieve meaningful progress. Repeatability allows named leaders to develop and evolve ESG programs as goals are achieved or redefined, and regulatory requirements change over time.
For those who pay close attention to the ESG space (and maybe even those who haven’t), responsibility gets a lot of airtime. Many leading organizations have announced that different compensation levels will be linked to ESG measures. Recently, Mastercard announced that it was linking the compensation of all its employees to ESG objectives, and some other organizations such as Apple, McDonald’s and Chipotle announced that variable executive compensation would also be linked to ESG measures.
As mentioned in a previous blog post on this topic, this could have a positive impact on overall corporate culture, people, and the environment. But it’s important to keep in mind the mission to create a more sustainable and ethical company. As noted in a recent PwC study, “there is a risk of hitting the target but missing the point. An example might be a bank that is focused on reducing its own carbon footprint when the biggest effect it could have on reducing emissions is to change its approach to financing carbon-emitting companies. There is a risk of distortion of incentives. Research shows that incentivizing pro-social goals can undermine intrinsic motivation…”
How does your organization compare to others in the industry? Comparability is important as a method of comparison with your peers to help determine where efforts should be focused.
Currently, this is difficult to do due to varying standards and an unregulated disclosure landscape. Hopefully, the near future will bring much-needed regulatory disclosure requirements from the SEC that will provide useful information for comparability. ESG programs are at different stages of maturity around the world and true comparison can be difficult, but it all starts with gathering and disseminating information, followed by setting goals and making progress against them.
ESG monitors should keep abreast of related news and actively seek information from similar companies. Many organizations produce voluntary disclosures and while there is no consistent framework for measuring currently, there is a wealth of useful information available to ESG leaders.
Failure to manage ESG presents a major risk to the organization. It is also imperative to think about ESG holistically, as social and governance issues (lack of diversity, pay equity, poor data governance, etc.) have lasting and detrimental impacts on the business. In short, the management of an ESG program is not only about the environmental aspect; while greenhouse gas reporting is imperative, other social and governance aspects are equally essential to understand in terms of impact on your own organization and readiness for ESG disclosures.
During the first start, a maturity assessment provides valuable information awareness on the current state and helps to identify areas of interest for the future. Building a cross-functional team and assigning dedicated leadership to governance of the ESG program will inform what to focus on, where success and progress are present, and firmly establish these priorities in the organizational culture.
Is your ESG program on the RIGHT TRACK?
It is in the interest of all companies to establish a trustworthy and credible ESG program. Once considered “nice to have”, the tide has changed and ESG is becoming a “need to have” for organizations of all sizes. There is an unfortunate and uncomfortable truth that many organizations fail to truly make progress and inadvertently or intentionally green their business practices. To avoid greenwashing and build trust in ESG data and disclosures, companies must prioritize and dedicate resources to ESG programs and codify policies and procedures into the corporate culture.
Whether you’re just starting out or looking to keep your program on “TRACK”, NAVEX has resources to help you prioritize ESG.
To learn more:
Download the Definitive Guide to ESG
Download the technical sheet “NAVEX ESG™ Build ESG Principles into the Way You Do Business”
See the original article on Risk & Compliance Matters