Last month, I moderated a panel at the Skycap Strategies Shareholder Activism and ESG Super Summit in New York with Eric Israel and Rajiv Jalim. I first met Eric probably 20 years ago at a conference and have followed him since then. It was a pleasure to meet Rajiv for the first time. Our topic was data as an obstacle to ESG integration, but we decided to take a slightly different angle on it: how to improve your ESG data so it is not an obstacle to integration or its use.
Shortcomings in ESG data are well publicized: investors, regulators, rating organizations, NGOs and the media typically all have something to say on the topic – and it is generally discouraging. Our panel discussed four pillars of improving ESG data volume, availability and quality.
- Boundaries. It is best to start by defining the topics in your ESG scope to determine the data boundaries. For instance, do you want to focus on impact or financial aspects? Is employee safety part of what you want to report on? Do you need to reach out to your supply chain and/or customers? Thinking ahead to the Comparability pillar, you should assess what industry expectations there may be as well as what peer companies are doing. These boundaries serve as the foundation for the other pillars. Approaching this element on an ad hoc basis may lead to wasted effort and inconsistencies.
- Sources. Corporate ESG data comes from wildly disparate sources – and sometimes even data management systems/file types. This generally leads to difficulties in collection and aggregation. It is critical to understand – and not underestimate – this complexity. Automation can be a big help, but even that has limits because ESG data can
- be manually collected at the facility level,
- originate from procurement systems
- be collected by quality or marketing departments
- be calculated within financial or enterprise risk management systems
- be submitted from suppliers or other external parties as letters, chemical information forms or PDFs
- come from industry associations
- be generated by automatic equipment monitoring devices
- reflect external audit results
- Quality. In evaluating the data and its sources, it is critical to assess the quality of the data. This involves confirming the data source credibility and ensuring adequate controls are in place – such as auditing and assurance – to apply professional skepticism. Additionally, the data need to be relevant to your needs, goals and boundaries. Keep in mind that just because data is available from a valid source doesn’t mean it is inherently valuable or on-point.
- Comparability. Finally, the data should be comparable internally and externally. Internally, management will need to track performance improvement and trends. ESG data must be comparable year over year, otherwise it creates internal confusion and frustration. Management also are keen to benchmark performance against competitors, meaning ESG data should be comparable to industry expectations and what peer companies are reporting (hopefully, you considered this in defining your boundaries above). Externally, ESG ratings organizations appreciate comparable ESG data and it helps them understand your company’s performance, plans and current status which should be reflected in your scores. Investors, customers and the media will also have an easier time evaluating your company for their own ESG needs – the benefits of which are plain to see.
The difficulty and importance of proper ESG data is perhaps under appreciated by many, but it is a vital piece of ensuring the success of ESG programs from every angle. As part of their membership, PracticalESG.com members have access to multiple checklists on this topic and our ESG Data Validation Guidebook.
If you would like to learn more, this will be but one of the topics we cover in our October 11th 1st Annual Practical ESG Conference. You can save $100 off this event AND $200 towards an annual subscription to PracticalESG.com by signing up for our FREE July 13th “Climate Disclosure Event.” Email sales@ccrcorp.com or call 1-800-737-1271 to claim this offer.
