Environmental, social, and governance (ESG) strategies are now central to doing business. Investors, customers, and the public at large all want to work with companies that follow socially responsible practices. ESG plans have spiked in popularity in recent years, spurred by public and regulatory pressure for businesses to demonstrate their commitment to corporate responsibility.
A growing number of investors are adopting an ESG investing strategy. Ninety-six percent of chief investment officers say that ESG initiatives can play a role in investment decisions. And a significant majority say they’re willing to pay a premium for companies that demonstrate a connection between the corporate ESG strategy and financial performance.
Regulators are also showing increased interest in ESG plans. The European Union enacted the Corporate Sustainability Reporting Directive (CSRD) in early 2023 and the Securities and Exchange Commission (SEC) recently proposed new rules to enhance climate reporting requirements. Companies are also expected to comply with a growing number of regulations, ranging from sustainability measures to pay equity requirements, that fall under the ESG umbrella.
To create an ESG strategy that effectively meets the expectations of investors and regulators, reliable data must be available at every step of the journey, from planning to day-to-day business activities to reporting accurate results.
An effective corporate strategy — even if to simply comply with regulatory reporting requirements — should be built on data that clarifies objectives and promotes accountability throughout the organization. This requires a large data collection and analysis process, involving stakeholders from all parts of the business. That data will play a central role in every stage of the strategy-making process and is crucial for complying with ESG regulations. At each stage, stakeholders need access to accurate data to meet disclosure requirements and promote the integrity of decision-making and reporting.
Establishing your current baseline for ESG performance metrics requires you to collect far-reaching data. Example metrics may include your carbon footprint, energy consumption, diversity and inclusion efforts, product safety, and employee health and safety. It’s important to be thorough at this stage, since your baseline will help you tell an accurate story and meet regulatory requirements as you progress through your ESG journey.
With your baseline in place, now you can set specific, measurable, achievable, relevant and time-bound (S.M.A.R.T.) goals. Your baseline metrics, along with data specific to each initiative, will play a key role in setting these goals. For example, an energy efficiency goal will be based on your current consumption and the potential outcomes you can expect to achieve from a particular approach (such as energy-efficient lighting) in a set time frame.
Your ESG plans shouldn’t be undermined by avoidable or manageable risks. Considering that these plans can be complex, being able to accurately gather and analyze data is essential to truly understanding the risk of any ESG initiative. The better your data capabilities, the better you will be at quantifying and prioritizing risk, as well as modeling the impact of various scenarios.
As you make claims about your ESG initiatives, it’s reasonable for investors and regulators to seek proof of those assertions. For instance, if you claim to reduce carbon emissions by 3%, you’ll need to show the data to prove it. This will likely involve large swaths of detailed data, so it’s important to have strong data capabilities in place so you can respond accordingly.
Data is a critical component of ESG planning and execution, but it doesn’t exist in a silo. People, processes, and technology must work in concert to gain the insights needed to drive a successful ESG strategy.
Employees throughout the company must be able to leverage data to make decisions that align with your strategy. Fleet managers need routing analytics to reduce fuel consumption. Hiring managers and HR need compensation intelligence to ensure employees are paid fairly. Facility managers need building performance insights to reduce energy consumption.
The data gathered from these day-to-day business decisions must be consolidated and sent to the company’s ESG officer, the board, and any other stakeholders responsible for generating accurate, complete ESG reports. These reports aren’t just for investors and regulators. They also help the company track progress and refine ESG plans over time.
Because of the sheer scale and complexity of the data involved in ESG planning and execution, it’s essential to have a modern data warehouse solution in place. Modern data warehouses can manage large volumes of data from multiple sources and feed the advanced reporting and analytics tools required for ESG planning. With these capabilities, along with a data governance model to ensure the accuracy of your data, you can achieve better outcomes from your data.
Because ESG planning requires you to collect data from throughout the company, it’s common to encounter data silos. These siloes slow down data aggregation efforts and increase the likelihood of inaccuracy and incompleteness. Using a modern data warehouse allows you to centralize large volumes of information. These platforms are meant to scale with you, even as your data sets grow exponentially. This allows you to capture the expansive data needed for ESG planning and reporting and feed the applications that enable employees to execute on your ESG strategy.
Some data warehouses are capable of housing unstructured data, while others are used alongside a data lake. In either case, having access to unstructured data provides you with the opportunity to surface new insights to support your ESG strategy. Because ESG standards are still taking shape, it’s hard to know what you need to know. There is a wealth of information relevant to your ESG strategy in your unstructured data. It’s important to capture it so you can have it when you need it.
You have a powerful set of business intelligence tools at your disposal for analyzing your ESG baseline, setting goals, and measuring risk. The key is to feed them with high-quality, comprehensive data. Using these analytics tools alongside a modern data warehouse and following consistent data governance and data management practices across platforms will position you for successful ESG tracking and reporting.
This addresses a number of the common hurdles companies encounter when setting their corporate ESG strategy:
The effectiveness of your ESG strategy depends on your data. With a modern data warehouse, supported by formal data governance and management practices, you can uncover actionable ESG insights. You can also empower your employees to take tangible steps to meet your ESG goals and track your progress accurately.
With the help of Kenway’s data consultants, you can modernize your data practices to meet the pressures of ESG planning and reporting. We provide modern data consulting services to firms that want to leverage the full capabilities of their data. Our data experts ensure that high-quality data is readily available to your employees, while implementing tools that can scale with you over time.
To learn more about how we can help you leverage analytics more effectively for ESG planning, schedule a consultation with us: [email protected]
What data analysis is involved in developing an ESG strategy?
Developing an ESG strategy involves an intensive data analysis process. Data plays a key role in the following phases of ESG planning and execution:
What role does data play in setting ESG goals and KPIs?
When establishing ESG goals, data enables you to understand your current baseline, identify which opportunities will be most impactful, and determine the KPIs that will best measure your progress.
What role does data transparency play in ESG reporting?
Data transparency is critical to providing stakeholders with assurance that your ESG claims are accurate. This is especially important for organizations that are subject to ESG regulations. They, along with investors, customers, and employees, associate the validity of your claims with the integrity of your business.
