How to approach ESG monitoring and reporting

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ESG – Environmental, Social and Governance – was a hot topic in 2021, and is only catching on in 2022. If you haven’t noticed yet, it’s time to start. Companies interested in prioritizing ESG will have to do more than talk of a good game. With ESG, the evidence is in reporting. By sharing their ESG goals and the tangible data-driven progress they are making to reach them, organizations demonstrate their ability to manage those risks and remain profitable.

Get a letter from BlackRock chairperson Larry Fink’s CEO to start 2022. Not only does it indicate that sustainable investments have reached $ 4 trillion, but BlackRock also asks companies to set short, medium and long term goals that are part of the investment sector. Reduction in greenhouse gases. BlackRock-funded companies, too, are expected to issue aligned reports with the Task Force on Climate-Related Financial Disclosure (TCFD). Why are these details needed? Fink could not be more explicit: “We focus on sustainability not because we are environmentalists, but because we are capitalist and loyal to our customers.”

ESG as a measure of a company’s adaptability

Fink sees it as an essential tool in understanding the company’s ability to adapt ESG reporting details to the future. In the midst of these changes, he cited growing interest among shareholders in the corporate governance of public companies. To put it bluntly, he says companies will either show their progress towards ESG targets or lag behind.

Investment companies are not alone in demanding that organizations join ESG. About 83% of customers believe that companies should actively shape ESG guidelines, 91% of business leaders believe that their company has a responsibility to work on ESG issues, and 86% of employees prefer to work for businesses that do what they do. Take care of the same things. Customers and employees are paying more attention to the company’s values ​​- and how those values ​​come out – as they make purchasing and employment decisions.

Prior to ESG, companies were interested in corporate social responsibility (CSR) or sustainability. But where CSR has become more of a branding exercise for many companies, ESG needs accountability and results. Reporting is an essential component of accountability, which needs tangible support. Without meaningful reporting, it’s hard to show your stakeholders that you’re serious about the ESG initiative. Observing the most relevant ESG criteria for your company and reporting results is the best way to show the progress you have made towards ESG goals. A holistic approach to governance, risk and compliance (GRC) can provide that support. GRC software makes it easy to identify and monitor needs, collect data, measure progress, and minimize risks, while offering interconnectivity in risk operations to streamline risk management for your entire organization.

What is ESG?

Environmental. This feature includes climate problems, such as pollution, water efficiency, and carbon emissions. It has received considerable attention in recent years, as countries around the world pledged to reach net-zero emissions by 2050 (others pledged to achieve that goal by 2060). How industries interact with environmental issues varies, but these concerns affect each organization.

Social. This feature covers issues related to diversity, equity and inclusion (DEI), discriminatory labor practices, harassment, work safety and development, and data security and privacy. Investors and consumers cannot easily forget the problems in these areas, which makes it difficult for businesses to regain their reputation.

Rule. This feature deals with how the business is run and includes corruption, financial reporting, security breaches and fraud. These issues seem very similar across industries, and as a social trait, an error in this category stays with the company for a long time.

All this speaks to the broader principle of ESG, the concept of double materiality. External risk refers to how the organization’s actions (e.g., water use or labor practices) affect the world, while internal risk refers to how world events (e.g. flood or forest fires) affect the organization. That duality drives the need and value of ESG reporting.

How does ESG reporting work?

There is still no set standard for ESG in the US, which poses a challenge for risk managers. But one thing is clear: you cannot do ESG without GRC.

The various frameworks for ESG reporting (GRI, SASB, SDG, TCFD, UNGC) provide guidance on what should be included in your report, but they do not elaborate on how to manage ESG on a continuous, day-to-day basis. That’s where the GRC comes in. Where ESG focuses on reporting and communication, GRC software simplifies the process of collecting data, providing assessments, identifying ESG-related risks, and feeding them into ESG reporting.

Reporting is the key to realizing your ESG strategy. Announcing initiatives and goals is one thing, but those goals must be met with action. Ongoing reporting empowers a company’s leadership to show their boards and investors results and progress, which ultimately reflects on the bottom line. Companies that want to show how they are doing in ESG need a place to start. Holistic GRC software your company is already using for risk management can connect your system, pull data and track what you need so you can present ESG progress in a meaningful way. To use that software, you must first decide what to measure.

Use the ESG framework to identify metrics

Publicly traded companies should visit CSRHub, which provides ESG information through both ESG ratings and a breakdown of the criteria that affect that score. From there, familiarize yourself with the ESG framework that best suits your business.

What does the ESG framework offer? A shared language for all stakeholders that ensures that reporting can be verified, understood and compared. Efforts are being made by the International Sustainability Standards Board (ISSB) to establish global reporting standards, announced in late 2021, but the board is not yet operational. As organizations progress in their ESG reporting journey, they will likely use more than one framework to customize reporting according to stakeholder needs and expectations.

The ESG framework differs in purpose, audience and potential users. The Sustainability Accounting Standards Board (SASB), for example, provides industry-specific standards on five “sustainability parameters”: environment, human capital, social capital, business model and innovation, and leadership and governance. Those standards provide an overview of sustainability-related risks and opportunities that may affect a company’s financial position, operating performance or market valuation. Thus, companies use SASB which ESG factors should be monitored and investors should be informed. Business leaders can find industry or name (for publicly traded companies) SASB standards to get a break from disclosure topics to start the reporting process.

Once you identify which SASB standards are most important to your organization, the Global Reporting Initiative (GRI) Framework can provide an insight into those standards, including specific quantitative data for disclosure as part of reporting. GRI is the most widely used ESG framework and the organization has partnered with SASB to publish guidelines for using the framework together.

Set targets and search your data

Treat the ESG like an internal audit or regulatory compliance: be prepared to present evidence. While GRI provides guidance on how to measure and report information in the categories defined by the SASB Framework, you will need access to your data – and the efforts of your entire team – to convert those recommendations into reporting that reflect your position. Organization

Within the GRC software you are already using, look at the corporate strategy around ESG and the strategic goals for the year. Identify the first one already running with the standards outlined in your favorite ESG framework. What kind of policies do you already have? How do you implement those policies? How are you pursuing the initiative you have? What are you already measuring? You need to ask these questions when you collect your data.

Remember that ESG is about your extended enterprise. It reaches out to your vendors and relationships that keep your business going. The actions of your supply chain vendors may affect your organization’s ESG status. So you need to know where they stand. For example, if you source material from a company that makes high water pollution levels, you will need to consider how to reduce it.

Finally, establish your goals in each area using the ESG Framework, public CSR data, and guidance from competitors’ ESG reports. It can serve as a data benchmark as you evaluate ESG goals and practice. Companies that provide compliance software are working to offer solutions to reporting challenges – including such benchmarks – as the reporting process remains a painful issue for many companies.

Start your ESG reporting journey right now

ESG reports act as a mirror that reflects the reality of your organization. It will reveal any connection between what your organization says you care about and what you actually do. But that’s not all. The financial impact is real, companies make investment decisions based on the companies’ ESG impact. Regulators are also focusing on the ESG guidelines. Potential employees and customers are also on that list. They are looking to see if a company works on those values ​​before committing to working for the organization or spending money there.

With so much to gain and so much to lose, now is the time to get serious about ESG reporting.

Matt Kunkel is the CEO of LogicGate.


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