In recent years, the number of companies reporting on their environmental, social, and governance (ESG) performance has exploded. This uptick in reporting is a positive development, but it doesn't necessarily indicate improvement. Incomplete, imprecise, and misleading measurements are all too common. Additionally, the focus on the "report outcome" may actually inhibit development by utilizing senior leader bandwidth, inflating benefits, and generating yet another disconnected data set that needs care and maintenance. So how can companies develop proper benchmarks that align to their ESG long-term strategy?
The first step is understanding that ESG reporting is not an end unto itself. The goal should be to use ESG data to drive improved decision-making that creates real value for shareholders and other stakeholders. With that in mind, here are a few key considerations for setting the tone when it comes to benchmarking your company's ESG performance:
1. Define what success looks like.
Too often, companies focus on the "output" of their ESG reports without first taking the time to establish clear objectives. What are you hoping to achieve by benchmarking your company's ESG performance? Is it better alignment with investors' expectations? Greater operational efficiency? Reduced regulatory risk? Once you've established your goals, you can develop KPIs and metrics that will help you track progress towards those objectives.
2. Make sure your data is high-quality.
One of the challenges with ESG reporting is that it relies heavily on data that is often dispersed across multiple departments and silos within an organization. As such, it's critical to ensure that the data you're using is accurate, complete, and timely. This can be a challenge, but it's worth the effort to avoid making decisions based on bad data.
3. Be transparent about your process.
Once you've established your goals and gathered your data, it's important to be open and transparent about your process for benchmarking your company's ESG performance. Share your methodology with investors and other stakeholders so they can understand how you arrived at your conclusions. Additionally, don't be afraid to share your successes as well as your challenges; both can contribute to a better understanding of what it takes to improve ESG performance over time.
ESG reporting is a valuable tool for driving improved decision-making around sustainability issues. However, too often companies focus solely on the output of their reports without first taking the time to establish clear objectives or ensuring that their data is high-quality. This is not unlike financial data & reporting. The ESG marketplace is moving fast and has many data inconsistencies, so try to make your methodology and reporting as consistent & clear as possible - just like financial reporting. For effective reporting, you need to understand your various audiences, so they know your goals, processes, and desired outcomes. Just like financial reporting, you may want to highlight potential risks AND benefits to your ESG process. For example, reviewing your supply chain steps and associated data can help lower costs and reduce/avoid negative ESG activates. By being transparent about your process and sharing your successes as well as your challenges, you can set the tone for proper benchmarking of ESG performance and create real value for shareholders in the process.
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