3 Steps to Future Proof Your ESG Program

Introduction

With environmental, social, and governance (ESG) metrics now being established as an important strategic and financial imperative, there is mounting pressure from various sides for organizations to set up ESG programs. Investors, consumers, and other stakeholders are increasingly expecting companies to proactively meet ESG standards. Regulatory bodies worldwide are also stepping in with enforcements.

However, the ESG maturity level of companies varies widely. In a global survey conducted by OCEG, more than half of the respondents—58%—said that they had minimal or no confidence in the ESG programs run by their company. Companies are also at a loss when it comes to reporting tools and methods. In a survey of US companies by Global ESG Monitor (GEM), it was found that only 35% of the respondents were able to demonstrate transparency in their ESG reports. Organizations are also concerned about the risks associated with climate change, sustainability, and social factors. 68% of general counsels in large and mid-sized companies expressed worry about new legal and regulatory ESG risks.

To help your organization simplify and streamline ESG-related activities including data collection, regulatory requirements, investor disclosure requirements, ESG reporting, ESG risk assessment, mitigation, etc., here are 3 essential steps to build a future-proof ESG program.

1. Start by Leveraging GRC for ESG

Implement your ESG program by integrating it with your Governance, Risk Management, and Compliance (GRC) strategy. Organizations need structured guidance when setting up their ESG program and GRC offers the foundation to build a single connected system and approach to systematically collect, record, monitor, analyze, comply, report, and mitigate.

To break it down further:

• Governance enables monitoring and reporting with accurate information rolled up with ESG-specific metrics to be set up. GRC policies mapped to ESG frameworks provide measurements on ESG improvements to investors, customers, partners, and other stakeholders.
• Risk management offers a unique and disciplined approach to analyze ESG data to identify and prioritize risk and opportunities and develop risk mitigation strategies.
• Compliance, by mapping GRC controls to multiple ESG frameworks, helps provide a comprehensive view, especially as ESG standards and frameworks such as SASB, GRI, TCFD, etc., are being adopted by regulators as foundations for their new ESG regulations.

In addition, building your ESG program will require ensuring third-party management of ESG data to drive compliance and mitigate risk. Regulations such as the draft European Corporate Due Diligence Direction and the German Supply Chain Due Diligence Act (set to be enacted on Jan 1, 2023), will require organizations to create documented processes to report environmental and social metrics concerning their extended supply chains. Taking a proactive approach to manage ESG risk across third and fourth parties will help companies future-proof their ESG programs.
 

2. Make the Move from Manual to Automated

ESG programs are heavily data dependent. Most organizations launching ESG programs are faced with a myriad of data-related challenges, especially, a lack of clarity on what ESG data needs to be collected, a lack of visibility into the data collection process, difficulty in benchmarking progress, and the inability to perform data discovery. Moreover, ESG data spread across multiple sources including spreadsheets, documents, and databases, along with inconsistency in data formats make it difficult to collect, analyze, or report.

Risks today are interconnected, and a manual approach makes integration with other systems difficult. Accurate assessment of how ESG risks relate to other risks in the organization—both direct and indirect—will not be possible through manual processes. With ESG standards and frameworks evolving, consolidating, and rapidly being adopted as regulations, managing the alphabet soup of these standards via manual means is not efficient in any way.

By leveraging automation for your ESG program, your organization will be able to automatically:

• Capture ESG metrics from various data sources and third-parties
• Define calculation logic and aggregate metrics
• Facilitate analysis through reports and dashboards
• Create standard reporting based on ESG requirements
• Provide regulatory changes and updates
   

3. Streamline ESG Reporting for Key Stakeholders

When it comes to setting up ESG programs, the toughest challenge often lies in reporting ESG information to key stakeholders such as investors, consumers, and regulatory bodies. The breadth of ESG data (data may be sourced from financial and non-financial systems and even third-party vendors), evolving global reporting expectations, and lack of proper governance and reporting structures in place, are just some of the challenges that organizations face. In a recent PwC survey of global investors, 61% agreed that it is important that ESG reporting by companies follows recognized non-financial reporting frameworks such as SASB, TCFD, or GRI.

While establishing your ESG program, your organization should ensure that your reporting capabilities can:

• Accurately report the ESG issues each stakeholder group needs to know about your organization
• Effectively identify potential ESG risks and opportunities (such as new innovations, revenue streams, and more)
• Transparently report ESG metrics to the board through real-time and visually-effective reports
• Provide the agility required to collect, integrate, and generate reports of the new types of information from new sources as the ESG landscape evolves
• Integrate with existing tools and processes for data sourcing, aggregation, analytics, and reporting

Stay Ahead with MetricStream ESGRC

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Explore our ESGRC resources:

eBook: Building an Enterprise ESG Program? Here's How Technology Can Help You Succeed

Infographic: Why ESG Matters?

Product Overview: Enable Your Growth with Purpose