How To Measure ESG Performance

Many leaders believe that ESG all about compliance and reporting and when you are forced to "tick the box" its understandable that they feel that ESG is a burden and not an opportunity for innovation.

In order to effectively implement and benefit from ESG practices, companies need to be able to collect reliable ESG data to accurately track and report on their performance and identify areas for improvement in a variety of ESG categories. Collecting this data can be a challenging task, as it often requires integrating data from multiple sources and assessing qualitative information. To facilitate collection of reliable ESG data, companies should consider the following:

Identify relevant ESG metrics: The first step in collecting ESG data is to identify the relevant ESG metrics that align with the company’s business strategy and stakeholders’ expectations and with industry-specific best practices; as well as metrics for which disclosure may be required pursuant to applicable laws and regulations. These metrics may include energy consumption, greenhouse gas emissions, water usage, labor practices, human rights, diversity and inclusion and executive compensation.

Identify relevant ESG data sources: Identifying the pertinent ESG data sources, such as internal data and analytics, third-party data providers, or industry benchmarks, can help ensure that the company is collecting comprehensive and relevant data.

Standardize ESG data collection and leverage technology: Using consistent data definitions or reporting templates can help ensure data is collected consistently and accurately across all business units. Using technology solutions, such as data analytics software or ESG data providers, will help to streamline and automate data collection and analysis.

Implement data quality controls: Implementing data validation or data cleansing processes can help ensure that the data collected is accurate and free of errors.

Monitor data over time and regularly review and improve data collection processes: This will ensure accuracy, completeness and reliability of ESG data and help identify trends and areas for improvement that are consistent with the company’s evolving ESG priorities and stakeholder expectations.

Use established reporting frameworks: To ensure that ESG data is reported accurately and transparently, companies need to establish reporting protocols that outline the data collection process, quality control measures and reporting frequency. Companies may want to align their reporting with recognized ESG standards or frameworks, such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), or the soon to be issued International Standards Sustainability Board (ISSB) Sustainability Disclosure Standards to ensure consistency and comparability of ESG data.

Engage with third-party organizations: Third-party organizations such as accounting firms, certification bodies, industry associations and ratings agencies can provide independent verification and assurance of ESG data, giving stakeholders’confidence that the reported data is accurate and reliable.

How Can Your Company Protect the Confidentiality of ESG Information?

Implementing ESG practices will involve collection of sensitive and confidential information. To protect the confidentiality of this information, your company should consider the following:

Define information to be protected: Identify and provide written descriptions of the types and categories of information and data that are confidential or privileged, such as legal assessments of regulatory compliance, strategic plans, materiality assessments, supply chain data, trade secrets and employee health and safety and other personal data.

Establish protocols for handling confidential information: Develop clear and comprehensive protocols for collecting, storingand transmitting confidential information, and that explain how the ESG process will address legal issues. Companies should regularly assess the risks associated with collecting and storing sensitive ESG data, and review and update these protocols to ensure that they are current with the latest data protection best practices and regulatory requirements.

Attorney involvement from the outset: In order to invoke a claim of attorney client privilege, communications must be to or from an attorney; and to claim protection under the work product doctrine the communication must be prepared for or in anticipation of litigation. To maximize potential privilege protections, it is critical that in house or outside counsel have overall responsibility for developing, implementing and managing the protocol for handling confidential information.

Use secure data storage systems: Use encrypted databases, password-protected servers and files, anonymization techniques to remove personal or identifiable information from data sets, along with other security measures to protect confidential information.

Limit access to confidential information: To detect and prevent unauthorized use of confidential information, it’s important to limit access to only those who need the confidential information to perform their duties.

Require confidentiality agreements: Require employees, contractors and third-party vendors who have access to confidential information to sign confidentiality agreements that outline the terms of confidentiality and the consequences of any breaches.

Use third-party data processors carefully: When working with third-party data processors, such as ESG data providers or analytics firms, carefully review their data protection practices and ensure that they meet the company’s data protection standards.

Train employees on data privacy and security: For information protection protocols to be effective it is critical to train employees on data privacy and security best practices, including how to handle and protect confidential information.

As the world deals with challenges like climate change, social inequality, and business ethics, companies that prioritize ESG considerations in their strategies stand to thrive in the near-term simply because of a greater commitment to reporting data, and thereby identifying areas for improvement. By doing this, businesses can create long-term value for themselves and their stakeholders, while contributing towards a more sustainable and fair society, something that markets itself in terms of public visibility into company practices and brand recognition.

Yes, improving ESG performance is a complex task that involves various strategies and challenges. Change and adaptation to evolving circumstances are normal benchmarks of progress in any business that seeks to evolve in a healthy, open manner. ESG metrics are crucial in this process, and a collaborative approach is necessary to ensure success.