ESG is the abbreviation of Environmental, Social, and Governance. Environmental criteria show how green the company is. Social standards look at the treatment of employees, suppliers, and the community, and corporate Governance deals with corporate areas such as bribery, corruption, and executive pay.
"ESG measurement is an increasingly popular way of holding companies accountable for sustainability efforts and giving companies an incentive to improve them. But measurement, no matter how sophisticated, is much better at capturing easily quantifiable inputs than complex and messy outcomes and impacts. Companies need to do everything they can to understand those outcomes and impacts — and that requires doing more than just measurement."1
ESG data's main challenges are the lack of accurate data, the ability to fetch and consume it, and finally, to normalize it and gain insights. We see in the market a shortage of data, and one needs multiple sources (think different systems in/out of the company) to feed into the calculation procedures. Additionally, the periods to which data relates might not be consistent across all data sets and require normalizing.
ESGgo platform enables companies to follow the recommendations from Harvard and other thought leaders. We deal with the complexity of the data so you can develop valuable insights into the current ESG state of the company and derive actionable recommendations to improve them. The ability to normalize the data and use it according to the different standards gives the organization the ability to focus on moving the needle in each area (E, G, and S). Moreover, the ESGgo platform gives companies a benchmark view of the market and their competitors, enabling companies to improve their competitiveness.
What are the challenges?
Each component of ESG has several factors that each public company needs to report. The few examples below explain each element of ESG in more detail and show the complexity that we see in the market today.
The ESG environmental reporting component includes how a company is doing on metrics related to climate change, natural resource scarcity, pollution, waste, and other environmental factors and the company's impact on the environment.
These sets of indicators can include hundreds of specific parameters.
You read it right.
To comply with the new legislation, a company needs to report a massive set of metrics with few nested levels per topic. The challenge is to collect this data from different systems in the company.
Many organizations have a lot of different systems that hold pieces of the data. The challenge is identifying the right approach and automatically fetching the data.
Later, we need to verify and make sure the data is valid. It's not enough to fetch that data into one holistic 'ESG system' as you need to make sure it's correct and accurate.
Another complexity level in this segment is normalizing the data and making it available to the different report standards (e.g. SASB, GRI, etc'). We see a vast difference between the scoring of various rating agencies (e.g. Sustainalytics, MSCI, S&P etc’).
Thus, what should be the rating and where the company needs to take action is becoming a tricky question to answer.
All companies are responsible for being good members of their community and society. As a result, stakeholders ask for more information on their operations' human or social components. ESG social examples include information regarding the company's values and business relationships. A bold recent example is Russia's war in Ukraine. Many companies stopped doing business in Russia because they wished to show their customers the moral values they follow.
Other aspects of the social segment can be found with topics: diversity and inclusion policies, labor and supply-chain information, product quality and safety, employee health and safety, and cyber security and data privacy information.
Many data points are spread across different systems (e.g. HR, Finance, and Legal teams). There is a tremendous challenge to collect this data, verify it and normalize it.
All companies are responsible for developing an appropriate corporate governance structure that will serve as a control mechanism against corruption and unethical behavior. The governance component provides an evaluation of a company's corporate governance structure. Examples of ESG governance disclosure topics could include details on the structure and diversity of the board of directors, executive compensation, ethics and policies on lobbying, political contributions, bribery, and corruption.
The challenge here is how you can collect, maintain and have this information which in most cases is not metric-based. Moreover, it is challenging to deal with the historical aspect of the data and the normalization aspects. Last but not least, not all the factors under Governance are quantifiable so there is a need to transform it to measurable metrics.
We saw that ESG data's main challenges are the lack of accurate data, the ability to fetch and consume it, and finally, to normalize it and gain insights.
ESGgo platform enables companies to address the ESG data challenges.
We allow companies to deal with the complexity of the data. ESGgo provides dashboards on the company's current ESG state and recommends action items to improve them.
The ability to normalize the data and use it according to the different standards gives the organization the ability to focus on moving the needle in each area (E, G, and S). Moreover, ESGgo gives companies a benchmark view of the market and their competitors, enabling companies to improve their competitiveness.
If you wish to learn more about ESGgo platform – please ping us at esggo.com/contact-us/