Are ESG reports just about maintaining a bunch of numbers, compliance permits, and internal back and forth? I agree it did start off that way, but today is more critical than business itself. Even then, there are many organizations that haven’t prioritized it.
My team and I spend most of our days solving the most pressing problems of asset-heavy industries, from addressing digitisation challenges, returns on digital investment, managing compliance and a lot more. With regard to ESG, it’s true that a lot is changing.
Much more than Basic Reporting: Welcome Active ESG ⚽️
What is active ESG? Apart from taking a proactive approach to activities linked to carbon emissions, worker happiness, and social impact, it is about drilling deep into this data to actually make a difference.
Starting out with structured digital reporting mechanisms is surely a good starting point, but changing how you look at it is when you get the ball rolling.
Environmental Social Governance. For many years, individuals and corporations focused more on the “E” in ESG. Most of the active measures revolved around the planet and the environment. However, COVID-19 opened our eyes to focus on all three. Our actions as a company trickle down to society. From chemical, biological and radiological impacts on people who work in surrounding communities to the consequences of being non-compliant - all three are slowly gaining equal importance.
In spite of that, traditional ESG reporting often takes a passive approach by solely focusing on ESG-related risks and opportunities. In contrast, it should go beyond reporting and incorporate:
- ESG considerations into a company's daily operations, decision-making processes, and overall strategy.
- Place the onus on top management to internalize a shift in mindset and approach.
- Utilize ESG data to drive positive change, reduce risks and enhance value.
- Give ample consideration to sustainability goals by defining active steps in the form of trackable, set targets.
The good news is that companies are slowly transitioning from passive ESG reporting to active ESG management, and I’ll be taking you through this change.
All of our clients are slowly moving towards full-scale digitization, which has helped them save time, money and resources. In fact, automated flows let people focus on more important things.
Today, it’s possible to track everything digitally- from the amount of diesel consumed by your drill rig to how many hours your employees are spending on the field. Come to think of it, collecting and tracking all of this data plays a major role in seeing the big picture.
Digitized operational flows as your ESG baseline 𐄷
Digitization is the answer. Let me talk about how we’re making it ESG-centric with the help of all the data that’s already being collected on a day-to-day basis.
If I pick EHS (Environmental, Health and Safety) as a main category, questions like “Check the status of the fire extinguisher”“Finish the Take-5 assessment before undertaking a risky task” all work in tandem towards the same goal — the goal of health and safety which is the main crux of the “S” in ESG. Be it emissions tracking, climate change information or health and safety information, all of these data points help keep track of potential impacts, helping you understand and improve your ESG score.
What’s left is translating this gold mine of information into meaningful data and actions
Defining your ESG score 💯
Companies can create their own internal ESG scoring systems to track and report their performance. These internal ratings serve various purposes such as comparing performance across different business units or geographic regions, measuring actual outcomes related to specific issues affecting company stakeholders (such as customers, suppliers, or employees), and conducting horizontal analysis to track changes in performance over time.
Because ESG is not just about numbers. It’s a mixture of qualitative and quantitative data that speaks the language of sustainability (if you see it right).
Defining your Sustainability Strategy 💚
STEP 1: Go back to the drawing board and analyze the quality of the data you are currently collecting. Here are the questions you can ask yourself:
- What data are you collecting related to ESG?
- How are your people collecting and reporting the data?
- How often is this data collected and analyzed?
- Are there any actionable that are drawn from the data or they are just used for quarterly and annual reports?
- How much of your process is digitized?
- What is your tracking process? How fast is it?
- List down your automated and manual flows.
- Is your team diligently following data collection processes?
- What categories are you tracking on a daily basis?
- Are you utilizing this data to make any decisions?
STEP 2: In today's world, where sustainability has become a critical aspect of business operations, companies are increasingly turning to the role of Chief Sustainability Officer (CSO) to lead their sustainability efforts. However, suggesting the hiring of a new resource can be a daunting proposition, especially for smaller organizations.
Instead, a more feasible approach would be to consider appointing a CSO from within the organization and assigning the additional responsibilities of carbon emission tracking to them.
Let's consider the example workflow of automatic carbon emission tracking. This is not the only task performed by the CSO but is an example of how it can be integrated into their responsibilities. For instance, in the case of a company that has a fleet of cars, the CSO can implement a system that automatically tracks the carbon emissions of each car. This can help the company identify areas where it can reduce emissions and make its operations more sustainable.
The main objective is to make every team member look at the big picture, rather than another added task.
Tracking your ESG Score on Grid 🐾
We began an ESG-carbon workflow for one of our clients to gauge their carbon emission value in relation to their operations.
Let us use this as an example workflow of automatically calculated Carbon Emission tracking and not say that this is the only thing they do
To begin with, they’ve started updating all of their operational cars, including the routes, number of passengers, and distance. Having this in place automatically aggregates the fuel used for transportation, which in turn automatically measures their final carbon emissions. They can add as many questions as they like to make the data more in-depth.
This in parallel defines their ESG score as they frame action steps to reduce their carbon rate.
Let us also say that this same principle applies to all different aspects of operations where there are emissions. Be it assets or people
Just like credit card scores, ESG scores get greener with more green initiatives.
The above example is specifically related to the environmental aspect of ESG but can be broadened to fit into the wide spectrum of social and governmental aspects. The more categories you have, the closer you’ll get to knowing your overall carbon emission value.
This is only one slice of the kind of data that can be set up and automated on Grid. The next hurdle is figuring out how to make ESG management a default system for your company.
Transitioning from Short-term to Long-term Thinking 💭
It’s not a cakewalk to get your team onboard right away. In the beginning, it might feel like additional work but when you start to practice it consistently, you’ll begin to see the benefits.
- Put in place a bold and forward-looking data analytics strategy.
- Data-driven processes help in delivering trusted and financially material ESG reporting insight to help stakeholders better understand their long-term value.
- Experts have also noticed a positive link between ESG performance and financial performance or value creation.
Being Proactive about ESG Risks is not just for Show Anymore 🤌
Publishing press releases about your focus on employee wellness is not going to cut it, but achieving compliance within your industry and a spotless safety record is what’ll help you scale.
“Evidence is emerging that a better ESG score translates to about a 10 percent lower cost of capital as the risks that affect your business, in terms of its license to operate, are reduced if you have a strong ESG proposition.” - Robin Nuttall Expert Partner at McKinsey, Environment, Social & Governance and Corporate Affairs
There are also immense benefits to being 100% involved with this growing movement.
- Investing in active ESG management could roughly reduce 10% of your capital costs, as you’ll be more resource efficient. Also, if you build good relations, you would eventually get better access to resources through stronger community and government relations.
- Another very important factor for asset-heavy industries is how keeping a regular check on asset status reduces the downside risks of holding stranded assets. Many of these have seen significant write-downs in recent years. Once you begin to prioritize your ESG actions, you’ll begin to opt for more sustainable plants and equipment, which is actually great practice for the long run.
Making Sense of Your ESG Data Dump 📝
Once you begin the process of collecting all this data, how do you make sure it stays meaningful?
To make sure that nothing is lost in translation, you would need to:
- Standardize your language: Switch to using one main tool for all your processes to better manage standard verbiage for every metric across the value chain. This would even help with employee training as there is one standard language, which reduces the scope for misinterpretation or confusion.
- Set your access points: Control who can see your data to keep it clean and free of bloated discrepancies.
Lastly, it’s not just reports anymore; how are you acting on what’s in front of you? Here’s what you can ask yourself:
- What are you doing to make an impact on the society around you?
- Are you actively managing the implications of your business emissions, or are you resting as a passive bystander?
- Is your accounting accurate and transparent?
- How much voting influence do your stakeholders have?
- What is this organization’s impact on the environment?
- Do you actively create new policies to lower your carbon footprint?
- Do you go above and beyond government and industry compliance when it comes to emissions, waste, energy consumption, and the treatment of animals/wildlife?
- What is your relationship with other companies or non-profits around you?
- Do you prioritize employees’ health and safety within your company?
To conclude, it may look like the investments required to digitize this are substantial, but choosing to wait it out can be the most expensive option of all. The new environmental laws are already increasing costs for carbon-intensive industries with a target of reducing their emissions by 4.9% every year. If we don’t act now, it will be too late. Want to chat about setting up your ESG strategy? Feel free to mail me at email@example.com or connect with me on LinkedIn.