Some organisations are slow to board the environmental, social and governance (ESG) juggernaut. They are asking: what do we report? How do we report? And where do we get the data? The good news is that reporting can be built-up in stages. The even better news is that most of the data needed is already being collected; it just needs accessing and collating.
There is a growing need to report ESG – a stronger social license to operate is just one compelling reason – but many organisations need clarity about what to report.
Firstly, what is ESG and why report it? ESG provides businesses with a mechanism to measure and report on non-financial performance – metrics that are becoming increasingly important. Things such as:
- What is the organisation doing to protect the environment?
- How are they supporting their people and wider communities?
- Do they both meet and are they compliant with regulatory requirements?
There is more now to being successful than a healthy bottom line.
Governing ESG reporting
ESG reporting is not currently compulsory in the UK, but it is just a matter of time before it becomes in line with mandatory reporting in Europe.
Organisations who have not started reporting should do so sooner rather than later.
In getting started businesses need an ESG ‘champion’ – someone at C-suite or senior level. There are no set criteria on what to report, however they should report on what is most relevant and start at a manageable level – which might only be three or four key metrics.
They need to embed their ESG philosophy, engaging everyone.
Why the push for ESG reporting?
Other than monitoring and working to improve on these things (the right thing to do) there are commercial imperatives and benefits. Many trading partners expect it – they want to work with like-minded organisations.
Investors, customers, and employees want to know a business’s ESG credentials. Demonstrating corporate responsibility and a commitment to improving society will open doors, facilitate growth and build relationships. Businesses want to do business with socially responsible organisations. People – particularly Generation Z and Millennials – want to work for them.
Where does the responsibility lie?
So far it has largely fallen to the finance function to report ESG data. Process-wise, the data element makes it a natural fit for Finance. However, ESG reporting requires a narrative component to add context, requiring wider input.
What then, is being reported?
- Environmental data – generally given the most attention – includes carbon emissions, waste management, deforestation, water and air quality, energy efficiency and climate change.
- Social focuses on ‘people factors’ such as gender and diversity, training, community engagement, employee engagement and working conditions.
- Governance considers an organisation’s obligatory reporting and compliance responsibilities, controls they have in place, adherence to best practices and shareholder rights.
These lists are by no means exhaustive. Organisations report on what is relevant to their industry or sector. When reporting, organisations should clearly communicate their objectives to build credibility and trust, and report consistently.
The data hunt
Finding data is not really a problem – most businesses will have more than they realise. The challenge is getting it into a digestible, reportable format.
In most cases the data needed is already being recorded. It just needs extricating – though this could be lengthier and trickier without the right processes in place. The data needs to be accessible and stand up to potential scrutiny.
Operations and site services departments will know how much energy is consumed. They’ll also know about the waste that gets generated. They will know about water usage, solar panels, electric car charging points and the consumables the business gets through. Security will know, or can find out, how many cars come on site each day. Finance will know the extent of employee travel through expense claims.
HR has employee data – how many people join or leave in any given period. Teams will know gender and age mix and have diversity data. Along with finance teams they can report on pay rates and gender pay gap. They may also have instigated paid leave scenarios for employees to volunteer in the community and they will know how much training gets rolled out. They will have data on employee absences – sickness, maternity and paternity leave and so on. They will know where people live and also how many people work at home in a given period – which will help gauge emissions figures.
Finance, external accountants, and the board will have access to a wealth of data and information: filing dates, board composition, executive pay, shareholder rights, internal controls, any fines or censure imposed over any given period, and more.
The wheel does not need reinventing; they just need aligning to be able to report on ESG.
Enforcing ESG as second nature
Organisations already have most, or all, of the data in internal systems like iTrent and People First. In most instances it is a question of interrogating the sources, unlocking the data, and collating it into one consistent format.
Some businesses will tackle this on their own. However, the complexity of the organisation and data needed will determine how easy or tough that process is. Other businesses will talk to peers or look for external support such as provided by MHR.
Currently there is no prescribed way to report ESG, but there are norms and frameworks – the Sustainability Accounting Standards Board (SASB), the Global Reporting initiative (GRI) and the Task Force on Climate-Related Financial Disclosures (TCFD) are all widely used. Adopting an established framework is advised to pre-empt likely future mandated reporting requirements.
Partnering with CCH® Tagetik has enabled MHR to offer an effective solution for ESG reporting – providing organisations with the perfect toolkit to manage and get the most out of their data. Integrating CCH® Tagetik with existing systems means business data will automatically be fed through pre-defined ESG frameworks, creating reports that meet requirements, meaning the wheels will turn smoothly and efficiently, giving your organisation a head start.