Sustainability Needs Decision-Centric Data
We have seen a massive increase in interest in Environmental, Social and Governance (ESG) issues as the financial community looks to address ESG risks and guide investment toward green business models. What does this mean for the EHS and Sustainability community? ESG represents a tremendous opportunity that must be understood and managed carefully.
ESG is a concept designed by and for the financial community, primarily to assess and understand risks that may impact corporate value. It is based on single materiality assessment (i.e., assessment of impact of risk factors on the health of the business), not double materiality, which also considers the impact of the business on broader stakeholder groups.
Nonetheless, ESG programs provide a significant resource for EHS and Sustainability professionals.
The financial community has invested significantly in operations that address and disclose ESG risk. Total assets now under management in dedicated ESG funds now number at $38T (Clermont Partners), and 88% of limited partners say they use ESG performance indicators in their investment decisions.
ESG has become a mainstream issue, and there is vigorous debate about how best to implement ESG mandates, their impact, and how they can be regulated. A more streamlined and globally integrated approach is coming along slowly as multiple standards, protocols and legislative instruments begin to converge.
The increased focus on ESG investing has led to scrutiny of both the reliability and value of ESG disclosure processes, with a particular focus on data quality and provenance. Investors require data that meets the traditional quality standards of investment grade data and underpin traditional corporate reporting. Companies are working hard to implement the cross-functional teams, processes, and technology necessary to deliver this.
The commonly accepted characteristics of investment-grade data are:
- Relevance (materiality);
A significant body of new legislative instruments is emerging, such as the EU Taxonomy, the Corporate Sustainability Reporting Directive, and the SEC Rules, which are raising the bar with requirements such as value chain reporting, third-party auditing, and machine-readable data.
How Does Investment Grade Data Support Sustainability?
A company that addresses the ESG data quality objective and can affect disclosures with investment-grade ESG data will have met a key management objective, i.e. addressing the needs of its investment stakeholders. But is this also sufficient for sustainability programs? Publishing ESG data alone does not change actual and future performance.
To achieve positive change, the sustainability profession needs more than ESG disclosures. It requires decision-centric data.
Decision-centric data that supports sustainability programs needs to provide the information necessary for managers to evaluate options, test scenarios, verify outcomes, and adjust and scale programs as appropriate. It develops a data and reporting capability specifically designed for the strategy and objectives to be supported. Decision-centric data gives sustainability managers the insight they need to achieve program success.
Decision-centric data must be based on investment-grade data to provide a solid accepted foundation of facts and evidence-based information on past performance. Including forecasting, value judgments, extrapolations, and aspirational objectives adds greater value to this fact-based data. The features of decision-centric data to support sustainability programs are shown in Figure 1 below.
This decision-centric approach allows an organization to move beyond the static, backward-looking ESG disclosure data and generate information and insight that can be genuinely useful in driving real operational improvement. ESG data will continue to play a vital role in helping investors allocate capital appropriately.
Adopting the decision-centric approach provides an opportunity to advance beyond the current state of sustainability management and develop new best practices fit for the scale of the massive sustainability challenges we face. Moving from investment-grade data to decision-centric data optimizes the return on investment made in data systems and provides a powerful tool for sustainability managers.
Benchmark ESG adopts this approach across its Sustainability and ESG platform. This allows users to continually enhance their operational intelligence and insight and proactively drive sustainability objectives throughout their organizations.