Like many of you, I’ve watched many webinars and read articles about collecting ESG data for corporate reporting/disclosures. Data collection methods tend to fall into two main categories:
- Filling out questionnaires
- Manual on-line data entry
Sophisticated ESG data management systems provide some cross checks for data consistency, which can help spot errors, but they can’t catch everything. Remember that downstream users of ESG information rely on what your company reports – any errors or problems at the beginning become amplified through subsequent reviews, ratings, stakeholder reactions and customer actions.
Yet ESG data validation processes/procedures are not typically robust. Companies should take practical steps prior to answering questions online or on a questionnaire to ensure ESG data accuracy and appropriateness. For instance:
Look at who is answering the questions. ESG data entry can be a simple administrative task at times, but it may also be more technically complex. Whoever is completing this task for your company should have adequate training and knowledge to respond correctly, or at least know who to call internally if they are at all unsure how to answer a question.
Make sure ESG data undergoes technical QA/QC. As a consultant and auditor, I frequently found errors in environmental, sustainability, product content and safety data. With very few exceptions, I was the first to notice errors because I was the first to look. Common problems are:
- Typographical errors, such as misplaced decimal points or extra numbers
- Data format inconsistent with calculation requirements (e.g., entering text instead of numerical values)
- Data entered in the wrong cell, column or row
- Modifications made to spreadsheets without changing cell references in calculations
- Errors in the mathematical formulae used in spreadsheets
- While measurement devices like flow meters can feed directly into IT systems (eliminating human error in data transcription), the devices themselves can fail, become fouled or experience other technical problems that produce inaccurate readings. Their accuracy can also be questioned if they are not maintained and calibrated in accordance with manufacturer specifications.
Sometimes these are easy to spot. I once found a numerical value with more than 10 digits to the right of the decimal point in a spreadsheet where the other values were only six digits to the left of the decimal. That stuck out like a sore thumb yet shockingly, I was the first to notice. Other times, it takes a keen eye to identify a problem – such as with flow meters and data loggers. Fraudulent data can run the gamut of someone being lazy when filling our inspection logs to convoluted embezzlement schemes involving fake waste disposal activities. The owners of the data (environmental, safety, HR, purchasing, product engineering, legal, etc.) should all give it a thorough and careful technical review before reporting externally.
Ensure supplier information is accurate. ESG data requestors ask for information on the impact/performance of your suppliers. You probably obtain that through questionnaires or online data systems that suppliers fill out. Your company will be held accountable for information reported by suppliers, so it should subjected to the same reviews and controls in place for your own data. For example, when reviewing Conflict Minerals Reporting Templates for clients, I routinely found that even basic information provided about materials contained in the company’s products needed corrections.
Evaluate internal controls for ESG data. ESG data is rarely afforded the same level of attention and controls as financial data. Consider using your internal audit department to assess internal controls; properly qualified external auditors may even be warranted in some cases. There’s understandably some reluctance to involve auditors in these processes, but it’s better to bite the bullet than to end up in hot water later over inaccurate disclosure.
If you are on the receiving end of this kind of data from suppliers, applying these considerations to your reviews/evaluations may improve its credibility and your comfort level in relying on it.
These really aren’t complicated and are for the most part free, so there are few barriers to improving your reported ESG data. If something goes wrong data-wise, it is very hard to put the genie back in the bottle.