David Wynn, Managing Director North America at Greenstone, writes the following article.
I was recently on a call with a Fortune 500 company who had a decade of ESG reporting under their belt and several well-earned sector leadership titles in their trophy cabinet. Sustainability is deeply embedded in their business but like companies more broadly, they have seen a significant ramp up in investor pressure and ESG information requests in the last 12 months.
After some introductions and an update on the transition to working from home under COVID-19 restrictions, we discussed their possible need for software to enable their sustainability data management. The Head of Sustainability started telling me about preparing for CDP 2020 and her “hundreds” of Excel spreadsheets and the nicknames she had lovingly given them over the past 10 years.
I heard how for 3 months prior to year-end, hundreds of emails and data files were sent to her and migrated into ‘Business Unit’ sheets, which fed into ‘MASTER’ tabs, which fed into separate investor framework tabs. She confessed to me that the ‘MASTER’ sheet for this year is currently on version 45 and perhaps this could all be done better. This story is all too familiar.
I reassured her that she is not alone. Traditional processes for collecting, managing and reporting sustainability data like these are common and often entrenched (for even the most mature ESG reporters like our trophy winners). Processes evolve over time and without stewarding, become unwieldy and ingrained within the roles of individuals rather than business processes. When this happens and knowledge sits with individuals rather than systems and processes, there is a clear business risk. In a culture of investors demanding more consistent and reliable data sets for financial decision-making, this risk is heightened.
For most generations, Q1 2020 has been their first exposure to the need for widespread systemic overhaul and lifestyle redesign in the business, academic, governmental and everyday aspects of their lives. In the business world, a ‘new normal’ of remote engagement has risen in a matter of weeks to plug the gap created by self-isolation and the lack of physical contact due to COVID-19. This will inevitably put a test on business reporting and a microscope on the processes that are embedded within the role of individuals rather than the business as a whole.
The Head of Sustainability said her company’s new work-from-home policy had shone a spotlight on their need for a system to input, analyse and report their sustainability data beyond just her role. This story of someone drowning in spreadsheets and a conveyor belt of manual processes is all the more essential to address when we take a look at the macro trends in environmental, social and governance (ESG) reporting which are also increasing.
BlackRock CEO, Larry Fink’s 2020 CEO letter describes the need for a “Fundamental Reshaping of Finance” and has been a catalyst for many organisations to address the elephant in the room on how they manage and report their ESG data. BlackRock is asking companies to publish a disclosure in line with industry-specific SASB guidelines by year-end (or disclose a similar set of data in a way that is relevant to their business) and disclose climate-related risks in line with the TCFD recommendations. This is a clear signal from the investment community that they need (1) timely, (2) comparable and (3) reliable data to inform investment decisions.
Recognising where there are opportunities to centralise reporting in a single system, cross-pollinate multiple framework responses and streamline the metrics that are collected will be paramount to help embed more robust business processes and deliver the sustainability data management increasingly expected of companies.
Those of us that have worked in the sustainability reporting space for the past decade have been anticipating a clear investor signal to the market and call to action for the business community for some time. Even though it arrives in a time of unprecedented uncertainty, for the many that report their ESG credentials to their investors, holding a mirror up to robustness of their data management processes will be critical in 2020 and beyond.