It’s tough to surf through business news or visit a company’s website without coming across a mention of ESG – Environmental, Social & Governance. The term refers to a firm’s collective efforts to conduct business in ways that benefit the environment and ensure social equality within its workplaces. Increasingly, stakeholders are basing their opinions and investment choices on how well companies are performing in these areas.
Getting ESG right is, quite simply, now a corporate imperative.
The challenge for firms to not only improve their ESG outcomes but also to communicate their progress to an incredibly attentive public can be monumental, particularly for those just starting out on their ESG measurement and reporting commitments. How are they doing it? Where do they start? What best practices can they follow?
These questions were front and center during a recent panel discussion, hosted by RegScan, a provider of EHS compliance information to Fortune 1000 companies, that brought together ESG corporate leaders to discuss how they are approaching the challenge and the keys to the success that they’ve realized.
The All-Important Corporate Sustainability Report
A key step in the ESG process is creating a core document, often referred to as a corporate sustainability report, that encapsulates a company’s overall mission around ESG and how they intend to meet their goals.
Ben Clifford, Global Health, Safety and Sustainability Associate Director at Fidelity International, discussed the challenges of creating such a document and the payoff that comes with having one in place.
“It wasn’t a quick job. It needed a number of different stakeholders within the company to be involved, including the Health, Safety and Sustainability team, Human Resources, Legal, Risk. Pulling all the information from those different areas into a single report took a lot of effort. Looking at the different data sets that we used, we had to collaborate on those to bring them together.”
The effort was well worth it, he added, helping to encapsulate what the company stands for. “It was about building a strong narrative around our corporate mission and aligning it with what our business purpose is.”
Another key challenge Fidelity faced when creating the report was sifting through the many different topic areas within ESG and identifying which ones were core to their business.
“There are a lot of different subsets under ESG. As we were putting the report together, we looked to identify which were the most relevant to us as a business and how we could demonstrate that within the report in terms of aligning with our purpose as a company, but also being able to have the data and the metrics behind it.”
Many firms are having to respond quickly to increasingly louder demands from stakeholders – including investors, media, and the general public – for information on companies’ metrics on ESG performance. Many are choosing to be as proactive as possible to get ahead of such demand.
Rachel Wyles, Associate Partner/Senior Environmental Engineer at Golder Associates, spoke to the topic and illustrated it with an example from her work with the tracking of greenhouse gas emissions, which are grouped into three categories by the Greenhouse Gas Protocol. As described by Carbon Trust, Scope 1 covers direct emissions from owned or controlled sources. Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company. Scope 3 includes all other indirect emissions that occur in a company’s value chain.
“With a lot of the reporting metrics, you have to report out on your Scope 1 and Scope 2 emissions,” she said. “Scope 3 emissions are kind of optional right now, but, increasingly, there’s a lot of stakeholder demand for (that level of) emissions data. So a lot of companies are moving towards reporting at least a portion of those Scope 3 emissions voluntarily.”
Doing so, however, is easier said than done, Wyles added.
“It’s a big challenge to collect good, robust, auditable Scope 3 emissions data. I’ve seen everything from Excel sheets right through to sophisticated accounting programs, but a lot of even multinational companies are still struggling, and they’re still on that kind of crude end of the scale of data collection.”
Materiality & Meaningful Metrics
As ESG reporting becomes more of a focus for corporations in response to consumer and stakeholder demand for information on their efforts in the space, the pressure to provide meaningful metrics is ratcheting up. Panel member Michael Tuohy, Vice-President, Environment & Sustainability at Intelex, pointed to a recent example of a large consumer goods company.
“You look at someone like a Unilever, who said (in September) they’re going to force all of their 55,000…suppliers to reduce their emissions by 50 percent by 2030. That is a big number and it was implemented likely without talking to all of those 55,000 stakeholders. So I think that [is a trend] we all have to be aware of.”
With the discipline of ESG reporting being still so new, the panellists discussed the need for companies to keep their reporting efforts focused on the aspects of their operation that are truly at the center of who they are and what they do. This notion of focus is often referred to as “Materiality”: a concept, as explained by Intelex, as one that defines why and how certain issues are important for a company or a business sector. A material issue can have a major impact on the financial, economic, reputational, and legal aspects of a company, as well as on the system of internal and external stakeholders of that company.
When analyzing materiality and deciding where to focus, Tuohy advised companies to “find your low-hanging fruit, because the low-hanging fruit is often the thing that has the largest impact.”
It’s important, he added, for organizations not to get swept up in the frenzy of discussion around issues that can arise on social media and traditional media outlets, such as emission reduction, and end up trying to report on topics that are either not core to an organization’s most important current objectives or which they have little experience in.
“Everything is a little bit insane around [emissions] right now (because) emissions are obviously something we need to fix. But it’s something that not many people actually have a true background in understanding – what their emissions are as a company.”
This can result in impulsive actions like wholesale replacement of older engines with newer ones, yet with no clear idea of what improvement has actually been realized due to a lack of reliable data.
When a well-planned ESG strategy is mapped out with appropriate materiality parameters defined, a truly useful corporate sustainability report can eventually be produced. Wyles pointed out that it’s important for companies to then act upon its findings.
“It is very similar to a number of different corporate strategies, in that there is that implementation piece that’s needed….[The sustainability report] is not typically something that sits on the shelf. It has to filter through into the whole company if you (are going to) have a chance of meeting your targets and your goals and satisfying stakeholders.”
Are you starting out on your ESG journey, or working to refine the program you already have in place? See how Intelex ESG software can provide the transparency and cross-organizational visibility needed to truly gain insightful ESG intelligence.