ESG data is crucial for data-driven decisions, which is why we will focus on its benefits and provide a guide on how to collect ESG data for reports.
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ESG stands for “Environmental, Social, and Governance”, whereas ESG data essentially means the information that reflects a company’s performance in these three areas. This data can be used to assess a company’s commitment to sustainability and social ethics, serving as a framework for investors, analysts, companies, policymakers, or other stakeholders to make responsible investment and well-informed financial decisions.
Environmental data measures the amount of energy used by a company and the overall positive or negative environmental impact caused by this usage. ESG data examples in this category include greenhouse gas (GHG) emissions, water usage, and waste generation.
This type of ESG data focuses on a company’s relationships with its employees, communities, and stakeholders, which can be determined through factors like labor practices, human rights policies, community engagement, as well as diversity and inclusion initiatives.
Governance data examines a company’s internal structure and management policies. It includes aspects like board composition, executive compensation, anti-corruption policies, and the presence of any internal conflicts.
Based on findings of industry reports (e.g. those from established firms like Morgan Stanley and Borsta Istanbul) and academic research, ESG data offers various benefits for stakeholders. It doesn’t just help companies address environmental and ethical concerns that affect operations and reputation, but also raises the chance of better financial returns, while lowering risks. Thus, stakeholders are looking beyond the financial performance of companies.
Source: Statista
As of 2023, up to $480 billion exchange-traded funds (ETF) have been allocated to companies that implement ESG strategies, which is a 22.76% increase from the $391 billion figure in 2021, reflecting the growing focus on environmental and social responsibilities in the financial landscape. With this in mind, the benefits of leveraging ESG data will be discussed further in the next section.
ESG data offers a multitude of benefits for companies, investors, and stakeholders alike. By leveraging this data, organizations can gain valuable insights that lead to improved decision-making, risk reduction, and a more sustainable future.
Navigating complex environmental and social regulations can be challenging. ESG data helps companies stay ahead of regulatory requirements to reflect their commitment to ethical practices while avoiding legal repercussions and financial penalties.
For instance, California’s Proposition 65 requires companies to disclose the presence of certain chemicals in their products to prevent water contamination and the risk of cancer or birth defects. A company operating in this region can leverage ESG data to verify their suppliers and ensure they are not sourcing materials containing these regulated chemicals, avoiding potential penalties or other legal consequences associated with non-compliance.
Transparency is key to building a strong reputation. ESG data allows companies to openly share their sustainability and social responsibility efforts, which can help them gain the trust of consumers and investors, thereby significantly enhancing their brand image and market position.
For example, a 2019 study by Unilever found that 33% of consumers are willing to pay more for sustainable brands. However, several major brands have been heavily criticized for greenwashing as they make unsubstantiated claims about their sustainability practices. A survey conducted by KPMG has even shown that 54% of the consumers responded that they would stop buying products from a company with misleading sustainability claims, while 38% of the respondents say that they would stop their investments with such companies. This highlights the importance of backing up ESG claims with verifiable data, which can help companies build trust and avoid reputational damage.
Another major benefit of ESG data is how it can empower companies to identify and address potential environmental or social risks before they escalate. Currently, 54% of companies worldwide implement ESG strategies for risk inventory reporting. In turn, this proactive approach can safeguard a company’s operations, value chain, and reputation.
For instance, the California Transparency in Supply Chain Act (SB 657) requires large retailers and manufacturers operating in California to disclose their efforts in eradicating slavery and human trafficking from their supply chains. By leveraging ESG data to track and monitor labor practices within their supply chains, companies can proactively identify and address potential human rights violations. Not only will this minimize legal risks, but also prevent financial loss from consumer boycotts.
ESG data offers metrics to let companies align their strategies with long-term goals. This data-driven approach will then contribute to sustainable growth and performance.
For example, a manufacturing company can analyze its ESG data to identify areas of high energy consumption. By implementing energy-efficient practices based on this analysis, the company can lower energy costs, leading to better profit in the long run. Reports by McKinsey & Company have even indicated an enterprise, such as 3M, has saved up to $2.2 billion since they began their sustainability program to boost waste reduction and recycling efforts, reflecting the positive impact of ESG strategies.
For investors, ESG data serves as a reliable criterion that provides a deeper understanding of a company’s ethical and sustainable practices. This enables investors to choose companies that align with their values, leading to more socially responsible investments.
For instance, an investor considering companies in the energy sector can use ESG data to assess their carbon footprint reduction strategies and investments in renewable energy sources. This is especially crucial if the investor is considering expanding to Europe, as the European Union’s Corporate Sustainability Reporting Directive (CSRD) and Sustainable Products Regulation require listed companies to publish reports on their social and environmental efforts. With ESG data, the investor can determine if the company aligns with their sustainability goals and future development plans.
Research, such as the ones published in the Journal of Business and Management and the Academic Journal of Management and Social Sciences, have indicated a positive impact of ESG ratings on employee employment and performance. Moreover, a survey conducted by KPMG has revealed that 46% of workers want their companies to display a commitment to ESG, while 20% of these workers have even refused job offers when the companies’ ESG strategies do not align with their own values. This shows that companies prioritizing ESG metrics often attract top talent, as employees are more likely to join and stay with companies that have strong social and environmental values.
Furthermore, a study by Gallup found that companies with highly engaged workforces experience 23% higher profitability. This is something companies can enhance with ESG data. For example, if a company with a high employee turnover rate analyzes their ESG data, they may find its correlation between low employee engagement scores and lack of investment in employee wellness programs. The company can then allocate resources to improve employee well-being, leading to higher retention and increased productivity, as well as improved financial performance.
While ESG data offers significant advantages, there are challenges to consider, particularly regarding data accuracy and potential bias. This is because internal ESG data collection may be susceptible to unintentional errors or inconsistencies. Additionally, companies that prioritize presenting themselves in a positive light might even choose to conduct data manipulation or selective reporting. Consequently, this may mislead stakeholders and consumers.
To combat this issue, it is recommended to complement internal data with information from external sources like public ESG datasets or specialized ESG data providers. These third-party providers can offer a more objective perspective, as they gather data from various sources, including company reports, sustainability ratings, and news articles, helping to minimize bias, while adding credibility and accuracy to a company’s ESG reports.
By acknowledging the potential inaccuracy and bias of internal ESG data, companies must establish a robust data collection process that incorporates external verification and standardized metrics. This ensures that they gather reliable information that reflects their sustainability efforts and allows strategic decision-making. Here’s a breakdown of the key steps involved:
The first step is to define the company’s ESG goals and priorities. Consider the environmental and social issues most relevant to your industry and operations. You should also identify the needs and expectations of stakeholders, such as investors and customers. This ensures that the collected data is relevant and actionable.
Frameworks like the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) provide standardized metrics for ESG reporting. By choosing a framework, you obtain a clear structure for data collection, ensuring comparability and consistency with industry standards.
As mentioned earlier, you should consider combining data from both internal and external sources. Departments like facilities, human resources, and supply chains can provide valuable information on energy consumption, waste generation, employee diversity, and responsible sourcing practices. This data can then be supplemented with information from reputable sources like public ESG datasets and specialized ESG data providers, which can help you offer a more comprehensive ESG report for stakeholders.
Develop a clear and efficient process for collecting data from various sources. This may involve creating standardized data collection forms, utilizing data management software, and designating specific teams responsible for gathering information. It is also important to implement a secure data storage system to ensure data integrity and accessibility for analysis or reporting.
Regular assessments of data accuracy and completeness are necessary to maintain high standards. You should also establish data governance policies to ensure consistent data collection practices. This usually involves setting clear ownership and accountability for every data, which is crucial for maintaining trust in the reported ESG information.
Once data is collected and validated, analyze it to identify trends, track progress towards ESG goals, and uncover areas for improvement. This data-driven approach allows companies to make informed decisions regarding sustainability initiatives and resource allocation.
Utilize the analyzed data to create comprehensive ESG reports that address the company’s sustainability efforts and performance to stakeholders. Bear in mind that these reports should be transparent and detailed while aligning with the chosen reporting framework.
ESG data collection and reporting is a long-term effort. Regularly review and update the ESG data itself to make sure it remains relevant and accurate. The collection procedures and reporting frameworks should be reviewed as well. This is to ensure they remain effective and aligned with the stakeholder expectations and industry standards that are constantly evolving.
In the modern investment landscape, ESG data is more than a trend, it is a vital tool for sustainable and ethical business practices. By understanding and leveraging ESG data, businesses can analyze their ESG performance and develop effective strategies. At the same, financial stakeholders, such as investors and data analysts, can also make more informed decisions that contribute to long-term success.
As a leading ESG data provider, TEJ understands the importance of accurate and content-rich information that adheres to international standards, such as the SASB framework. We leverage cutting-edge technology and a network of expert analysts to offer ESG data solutions ensuring comprehensive support for your needs, from ESG Datasets, to ESG Rating Index, and even ESG Event Radar.
Furthermore, our team of experts, including ESG-carbon managers and ESG certification holders, provides valuable guidance to help you translate data into actionable insights for your business. Learn more about our ESG solutions today and get ready to take your ESG strategy to the next level.
