What is ESG and why does it matter?
Decades ago, concerns about the immediate and global impact of business on the environment and society were seen as a bit of a fringe issue. What mattered most was the “bottom line”. In this blog we will look at the overall topic and then focus on the data challenge for ESG in the context of governance
Whilst there is an argument that says not much has changed, no one can deny that companies are now required to meet ever increasing Environmental, Social and Governance (ESG) demands. Policy makers and consumers have woken up to the fact that for too long, some corporates have been greenwashing and marketing their way to a more sustainable world instead of doing the right things. It’s my belief that many more have simply been massaging their figures to make themselves look good.
Why are companies taking more notice?
By showing how adherence to ESG principles can more positively impact profits, credit, staff retention, and many other factors, we are now seeing higher spending on ESG initiatives throughout the world. The focus is turning inwards at last, doubling down on everything from employee health and safety, energy and water use, emissions reduction, consumer responsiveness, less waste, lower levels of pollution and diversity in the workplace. Investors might favor those who are making more progress and we are all more conscious of doing our bit. Everyone is also a bit more fearful of being ill-judged or in the worst-case scenario, completely sidelined. In addition, employees might leave a company if they feel that their employer’s values as not aligned with their own. Customers, who are more discerning than ever, might switch to the supplier who can demonstrate greater integrity.
What’s driving accountability?
Sustainability legislation looms large on every horizon. Measuring ESG performance is a must to remain in business in the log run.
ESG reporting can be said to be more critical than ever in order to maintain a license to operate. As an example, the European Union’s (EU) Corporate Sustainability Reporting Directive (CSRD), effective Jan ’23, will require large businesses operating in the EU to measure and report on non-financial risks and impacts as well as their responses to them. Something similar called the “Better Business Act” in the UK could significantly alter the existing Companies Act. New laws will require all companies to demonstrate real ownership of ESG factors. We are going to see more Chief Sustainability Officers (CSOs) at board level, greater support for CFOs and functional heads with more granular ESG KPI / reporting responsibilities.
The data challenge for ESG
Different ESG initiatives have different financial impacts. The hidden areas of P&L statements will need more scrutiny to design and implement non-financial KPI’s. The data challenge for ESG, as with all new reporting or governance initiatives, begins and ends with accessing reliable information.
Enterprise Resource Planning (ERP) systems are among the main application systems that companies will need to access in order to meet new reporting standards. These systems are usually highly customized and, in many ways, they provide a valuable blueprint of any organization. However, by their very nature locating, separating and using their data to support the new transformation projects needed for ESG presents a significant hurdle to delivery.
Silwood Technology has supported the business intelligence, reporting domains for many years and has hundreds of customers using its proven, flagship product, Safyr. Safyr is the leading software product for ERP metadata, discovery, analysis and curation in support of data governance and will provide a significant boost to an ESG program.
by Mike Sheridan, Silwood Technology Limited