In the beginning of the year, corporate responsibility and communications teams have struck gold. These teams have been compiling and clarifying content without which their companies would no longer be a relevant investment from the investors’ point of view. Responsibility experts have compiled data that describes business responsibility, or ESG data.
ESG data is as important as economic data
The pressure on companies to communicate their climate actions and business responsibility will increase further with the EU’s classification of sustainable financing, also known as the Taxonomy Regulation and the Corporate Sustainability Reporting Directive.
In addition to the tightening of legislation, several stakeholders, such as financiers, investors, customers, as well as current and future personnel, increasingly demand that responsibility be taken into account in business operations and that reporting on the key figures of responsibility be done transparently.
Traditionally, the role of business leaders has been to create economic value. At the moment, however, companies are increasingly being judged not only on financial information, but also on responsibility information. In order to assess the value created by a company, ESG data is needed alongside the traditional financial indicators.
What kind of ESG data is needed?
Not all ESG data is suitable for investor relations, annual reports or communication with stakeholders.
The basic starting point must be to collect and validate data that describes the responsibility of the company’s business in a meaningful way and supports the strategic responsibility objectives. For example, water consumption data is not critical information if the water consumption is minimal compared to other environmental impacts. In addition, data should be collected in accordance with the selected sustainability reporting framework in order to improve the comparability of the data. Comparability is emphasized in different ratings (ESG-rating), such as the Corporate Knights Global 100 Ranking, as analysts value comparability.
Ensuring the accuracy and reliability of responsibility information is essential. Only reliable data can serve the different information needs of stakeholders and be used to lead the company’s own operations. The development of the reliability and quality of ESG data is a continuous process that is best taken step by step.
What factors influence the reliability and quality of data?
The starting point for data collection is that the data that is collected has been defined unambiguously. For example, data on the amount of waste recycled or production volume may be defined differently in the different business units, production countries or production facilities of the company. It is hard to improve the reliability of ESG data if the initially collected data is already flawed.
It is also important to identify the sources of the data and thereby the reliability of the sources. Where does the raw data come from? How did the raw data come about?
In addition, the structure of the data must be consistent so that the data can be combined and consolidated at the business unit or company level – bananas and oranges cannot be added together.
The data collection process and the assignment of responsibilities affect the quality of the data. Is data collected in multiple separate Excel files and then combined manually? What is being done to minimise the possibility of human error? Do internal guidelines, expertise and resourcing support consistent data collection in the right format? Is the collected data systematically validated? Do the company’s IT solutions support the collection, storage and aggregation of responsibility data?
Developing data collection and data reliability procedures is not a simple process. This is why an organisation needs knowledge, processes, culture and tools to manage the reliability and quality of their ESG data.
Utilize the data within your organization
When reliable data that describes the responsibility of the company’s business operations is collected, it should be utilized strategically throughout the organization. Extensive use of ESG data increases the value gained from gathering the data.
Reliable and up-to-date ESG data can, in addition to responsibility management, be utilised in several other ways, creating important value for the company:
- Investor relations
- Acquiring funding and agreeing on the terms and conditions of funding
- Strategic decision making for business development
- Developing new business opportunities and innovations
- Risk management
- Engaging skilled workers and recruiting new professionals
- Annual and quarterly reporting
- Communications and marketing for different stakeholders
- Remuneration of management and personnel
- Management of corporate responsibility
Is it still possible to operate without ESG data?
Thanks to ESG data, corporate responsibility, financial performance, measurement and reporting are now closely linked.
Reliable ESG data is used to understand and verify the importance of responsibility to a company’s business. The data can be used to visualize how responsibility is linked to profit and loss and how it affects financial performance.
Strategic ESG data management plays a major role in creating value for a company. Economic indicators are no longer sufficient to assess the value creation of a company. The role of company-external users of ESG data will only increase.
In answer to the question of whether you can still do without ESG data: no, you cannot.
If you would like to have access to a tool that will help you manage ESG data, please contact us! Tofuture offers a cloud-based tool that allows your company to meet the stakeholders’ information and ESG data needs, utilize data to improve your business and enhance your sustainability reporting.