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Pénzügy31 január, 2022

Beyond reporting: How ESG data can improve sustainability plans (and your bottom line)

Read this blog to discover how ESG data can improve sustainability plans

When you think ESG, your mind probably goes immediately to disclosure, reporting, and regulation. And it’s no wonder; frameworks and regulations like GRI, SASB and the EU Taxonomy are big loads to carry. BUT. ESG reporting can be so much more than disclosure. Your ESG reports, and the processes you set up to complete them, can do so much more for your business than set you up for regulatory success. 

The question we need to ask is this: Are we using ESG data to its full potential? For most of us, the answer is probably not.  

Yes, getting ESG reporting right is critical to meeting emerging regulatory requirements, influencing ESG credit ratings, and improving your reputation among sustainably minded investors.  

But this is only half the battle that ESG data can help you win.  

The other half is this: using ESG performance data to improve sustainability planning and impact, and how ESG efforts correlate with your business’s financial performance. And most companies are missing this critical ESG performance data use case. 

While many companies are gearing up to meet ESG requirements, most have missed the incredible opportunity to put ESG data to use as a critical planning tool for long-term sustainable growth.

In this blog post, we’ll explore how you can use ESG data, beyond reporting, to improve sustainability initiatives.

Using ESG data to enrich budgets and cost analysis

ESG performance data isn’t just for reporting. When ESG data is integrated into a converged reporting framework, as a part of an eXtended Planning and Analysis strategy, you can see how ESG data interacts and affects financial and other operational information to produce budgets, variance reports, and predictive forecasts. 

For example, let’s say you worked for a fashion company that wanted to switch to recycled materials as part of an enterprise-wide initiative to combat waste. The decisions you’d make to realize this goal would have significant impacts across the production line. You’d have to adapt production plants, which would have a financial impact, a supply chain impact, and a delivery impact.  

The ability to see ESG data in context with financial and other planning data is critical to making ESG initiatives sustainable — and, dare I say, profitable. When you can add ESG data into the same planning processes you use to plan your workforce, capacity, sales, and inventory, you can run what-if analysis and simulate scenarios to determine the course of ESG action that yields best outcome for sustainability and your bottom line.

Using ESG data to transform your business model to support sustainable growth

Where we used to see flying dollar bills thinking of sustainable business models, we now see revenue streams. While climate change presents a catastrophic threat to humanity, the global call to combat climate change offers organizations an extraordinary opportunity to appeal to investors and tap into new markets — all while doing good by the Earth and its people. 

ESG data can shed light on critical drivers. Like how changing your mix of energy sources to renewable sources would impact your costs or how natural resources would affect your sales. Organizations can use these insights to transform their operations and business model into one that pushes and achieves sustainable development goals.  

For some organizations, that can mean identifying areas of operations ripe for sustainable change of relevant social aspects. For example, you could analyze workforce planning data to determine areas in your organization that are either lacking gender or racial representations or suffering from large wage gaps, and take steps to build a more diverse, inclusive, equitable workforce.   

For other organizations, ESG data might point you to new product opportunities. Look at the electric car, for example. There was a time when the global transition to electric vehicles was thought by many of us to be preposterous. ESG data can help you identify areas in your business ripe for sustainability investment, and whether your customers are likely to grab hold of your sustainable innovations

Even more, organizations might use ESG data to commit to mergers, acquisitions or investing in sustainable companies to strengthen their ESG efforts and make their portfolio more sustainable as a part of overall governance.  

All these examples have one thing in common: using ESG data to identify areas of sustainable growth via analysis and predictive planning.

Using ESG data to mitigate risks

To speak about ESG is to speak about risk. Risk to the planet, risk to human well-being, risk to ethics, credit risk. Risk and ESG are intrinsically linked. There are so many ways to shoot yourself in the foot with ineffective ESG practices, but there’s equal opportunity to use ESG data to combat risk. 

Let’s say for example, you had started a project to reduce carbon emissions. Your enterprise disclosed its goals to your shareholders and, even while your deadline for that goal is still far off, your ESG performance monitoring is telling you things aren’t going as planned. You’re going to miss the mark. With early warning alarms ringing, you can then take mitigation steps early and change course and reallocate budget accordingly to when it comes time to disclose performance, you’ll preserve your ESG score.  

What’s more, you can use ESG data to reduce your credit risk by modeling scenarios that would affect your ESG rating. Because a low ESG rating can threaten your share price, stock options, access to capital and ability to entice investors, your ESG rating presents a large risk to your organization. With the ability to use ESG data to model the outcome of sustainability activities, and their potential effect on your ESG score, you can choose to pursue ESG initiatives that have the most desirable impact. 

To allay risks, ESG must be built into a broader risk management framework. Data and governance controls, transparency of communications, predictive planning, foresight when it comes to preparing for threats and evolving regulations — ESG risk must be taken as seriously as liquidity risk.

Closing thoughts

The solution you use to manage your ESG data should check all compliance boxes. But we must remember:  Sustainability isn’t just about running a single clothing line that uses recycled plastics, or a single year goal to reduce emissions. It’s about becoming an enterprise that IS sustainable.  

The tide of public sentiment is this: companies that aren’t producing ESG results now and for the foreseeable future aren’t a good investment. They’re not sustainable, meaning, they won’t stand the test of time. Thus, ESG data shouldn’t be limited to disclosure in sustainability reports. By using ESG data to build plans, forecasts, risk mitigation, and overall strategy, companies can serve themselves while serving others, bettering the planet and the way we do business. 

With this in mind, we strongly believe in using the full potential of ESG data, which means extending the use of that information to enrich your decision making, your long-range plans, and your reputation through a solution that facilitates XP&A as well as reporting and disclosure.

Solution
CCH® Tagetik
ESG & Sustainability Performance Management
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