Collecting ESG data is complex, therefore establishing a set methodology is essential. Here are our six essential steps to ease the collection and increase the quality of your ESG data.
Environmental, Social, and Governance (ESG) considerations have emerged as crucial factors in assessing a company's long-term sustainability standing. Businesses face increasing pressure to not only disclose but also actively improve their performance in these areas. This growing emphasis on transparency and accountability is driven by external factors such as demands from regulatory requirements, suppliersandcustomers but also to some extent by the own employees.
Governments and regulatory bodies are implementing mandatory ESG reporting requirements, compelling companies to collect and disclose relevant data to ensure compliance with the Corporate Sustainability Reporting Directive (CSRD). Additionally, many suppliers now request ESG information from their partners as part of their own sustainability initiatives and supply chain risk management efforts.
However, for companies embarking on the journey of ESG data collection, the path is often fraught with challenges and complexities. From navigating the multitude of frameworks and standards to grappling with data quality issues and greenwashing concerns, the road to meaningful ESG reporting can seem complex. In the following guideline, we'll outline the essential steps and considerations to initiate and ease ESG data collection, emphasizing the importance of maintaining a critical perspective throughout the process and help your company to start the journey.
1. Understand the frameworks and standards
ESG encompasses a broad range of factors, from carbon emission to labor practices and board diversity. Begin by familiarizing yourself with the various frameworks and standards available, such as the EU Taxonomy and Corporate Sustainability Reporting Directive (CSRD). It is essential to understand which ones are most relevant to your organization, industry and stakeholders.
2. Set clear objectives
Before diving into data collection, define your ESG goals and objectives. This is usually not only encompassing what is needed for a compliant ESG report. You need to consider your journey towards and more sustainable future and what data you’ll need. Are you aiming to enhance transparency, mitigate risks, improve stakeholder relations, or drive sustainable innovation? Clarifying your priorities will help guide your data collection efforts and ensure that you're gathering the right information to meet your needs.
3. Engage stakeholders
ESG activities should be a collaborative effort that involves input from various internal and external stakeholders, including investors, suppliers, employees and customers. For instance, solicit feedback on your reporting approach and content to ensure that it effectively addresses the concerns and interests of your audience. Regular dialogue and engagement can also help identify emerging trends and priorities that may impact your business.
4. Identify key metrics
Determine which ESG metrics are most material to your business and stakeholders. Focus on indicators that are both meaningful to your industry and aligned with your strategic objectives. Avoid the temptation to collect data on every possible metric, as this can lead to data overload and dilute the focus of your strategic efforts. One effective approach is to conduct a double materiality assessment, considering both the significance of sustainability issues to your organization and their importance to external stakeholders.
5. Assess data quality
Ensuring data quality poses a persistent challenge in ESG reporting, encompassing issues like incomplete or inconsistent data and a lack of standardization and verification. Take a critical view of the data sources available to you, considering factors such as relevance, accuracy, completeness, consistency, and transparency. Where possible, seek out third-party verification or certification to enhance the credibility of your data.
6. Continuously improve
ESG data collection is not a one-time exercise but an ongoing process of measurement, evaluation, and improvement. Regularly review your reporting practices and performance against your stated goals, adjusting your approach as needed to drive meaningful change. Embrace transparency and accountability, acknowledging both successes and areas for improvement along the way. Compare to how we over many years have evolved our understanding and quality of Finance data, we have to undertake the same efforts with ESG data, only faster.
Lastly, it's imperative not to delay the initiation of ESG data collection, nor should perfection be the immediate goal. Recognize that this process is iterative and long-term, requiring dedicated resource allocation within your organization and the engagement of diverse stakeholders. As such, achieving flawless execution on the first attempt is unlikely. However, through continuous improvement over time, you'll gradually enhance your practices and ultimately gain a footing within the area of sustainability.
If you want to know more about how to increase the quality and granularity of your ESG Data, we have developed a service – ESG Data Accelerator. You can read more about it here. You can also contact Magnus Glader for more information.