3 October 2023
Tom Lawton, Associate Director ‑ ESG Reporting and Data Management Business Unit Lead
ESG Data Management – Where to Begin?
Data forms the basis for every decision we make. Every second we take in data from the world around us, process it and take actions accordingly. Why should a company’s approach to Environmental, Social and Governance (ESG) issues be any different? ESG strategy should be data-driven and based on a robust, transparent and complete data management framework.
In a recent article, our strategy team highlighted that data management and reporting can provide a great foundation from which to launch a successful ESG strategy; where they discussed how to tie your ESG strategy into your data management approach.
This article offers some insights as to why you may wish to consider kick-starting your ESG strategy with data management and reporting, and some key factors your company should consider in order to get started.
What is ESG Data, and Why is it Important?
ESG Data may be quantitative or qualitative in nature. It can encompass everything from whether a company has a sustainability policy, to monitoring the percentage of waste diverted from landfill. It should include general environmental and social governance principles, as well as the granular performance data relating to day-to-day operations.
ESG data should be monitored and reported to drive performance improvements – capitalizing on opportunities and mitigating risks, and to demonstrate accountability to investors and interested stakeholders.
The components of ESG and associated data within businesses have existed for decades, however, the demand for ESG data from investors and consumers has never been greater than it is today. Companies must be capable of communicating their ESG practices and performance to meet heightened stakeholder expectations and legal requirements.
Mandatory ESG reporting is already present to some degree in 35 countries across the world [1] and remains at the forefront of business risks, especially with the Corporate Sustainability Reporting Directive (CSRD) on the horizon, which will apply to approximately 50,000 European companies as of 2024.
What is Data Management?
Data management refers to the process of obtaining, manipulating and utilizing information. Careful consideration must be given to the types of data obtained, systems involved, and ultimately what the data’s intended use is. In the context of ESG data, this process is likely to involve obtaining data from a range of sources such as questionnaires, utility providers and direct measurement. Manipulation of data may relate to systems in place to monitor and transform quantitative data or the assessment of qualitative responses.
Your Data Management Journey
When beginning your ESG data management journey, there are a number of basic questions that should be asked:
- What is your objective? Is your key driver simply to meet mandatory requirements? Are you seeking to report to voluntary frameworks? Or are you aiming to form a complete ESG strategy and become (or remain) a sector leader?
- What data do you already have and what systems are already in place?
- What process and/or system changes will be necessary to gather required and desirable data?
Mandatory, Beneficial and ‘Nice-to-haves’
The most straightforward place to start is reviewing what reporting frameworks are mandatory for your business, either through legislation or through investor demand. From here you can list everything (quantitative KPIs and governance policies) that is required within the reporting framework and identify whether your current ESG reporting capabilities enable you to provide this. You may find that much of the information and data is already accessible to you, but that processes can be streamlined to lessen the reporting burden.
It is then advisable to go a step beyond merely meeting the fundamental requirements. This will help to ensure that you remain competitive with your peers and that you are future-proofing your capabilities. For example, you should consider any future reporting requirements and how to deal with divestments/acquisitions and general trends in the market. Furthermore, it is important to think about how this ESG data fits into the broader business processes and strategies, alongside key responsibilities. You should ensure that ESG data management does not sit in a silo and that it is a cross-functional undertaking.
Collection Processes
An often-overlooked piece of the puzzle in ESG data management is having clearly defined and documented processes and responsibilities in place. This helps to ensure consistent reporting of ESG data, while assisting in data transparency/auditability and maintaining continuity in the event of employees leaving the business. We recommend formalizing all processes related to ESG data management, providing easy to understand, step-by-step actions to take in obtaining data, as well as requirements for inputting, transforming, and reporting the data.
Data Management Software
Depending on the scale of your business, it may make sense to implement a SaaS (System as a Service) data management platform. There are a significant number of providers in the market that provide such a service with many delivering a system that is bespoke for real estate. A centralized data platform allows for the automatic collection of data and for operational teams to directly upload and access it. Additionally, this provides the benefit of consistency in the format of data provided and allows for easy transformation of data for reporting.
What Next?
Once you have established the data you require and the processes for obtaining it you can more effectively manage your ESG strategy and performance. When starting from scratch, we recommend establishing a baseline for ESG performance, including governance policies and quantitative data. This enables you to accurately monitor and report improvements over time. It can be useful to report to ratings agencies or public frameworks, such as GRESB, to obtain an independent view of ESG performance. Notably, GRESB offers a ‘grace period’ for reporting in the first year, which enables you to privately take stock of performance and identify gaps.
Many companies are becoming hesitant to publicly disclose ESG performance due to the increased scrutiny from stakeholders and criticisms of greenwashing. For this reason, transparency is critical. We would encourage companies to be open with their progress on ESG, demonstrating the positive actions that have been taken, while inviting scrutiny through transparency.
In summary, data is crucial for informed decision-making, and ESG is no exception. Every business should now be aiming to formalize or optimize their data management strategy. This is now an essential requirement to meet stakeholder demands and legal requirements. To get started, we recommend taking stock of current data and processes, identifying core and desirable ESG data, and developing clear and concise guidelines. The importance of establishing robust and transparent data management processes cannot be over-emphasized. Whether you are just beginning to approach the topic of ESG reporting or looking to supplement existing data and reporting, Longevity can offer our support. How can Longevity Partners help you with our Data Management Services?
Longevity Partners is adept in supporting our clients at every stage. We offer advisory services in developing a data management strategy to utilizing the data for reporting purposes (such as GRESB, INREV, UNPRI, SFDR etc.) and everything in between.
Longevity seeks to establish long-term relationships with our clients and can provide ongoing or one-off data quality assessments, offering recommendations for enhancing the data management strategy and improving data quality. Additionally, we can provide a formal assurance process of ESG data to add credibility, trust and confidence in ESG reporting.
If you would like to know more about our services, please contact tl@longevity.co.uk.
[1] https://deliverypdf.ssrn.com/delivery.php?ID=513103103009122013105106085081106074097042014048023025121113073117000097113096066124027012010041026121034095070031127117115001017009044015049100027115064087029091068065013083112115088092089097095002124075124026002119097065112091024124114087015104027081&EXT=pdf&INDEX=TRUE