As companies get to grips with what an increased focus on environment, sustainability, and governance (ESG) means for their business, what are some of some of the methods being deployed to help them get ahead? With investment opportunities and access to talent increasingly linked with solid ESG practices, businesses are looking at multiple avenues to improve their ratings.
Formalising measurements
Given that ESG reporting is non-financial, there continues to be many attempts to formalise the information required to create consistent metrics globally. With investors and other stakeholders relying on ESG data in order to make informed decisions about a company, it’s important that businesses put suitable measurement systems in place to track their ESG journey and achievements.
In a bid to create consistency, PwC collaborated with the World Economic Forum to develop a list of metrics and disclosures companies can use to improve their ESG reporting. Aligned with the UN’s Sustainable Development Goals (SDGs), the four themes focused on principles of governance, planet, people, and prosperity. The aim being to create more inclusive and sustainable economies globally for societies and individuals.
Shareholders are particularly keen to know that investments are being made wisely, in a way that doesn’t detriment planet or people – such as water being used sustainably and operations that don’t exploit human rights. With capital increasingly geared towards sustainable ventures too, organisations are using ESG measures to review their own operations, and those in the wider value chain, to maximise opportunities and mitigate risk.
Tracking data digitally
Collating data around ESG targets can be a challenge, particularly when it comes to tracking emissions output, energy consumption, and the lifecycle of products. Understanding individual business footprints is difficult, let alone across an increasingly complex value chain.
Discrepancies in how data is collected and maintained, its accuracy and transparency, can cause a headache for businesses. But with increasing jurisdictions around organisational impact on the environment and societies, it’s something businesses need to address.
Organisations are increasingly relying on digital interventions to track ESG practices more robustly. By using cloud computing and agreeing company-wide what data needs to be collected, it provides businesses with a more accurate overview of their ESG frameworks. This can then inform future decision-making processes, support investment opportunities, and identify areas that require transformation.
Mapping risk
More than two fifths (43%) of UK CEOs said they explicitly factored climate change and environmental damage into their strategic risk management activities. By understanding what challenges potentially lie ahead in operational markets can help businesses to better plan, withstand disruption, and mitigate risk.
Research by Deloitte found that 27% of business leaders said that operational impact of climate-related disasters, such as facilities damage, is the biggest environmental issue already impacting their organisation. Understanding the current issues and future threats, can help organisations to map risks more effectively – giving businesses a longer-term view, whilst addressing immediate threats.
Mapping risk also helps organisations to identify energy hotspots, where operations and supply chains may need attention to improve ESG ratings. This in turn can reveal investment opportunities, such as in sustainable technologies, to minimise current impact on the environment and play the long game.
Technology
A report by Deloitte and GeSI argues that technology plays a significant role in closing the gap in sustainability targets – with the ability to meet 103 of the total 169 SDGs. Through technologies such as the internet of things (connecting physical objects to the internet) and cognitive tools (including machine learning and AI), existing digital technologies can help accelerate progress by 22% and mitigate downward trends by 23%.
Technology plays a crucial role in supporting ESG efforts, with everything from better data collation to identifying areas for greater sustainability gains. There has been a notable increase in M&A activity in the technology sector too, with businesses bolstering their green credentials through acquisitions.
With investment increasingly linked to creating more sustainable solutions, it’s an opportunity for businesses to access finance and improve their ESG ratings simultaneously. Deadlines around sustainability are only getting tighter, with alarming headlines predicting doomsday scenarios. As a result, stakeholders and investors alike are demanding greater action from businesses around ESG efforts, which can no longer be ignored. Many businesses, therefore, are looking to get on the front foot with ESG – to meet regulatory and stakeholder requirements, both now and in the future.