Editor’s note: The following is a sponsored blog post from Galvanize.
There’s no question that environmental, social and corporate governance (ESG) is on the minds of almost every board member and C-suite leader, but it has expanded beyond the boardroom and is now also top of mind for investors and consumers. This all happened—or at least was accelerated—as a result of the COVID-19 pandemic.
Over the past year and a half, people around the world have been forced to alter their societal values. Air travel jolted to a halt, supply chains were cut off by border closures, lifesaving medical supplies and services were in short supply, and massive unemployment surged—causing economic chaos like we haven’t seen in over 100 years.
This pressure created hyperaware and cost-conscious consumers, resulting in what some are calling the 21st century’s first sustainability crisis.
Consumers are now more ethically and environmentally conscious than ever before, which means that investors and businesses are reacting to ensure they bounce back and thrive on the other side of this pandemic.
ESG core metrics
To show that they’re meeting consumer and investor demands, organizations are now focused on tracking, measuring and reporting on their ESG efforts. In fact, the law firm White & Case recently looked into ESG disclosure trends in SEC filings and found that quantitative disclosures were up over the previous year, especially around things like environmental matters and human capital management (HCM).
HCM topped the list for the most increased disclosure for the second year in a row, followed by environmental, and then by board oversight of environmental and social issues.
These quantitative disclosures are a relatively new thing. Historically, ESG data was lagging, and was often presented by research or ratings providers. Today, with advanced technology, data can be collected within the business and supplied in near-real time to report on and share the status of ESG efforts.
In September 2020, The World Economic Forum published a core set of common metrics and disclosures on non-financial factors for investors and stakeholders to be used by organizations to align mainstream reporting on performance against ESG indicators. These factors were broken down into four categories: governance, planet, people and prosperity:
Governance core metrics:
- Percentage of employees, governing body, and business partners trained in anti-corruption policies and procedures, broken down by region
- Material risks and opportunities facing the organization, and its risk appetite
- Remuneration policies for the highest governing body and senior executives, including signing bonuses, termination payments, clawbacks, and retirement benefits
- Monetary losses from unethical behavior, including fraud, antitrust, insider trading, and violations of industry laws or regulations
Planet core metrics:
- Metric tonnes of greenhouse gas emissions
- Number of locations and area of land owned, leased, or managed
- Megaliters of water withdrawn and/or consumed, by region
- Metric tonnes of single-use plastics consumed
People core metrics:
- Percentage of employees by age group, gender and other diversity indicators
- Ratio of standard entry-level wage, by gender, compared to local minimum wage
- Average hours of training provided, by gender and by employee category
- Number of discrimination and harassment incidents, and resulting monetary losses
Prosperity core metrics:
- Number of new hires or terminations by age, gender and other diversity indicators
- Total dollars of investment into research and development
- Total global tax borne by the company, including VAT, property tax, corporate income taxes, etc.
- Percentage of revenue from products or services designed to deliver specific social benefits or address specific sustainability challenges
ESG data requires context
While these data points and metrics are insightful, it’s also important for organizations to provide additional context with these data points to ensure the metrics are not misleading. As this SEC guidance stipulates, organizations should provide additional context in order for investors to understand the metric that’s being presented. For example:
- A clear definition of the metric and how it’s calculated
- Reasons why the metric provides useful information to the investors
- An explanation on how management uses the metric to manage the business
Benchmarking against other similar industries will also provide greater insight and understanding for those looking at an organization’s ESG metrics.
Connecting data and the narrative
As you can see from the above examples, the data that makes up these metrics comes from all corners of an organization: human resources, finance, operations, risk and compliance, and more. This is why siloed tools and approaches to work are no longer a viable option for organizations.
In order to survive—and thrive—in the post-pandemic world, an organization must connect their data and use it to measure, refine and drive the business.
What does this mean for governance professionals?
The bottom line is that ESG data is in demand. But not just any data—your data needs to be sound, clean, accurate, consistent and near-real time.
The research from White & Case states that “... companies should take steps to ensure they have controls in place to effectively process, summarize, assess and review the accuracy of all their ESG disclosures.”
Governance professionals play a critical role in ESG. They connect the data, which tells the stories. They find the anomalies and locate the weak spots. In order to support and manage the new onslaught of needs and requirements of boards, C-suites, investors, and consumers, governance professionals must understand the organization's ESG objectives, define (or help define) the metrics, access and aggregate the data, and make it easily accessible and consumable by stakeholders.
This is only achieved when the organization has connected its data in a central, purpose-built tool that can aggregate the data from anywhere and feed it into real-time reports and dashboards. In order to ensure data is consumable, it must be presented in context; for ESG data, this means applying a fit-for-purpose risk taxonomy to drive aggregation and prioritization. Organizations must invest in these types of solutions if they plan on thriving on the other side of the 21st century’s first sustainability crisis.
