What should enterprises be thinking about when gearing up their sustainability reporting efforts? Specialists from PwC and Workday share some of the data and organizational considerations in Conversations for a Changing World, a digital event.
The growing importance of environmental, social, and governance (ESG) factors among enterprises, stakeholders, and regulators will increasingly require new approaches toward optimizing ways to collect, verify, and analyze data to achieve sustainability goals.
For organizations that make ESG reporting a priority, benefits are likely to include a competitive advantage in the marketplace, as well as a head start in preparing for evolving regulations, according to a recent webinar as part of Workday’s Conversations for a Changing World, a digital event. The event was moderated by Annette Melatti, senior director, product marketing, at Workday.
“A lot of times people view it from a purely philanthropic-type approach around environmental and social, but in reality ESG provides insights that are focused directly on strategy, risk, and shareholder value—and starting to hold companies accountable for its impact on the environment and society through reporting,” said Sheri Wyatt, sustainability partner at PwC.
Wyatt added that good data is critical to an organization’s ESG efforts by providing consistent measures of progress toward its goals. That includes managing the risk around climate-related events; relationships with employees, suppliers, and customers; anti-corruption controls; and management policies.
“ESG really looks at a company’s full risk profile through a business lens, and helps answer whether any of the ESG practices associated with those risks are going to impact long-term shareholder value creation,” she added.
The trend is a global one, Wyatt said, noting that organizations such as the Business Roundtable have reconsidered the purpose of the corporation to consider a broader set of stakeholders.
“ESG factors have been increasingly incorporated in investors’ and institutional asset owners’ investment strategies,” she said, adding that sustainability plays an increasingly important role in financing decisions.
Alluding to the old adage, “What gets measured gets managed,” Wyatt identified the challenge for many enterprises as being one around collecting, verifying, and analyzing information.
“The data challenge really starts with the fact that a lot of the data used for ESG reporting comes from a variety of different sources—many of which are manual and not in the kinds of systems that have processing controls that many of us are familiar with from a financial reporting perspective,” she said.
Many enterprises are looking toward generating investor-grade data or reports, while also remaining cognizant of risks around errors that could lead to restatements, she added.
“ESG factors have been increasingly incorporated in investors’ and institutional asset owners’ investment strategies.”
Sheri Wyatt
Sustainability Partner
PwC
Another challenge is that much of the data useful for measuring progress toward ESG goals might not be of the same level of quality as financial data, Wyatt said. That makes it attractive for enterprises to follow an integrated reporting process.
As organizations look to pivot toward how to operationalize sustainability in day-to-day core processes across the landscape of environmental, social, and governance, it really begins with how they think about data and what they need to be able to do with that data, said Chris Cameron, managing director at PwC.
Pulling in new types of data, he added, also presents new challenges: “Obviously anything built from a reporting standpoint is only as good as the data it was built upon.”
A great example is using employee commuter transit data collected via surveys that capture information such as distance traveled to the office and transportation methods. Not only will this information provide the data needed for greenhouse gas calculation, but it also provides valuable insight for sustainability and HR teams to collaborate and make changes within the organization that can reduce these emissions.
Ways to address employees’ carbon footprint might include company policies encouraging the use of lower-emission transportation, establishing a carpool program, adding bicycle storage, or investing in electric vehicle charging stations, which might even attract new talent who would be attracted to the sustainable culture.
While the chief sustainability officer (CSO) is a relatively new function within the C-suite, understanding a variety of disciplines from financial metrics to legal considerations will be useful to advancing ESG priorities and understanding the breadth of the data required to achieve it.
“As we look to pivot toward how we operationalize this sustainability in our day-to-day core processes across the landscape of [ESG], it really begins with how we think about data and the data we need to be able to do that with.”
Chris Cameron
Managing Director
PwC
An understanding of the financial reporting structure and what that means for ESG data is critical. Currently this isn’t consistent, which means it’s more important to be collaborating across the organization, since many different job functions come into play to support that CSO role.
Cameron added that it is important to understand both “the landscape of data” that is available to pull from in order to build an investor-grade data set and get reporting right, as well as to consider the office of the CSO to help individuals “collaborate across several domains,” including data science and information technology.
The CSO role is an important one that can benefit enterprises in their ESG journeys.
“The sooner organizations start to figure out how they’re going to traverse those roles and collaborate successfully, the better prepared they’ll be in front of the reporting requirements as they continue to coalesce,” Cameron said.
“First, don’t wait,” Wyatt said. “We see that disclosures are going to be required at some point in the future.” While regulators across the globe are at different points in addressing ESG disclosures, Wyatt said that the signals are clear: “The reality is that it’s going to happen, and a lot of the stuff that we've talked about—around identifying the metrics, understanding the data, developing systems solutions—all of that takes time.”
Preparation is key, she added.
Cameron addressed the question of why organizations would begin reporting on ESG metrics before it is necessary.
“While these are still evolving requirements, while the standards are still being established, and while this is relatively new, the opportunity to get ahead of it is going to provide advantages,” he said.
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