Why data is key to informed sustainability policies and ESG investments

Technology investments to develop an ESG data platform can drive meaningful business integration/analytics to deliver accuracy and results.

In brief

• ESG data and technology platforms can improve the oversight, accuracy and transparency of ESG data, analytics, operations and performance.
• ESG leaders need to research and prioritize key data and reporting impact areas in relation to ESG considerations.
• A holistic approach to leverage market opportunities and manage ESG risks includes corporate alignment, risk/regulatory management, and operations/processes.

Companies that are providing investments in and/or adopting environmental, social and governance (ESG) policies and programs have become aware that they need better data to gain oversight of their ESG data and analytics operations and current performance to improve the accuracy and transparency of their ESG sustainability policies and investments. They need to identify which areas to report on and set meaningful targets for improvement. 

The need to track and organize data regularly requires investing in technology to develop an ESG platform with deep ESG reporting capabilities. But before ESG leaders take the plunge into technology investments, they should answer the following questions:

• What is your governance structure, and how are you tracking data requirements?
• Have you defined materiality by key stakeholders (employees, customers, partners)?
• What are the pillars of your ESG strategy and commitments to be executed each year?
• Which frameworks and standards align best with your organization’s goals?

Leveraging ESG market opportunities and managing risk

In addition, ESG leaders need to research key impact areas to identify and determine which are most relevant for their organizations to prioritize — regarding both data and reporting in relation to the three areas of impact: environmental, social and governance. And becoming a reputable market leader requires taking a holistic approach to leverage market opportunities and tackle the risks associated with ESG. Three areas for consideration include corporate alignment; risk and regulatory management; and operations, products and distribution.

Benefits of an ESG data and technology platform

It’s important to recognize that an ESG platform can help formalize targets and goals, strategize and implement action plans, identify key metrics and track progress over time. In addition, an ESG platform can help demonstrate transparency and accountability to the public and regulators by identifying risk ownership across the organization and supplying data to publish the findings (through annual and investor reports, websites, etc.). 

Key design considerations

Key design considerations when implementing an ESG data and technology platform should include core focus areas covering business data resilience, as well as strategic and differentiating data. ESG regulations are evolving, and regulation harmonization (falling under business data resilience) includes performing assessments on this data to produce economic classifications and enable reporting on regulations, such as the Sustainable Finance Disclosure Regulation (SFDR) in Europe, the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) and the EU Taxonomy. In addition, reputational risks fall under this data focus and include managing reputational risks through stress testing, staying on top of regulations, being aware of investment and credit risks, and protecting customer data and reputation. 

The second data focus, strategic and differentiating data, covers commercial strategy, or aligning investment portfolios to ESG targets; engaging with customers and investees, including constructing new products tapping into retail customer demand for sustainability-linked offerings; and considering corporate clients’ funding needs for their transition. Supply chain management also falls under this focus, including understanding the boundaries of the value chain and the focus areas for prioritization of deployment; identification of key strategic suppliers; development of a program that increases collaboration, engagement and upskilling of suppliers; and increased use of known and “hidden” supply chains and other data, for example, tax considerations. 

In addition, data quality, data assurance and trust need to be addressed, including monitoring and properly validating data; providing traceability of methodologies, assumptions and inference applied; and implementing assurance and quality controls on new data ingested from counterparties and providers. The implications of regulatory trends on reporting processes, controls, and assurance requirements and practices also should be considered, while reassessing the leadership model to clarify ownership, roles and responsibilities of the businesses and functions across the sustainability initiatives.

Execution of the ESG data and technology program

And finally, when executing an ESG data and technology program, organizational leaders should plan to develop a multiyear implementation roadmap by holding a series of planning workshops, with documentation capturing milestones across workstreams, underlying tasks, timelines, dependencies, owners and estimated resourcing. The roadmap needs to be socialized with stakeholders, incorporating feedback, with senior leadership sign-off before execution begins.