The Good, the Bad and the Downright Ugly of ESG Reporting
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Reporting has become a key part of the job of sustainability professionals. ESG reporting allows organizations to collect and monitor data on their environmental, safety and social impact, assess progress, and communicate risks and opportunities to consumers, regulators, and investors.
But how do you make an ESG report more than just an exercise in data collection? How do you make the information impact the day-to-day decisions and actions of your employees and company leaders?
At IX Network’s online Carbon Data Technology event last week, Caitlin Chiquelin, Senior ESG Analyst at Baker Hughes, Neil Jones, Head of ESG (Environmental, Social and Governance) International, Walgreens Boots Alliance, and Paul Ulrich, Vice President-Government and Regulatory Affairs at Jonah Energy, shared their strategies for effective ESG reporting.
Here’s what they had to say:
The Good:
Exposing and tracking ESG data is generally the first step to being able to assess where your organization is, areas for improvements, and tracking progress against targets. Many organizations have begun the process of issuing annual sustainability reports and tracking key metrics. ESG reporting capability is maturing at many companies and organizations are building new capabilities off those foundations.
The Bad:
While many organizations have begun issuing annual sustainability reports, the challenge they now face is integrating that data into everyday decision-making so that all levels of the organization are aware of how their actions impacts ESG metrics.
“It's one thing to create a nice fancy flashy ESG report,” observes Jonah Energy's Paul Ulrich. “It's another thing to chart a path forward to make sure that you are embedding continuous improvement into operations year after year after year.”
Organizations need to bridge the gap between ESG as a mere reporting exercise and as something that everyone within it lives, breathes, and practices in daily operations. This is a challenge that many organizations face as they seek to drive further operational impacts with ESG.
READ: Insight Report: Move Beyond Compliance to Harness the Operational Benefits of ESG Reporting
The Ugly:
Getting the data required for reporting, is a complex, messy, time-consuming, and expensive process. For companies just getting started with ESG reporting, the sheer effort involved in collecting and tracking so many different variables can be enormous. The problem is compounded by the fact that often the information lives in multiple IT systems spread throughout the organization and that often needs to be presented in different ways for different regulatory bodies.
To address the challenges of ESG reporting, the speaker panel offered the following suggestions:
#1: Adapt the Standards to Your Organization
There is a plethora of ESG reporting standards for organizations to pick from. From voluntary frameworks – an “alphabet soup” that includes ISSB, GRI, SASB - to growing calls for increasing regulatory requirements, organizations must navigate an increasingly complex ESG reporting landscape.
When you’re first getting started with ESG reporting, it’s best to focus on the most critical metrics first.
The World Economic Forum's International Business Council (IBC) has issued a core collection of 'Stakeholder Capitalism Metrics' that suggests core metrics that organizations may wish to track to measure and communication sustainability impact.
Similarly, one size does not fit all. A reporting framework that works great in one industry or a particular company will not necessarily translate readily to your own situation.
“We went through a number of different reporting standards and finally realized after a lot of work that we needed to create our own path forward,” says Ulrich.
While there may be regulated reporting requirements in the future, in the meantime, materiality assessments can help can an organization determine the areas that will matter most to their business. A materiality assessment is a process that organizations can use to evaluate the various environmental, social and governance issue and how they may impact their business.
“We've committed to review our materiality at least every three years,” says WBA's Neil Jones.
“We’ve identified four key areas of focus: community efforts, our environmental footprint, what we do with our suppliers in the marketplace sentence, and, arguably most importantly, how we show up as an employer in terms of the workplace. That's the framework that helps to drive our metric thinking.”
#2: Move Beyond Spreadsheets to Ease the Data Burden
It can be tempting to try and track ESG metrics in ever growing spreadsheets. While spreadsheets offer an easy way to get started – no need for IT procurement or complex integration projects – they can quickly grow into a giant, digital monster.
“We used to do piecemeal reporting with spreadsheets. That was just a mess,” says Caitlin Chiquelin from Baker Hughes. “We had our IT department also develop a solution for us and we were able to partner with Workiva - a reporting software – […] and that [has] really lowered the stress level for everyone involved.”
As organizations seek to track a myriad of metrics over time, it is critical to ensure that the data collection process does not become so overly complex and time consuming that it drains resources from where the focus should be: on efforts to improve those metrics.
“It has required some fairly robust IT solutions,” says Paul Ulrich. “We've got a myriad of them, which has made it very easy for us to pull that data when we need it given that when you're reporting ‘X’ or ‘Y’ to any given regulatory agency there's not a lot of consistency in how that data should be reported.”
There are a number of ESG reporting software platforms out there that offer an off-the-shelf solution for companies looking to simplify and streamline their ESG reporting processes.
#3: Get the Right Information to the Right People
Metrics are most useful when they can be used to drive action. ESG metrics are no exception.
“The data, the performance, and the tracking [should] sit within the teams who are responsible for the initiative,” says Neil Jones. “That's quite fundamental so that people own their performance metrics.”
ESG metrics need to be integrated into the business so that all levels of the organization can use it when deciding strategies, day-to-day operations, and capital and resource allocation. The data cannot be simply put in an annual report and looked at once a year.
“Our most senior steering committee on ESG would, on a regular basis, be presented with the conclusions of where we are performing well, where we're off track, and where we might have some gaps. That's particularly important as to how it feeds into our next iteration of our annual ESG report, for example,” adds Jones.
#4: Make ESG Part of Your Compensation Package
Tying ESG metrics to compensation can be an additional tool to help the organization move beyond merely measuring and monitoring ESG metrics and shifting the needle more concretely.
“What has made the single largest difference for us joining energy is how we have integrated ESG performance into our compensation,” says Ulrich. “That alone has given serious ownership to every single individual. When they wake up in the morning ESG is part of their job. […] ESG is fundamental to our daily operations and compensation and that’s made a significant difference.”
What do you think? What does your organization do to improve the effectiveness of ESG reporting? Let us know by leaving a comment!
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