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ESG – Where Activism Drives Priorities

As the world transcends to a digital economy, customers, stakeholders, and investors alike are beginning to take a conscientious approach to brand associations. Simply put, everyone wants to be associated with brands that are responsible, sustainable, and governed ethically. In fact, a McKinsey research has shown that as many as 70% of customers were willing to pay more for goods and services that were more aggressive in their ESG goals, especially those of carbon net-zero1 . The same research also showed that businesses with better ESG were valued significantly higher than the competitors that did not.

That said, the question of how brands, or for that matter businesses, in general, can become responsible, sustainable, and ethical? There are guidelines, standards, and even regulatory oversight, all needing audits and periodic reporting. Or ESG in a nutshell – which stands for Environmental, Social, and Corporate Governance.

Seems straightforward enough to be doable, right? Well, not exactly. As operations go global, sustainability, responsibility, and ethics standards and targets vary from jurisdiction to jurisdiction. To add to this complexity is the fact that corporate citizenship programs are diverse, distributed, and, most of the time, disparate enough to make a consolidated view, let alone report a challenge.

Before we get to how we can address these challenges, let’s take a look at the trends in ESG that have made reporting a necessity.

  • Transparency has transitioned to Accountability: Today, the market demands results. Not attempts or promises.
  • Diversity, Equity, and Inclusion now have Antiracism included: Now, maintaining diversity among employees is no longer enough. The market demands tangible efforts and results toward eradicating racism in the workplace.
  • New regulations and reporting standards will make corporate disclosures challenging
Carbon neutral is no longer enough – carbon net-zero is the standard, and the deadlines are short With these developments, businesses have their tasks cut out to make sure they:
  • Are collecting the data required to report on the diverse parameters required today
  • Maintain a single-source-of-truth record of the reporting parameters
  • Develop adequate reporting applications that gather and represent data in the required format
  • Have a long-term vision and roadmap towards making these disclosures available in real-time and even as dashboards that will allow strategic course correctio

Step One – Establish the mechanisms

In a chicken-and-egg situation for most enterprises, establishing the mechanisms would require a certain degree of clarity on ESG goals, and establishing them would also need some data on ESG.

 

One approach would be identifying existing data points, followed by an iterative-validating process of chiseling down the ESG objectives. A starting point could be a laundry list of Environmental, Diversity, Equity, Inclusion, and Antiracism activities, goals, and timelines. The key is to make this list the basis for initiatives for each category.

 

Once you have the goals, a.k.a your data points, established, you now can transition to how you can go about collecting the data. Establishing the mechanism can simply be creating the basis for a centralized repository of information covering:

  • The list of initiatives planned for a period of time (say a calendar or financial year)
  • The reporting criteria for each of these initiatives – for example, test scores at the end of a DEIA sensitization session, part of a larger initiative
  • Data from planned and surprise audits of the facilities, supply chain, and any other aspect of the business and IT operations

In essence, reverse engineer what you would like to see in your quarterly, half-yearly, or annual sustainability report to get to your data points. Then create the necessary infrastructure to gather, curate, and analyze those data points.

Alternatively, with a full-fledged ESG solution, you could have your ESG goals lead your reporting, thus making your strategy more effective. What you would essentially need is:

  • Strategic Guidance – to establish the guidelines, directives, and standards you would like to adopt to structure your holistic ESG strategy. Here, the UN goals for Carbon Net-Zero can be a critical enabler for you to identify and design your ESG approach and thus your reporting.
  • Focus and Materialization – Conduct Materiality Assessments that help you identify your key ESG focus areas based on ESG frameworks such as GRI and TCFD. You can then design your KPIs and your roadmap toward achieving the ESG goals and evaluate them against UN goals. The importance of materiality assessments is to ensure you’re clearly mapping your goals with the initiatives and the reporting KPIs, thus in turn allowing your ESG reporting to be detailed and showing an as-is picture that will help you refine your goals and strategies towards addressing your long-term ESG vision.
  • Data Collection – Based on the strategic guidance and the materiality assessments, you can now structure your data collection, thus defining your data points, and in turn defining the kind of infrastructure you would need to ensure this data is available, integrated into your ESG reporting tool and available when you need it, from period reporting to real-time dashboards.
  • Establishing and achieving goals – Now that you have the three key elements of ESG in place, you can define, design, track, and report on the ESG goals you have targeted. With guidance, materiality, and data collection empowering stakeholders, they can now drive the ESG strategy easily and transparently.
  • Competitive Analysis and Supplier Risk Assessments – It is not surprising that today, your customers are ready to pay a premium for clean and green products and services. Now, when comparing your ESG standards and reporting against the competition, you must also consider the fact that you are now accountable for your supply chain. The data you collect on ESG should also include data from your suppliers, vendors, and other third parties that contribute to your value chain. Once you have this data, you can easily compare your ESG standards and achievements against the competition and refine your goals, strategies, and initiatives, accordingly.
  • Analytics and Reporting – When you have an ESG platform that integrates the five key contributors to an effective ESG (the points listed above), and it incorporates analytics and reporting capabilities, it simplifies your ESG processes and essentially gives you significant additional value.

Step 2 – Develop the strategy

In a chicken-and-egg situation for most enterprises, establishing the mechanisms would require a certain degree of clarity on ESG goals, and establishing them would also need some data on ESG.
One approach would be identifying existing data points, followed by an iterative-validating process of chiseling down the ESG objectives. A starting point could be a laundry list of Environmental, Diversity, Equity, Inclusion, and Antiracism activities, goals, and timelines. The key is to make this list the basis for initiatives for each category.

Let us now assume you are running sessions in batches of 20, with each batch repeating the session once a year

  • For Diversity and Inclusion
  • Bias and Sexual Harassment
  • Environmental Sustainability
  • Supply Chain Responsibility and Sustainability

This translates into 40,000 sessions, and the data collected from each, ranging from attendance to preliminary and final evaluations, the topics that generated the most interest, etc.

In addition to this, you are running carbon-net-zero actions in each of the 50 locations, which will result in data collected on (not an exhaustive list):

  • Renewable Energy as a function of total energy utilized
  • Water consumption numbers
  • Solid waste generation and disposal numbers
  • E-Waste recycling numbers
  • Sustainability changes in IT Operations

Hypothetically, if this data were measured every week, you would have 13,000 data points. This figure represents the complexity in data collection, that is addressed by an effective ESG solution.

ESG Reporting

The key to effective and efficient reporting (a holistic single-pane-of-glass view) is also the enabler for businesses to challenge the ESG strategies and approaches. You have the data points. Ensure they are integrated so your analytics engines can turn data points into insights. Using a combination of Agile, Cloud, IoT, and Low-Code, you can quickly establish:

  • Environmental goals and vision, driven by data-driven strategies and insights.
  • Social through real-time dashboards that also drive competitive sustainability targets, monitoring progress and collaborative action among diverse teams within the business
  • Governance by offering stakeholders and management dashboards that allow effective communication of targets and achievements, tracking of potential improvements/refinements to the ESG strategy, and addressing compliance requirements

Here, you can also create a scorecard on how your initiatives yield results and how these results match up against your goals.

Now refine these strategies

It is but natural that ESG is also data-centric in a data-driven world.

Once you have started aggregating data and analyzing them, you can now seek to improve how you perform against each of your goals and targets. Remember, it is not just reporting the data diligently that leads to improved brand perception. More importantly, it is how you interpret these numbers in terms of how effective they are and demonstrate your commitment by revising, refining, and sometimes even reimagining your approach or strategy towards them that makes you stand out from the crowd.

Imagining, Designing, and Implementing your reporting mechanism

Step one here is choosing your technology stack. We mentioned the Cloud, IoT, and Low-Code earlier. Let’s take a look into how you can design your reporting mechanism for the present and the future.
For starters, let’s look at the data storage and retrieval system. The cloud is the easiest way to aggregate and use data based on your data sets. Considering most IoT and Industrial IoT solutions integrate with the cloud, as do survey tools and examination/evaluation systems, it is ideal to have a data platform like a public cloud to host your data sets.

Now, the applications will consume the data curated on the cloud. There are Commercial Off The Shelf (COTS) applications available, some in a SaaS model that you can implement as an alternative to coming up with your reporting framework and tools. It might be simpler for enterprises with that kind of budget. However, it need not be a challenge for businesses without deep pockets. Low-Code comes to the rescue, shortening the application development lifecycle and associated costs.

Another important consideration before choosing the technology stack is your long-term vision of ESG reporting and the market movements in this regard. SaaS products typically have their enhancement and feature/functionality pipeline that will align with most ESG requirements, but you will be constrained by the features and functionalities that are the top priority for the provider rather than your audience.

Choosing your approach to ESG

To go out on a limb and say it, Xebia makes developing your ESG and sustainability goals both easy and efficient. The ESG platform developed using the Appian Low-Code platform helps you integrate the different contributors to ESG success efficiently. Functioning less as a tool and more like an ESG partner, the ESG platform allows you to readily identify your ESG KPIs, compare it against the UN Goals and ESG frameworks & standards, define the data collection, compare it against the competitive landscape, and provide real-time reporting.

Reference: https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Strategy%20and%20Corporate%20Finance/Our%20Insights/Five%20ways%20that%20ESG%20creates%20value/Five-ways-that-ESG-creates-value.ashx

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