How ESG will affect your Data Strategy
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ESG stands for Environmental, Social, and Governance and covers various issues that may directly or indirectly impact financial relevance. Some of these issues under the scope of ESG reporting include resource management, supply chain management, organisational health, safety policies, and building trust through transparency.
Planning for and implementing a solid ESG framework means that your company is more equipped to tackle these challenges, create pragmatic strategies for embedding ESG in the corporate risk universe, strengthen your company's resilience, and improve your corporate outcomes.
According to McKinsey & Company, over 90% of the Standard and Poor's 500 companies release an ESG report. Many smaller and midsize companies are increasingly considering ESG as crucial for their competitiveness and access to investment opportunities. Acceleration has been driven by increased public, government and consumer awareness about corporations' more significant impacts. Investors and executives realise that a robust ESG offering can ensure the company's long-term success. At the same time, corporate boards, government regulators, and economic realities are compelling companies to embrace ESG efforts, either by choice or force.
Pressure is growing for mining and metals companies to go beyond environmental compliance to high-level commitments on the environmental, social and governance (ESG) issues shaping the industry's future. For companies of all sizes in all sectors, engagement with Environmental, Social, and Governance (ESG) has become commonplace and seen as an important message and a step toward the future of business. Despite the resistance to considering environmental, social, and corporate governance factors from some stakeholders, recent events and industry practices point toward a greater emphasis on the environment as factors different stakeholders will consider when assessing a company's effectiveness, profitability, and sustainability corporate governance framework.
Data Strategy guides the development of data platforms and tools to allow tracking and reporting on ESG activities. In the context of ESG, a data strategy will enable companies to evaluate their progress toward sustainability goals and plan to meet set goals instead of simply reporting what happened in the past. In a sustainable world, effective ESG data governance and management empowers companies to gain greater insight into their sustainability metrics, effectively handle challenges, and appropriately communicate with stakeholders.
Your ESG data management strategy is the foundation of your ability to deliver precise data that sets you apart as a potential investor, provider, or employer. Whether it is a commitment to net-zero emissions, supply chain ethics, or executive compensation strategies, your ESG data management processes and solutions must capture and represent the critical insights you require. With high-quality, centralised ESG data, and best practices for managing ESG data, your company can better understand, communicate, and take action on its sustainability performance.
It is complex to get ESG data from the source, hold, review, and act on it, aligned with a product's investment strategy or managers.
To satisfy the growing demand for sustainable investments, investment managers must figure out a way to obtain quality ESG data and manage it effectively. Any investment manager that wants to succeed at targeting a sustainable investing market needs an efficient, pragmatic and scalable ESG data strategy. As ESG investing becomes increasingly popular among institutional investors, investment managers need a data strategy that is up to the task. As more investors emphasise resilience, investment managers need a pragmatic and workable data strategy to source and analyse ESG (environmental, social, and governance) data.
Easy-to-access data about environmental, social, and governance (ESG) factors are steadily growing in importance for the long-term value of companies. The availability of new data and the opportunity to measure resilience uniquely has contributed to an increased demand for ESG-aware investing. So having a data procurement approach as part of your data strategy is now more critical than ever.
ESG-related data also provides a unique way of understanding how companies in every sector and industry are innovating and adapting to prosper while economies shift toward carbon neutrality. ESG, like any business strategy, relies on regular monitoring and precise data to chart progress, spot performance outliers, and set priorities.
The mountains of data generated from ESG reports can take a long time to analyse and spot problems. Automated monitoring can accelerate the process, giving users a clean snapshot of the top metrics.
To be able to report on ESG-related topics, it is essential to know what you are trying to measure, how data is recorded, where it is recorded, and to have a potential methodology for the reporting of this data.
Yet another reason why we should invest in Data Quality & Data Management, including data lineage solutions. A good Data Catalog will go a long way to help with this process.
Like Data Strategy, the People, Processes and Data components are essential to consider in a sound structured approach to tackling ESG issues.
Due to various reporting standards across the globe, companies must revisit their data approaches to ESG reporting to more comprehensively address the factors driving their businesses forward in a holistic, tangible manner. Defining clear internal standards, data requirements, and policies can help enterprises clarify uncertainties around data strategies while making ESG objectives easier to achieve.
It is increasingly vital for organisations to recalibrate their existing organisational strategies and supported data strategies. These organisations should include decarbonisation and other ESG factors in their design.
Companies could engage in scenario planning to help understand the potential impacts of different climate outcomes and to put current risk management and strategy processes in place to mitigate risk and build solid business continuity processes.
Proactive actions and transparency around ESG issues may help companies defend their valuations as more global regulatory agencies and governments require disclosures about ESG. Responsible management of ESG data and accounting is a crucial way of using the information to improve resilience across financial, physical, and social climate risks.
While the digitisation of sustainability data collection and reporting, including ESG data management, is still early, increasing demand for externally audited, investment-grade ESG information requires companies to embrace effective ESG data governance practices.
There needs to be more transparency around various companies' ESG data capture, analysis, and reporting methodologies. Different companies report different ESG metrics, resulting in incompatible data that does not allow like-for-like comparisons amongst themselves. It is up to the individual companies whether or not they report on ESG data and how they report.
For ESG data, quality requirements vary depending on the data type. For instance, data to be disclosed to investors could be less granular than internal data. Differences in imputation methods used by ESG researchers and analysts to address the vast data gaps that cover ranges of companies and periods for the various ESG metrics may result in enormous disagreements among vendors, with differing approaches to the gap-filling leading to vast differences.
Data processing and the provision of ESG outputs are relatively new compared to financial statements. These are mainly based on end-user computational tools such as MS Excel, which can result in inconsistent data handling and errors.
The missing piece in this puzzle is a thoughtful articulated data strategy complementary to business plans that should aggregate the ESG data, provide analysis tools, and allow for data-driven decisions. Clarity and visibility are critical; despite which software you are using, your approach needs to facilitate the identification of issues that need actioning and prioritisation.
Sources
https://www.ey.com/en_pl/assurance/is-your-esg-data-unlocking-long-term-value
https://www.blackrock.com/us/individual/insights/decoding-the-markets-esg-x-big-data
https://blog.solidatus.com/7-things-the-chief-data-officer-needs-to-know-about-esg
https://www.evalueserve.com/blog/is-your-esg-data-strategy-fit-for-purpose/
https://hbr.org/2020/09/social-impact-efforts-that-create-real-value
https://www.compact.nl/en/articles/mastering-the-esg-reporting-and-data-challenges/
https://novisto.com/the-basics-of-esg-data-management-purpose-governance-and-quality/
https://energycentral.com/c/og/esg-reporting-%E2%80%93-how-it-impacts-your-data-strategy
