August 16, 2022
Investors continue to push for clear and comparable environmental, social and governance (ESG) data that they can use as a tool for making investment decisions. And, in the last year, the Securities and Exchange Commission (SEC) has been pushing for standardized, compulsory reporting of ESG information for public companies. In addition, customers are increasingly inquiring about their partners’ ESG performance, and other stakeholders want to know more about what you’re doing, and, just as importantly, what impact you are having.
Storytelling is important, but data are perhaps the strongest way to demonstrate your overall impact and progress. The demand for transparent ESG data that reflect industry standards continues to grow, and with it, comes increasing pressure on companies to enhance their reporting and data management practices.
Here are five tips to strengthen how you feature data in your next report:
1. Don’t wait for a “perfect” performance record. Sometimes, companies are hesitant to share data because they are concerned about negative perceptions and what they believe the information may indicate about their ESG performance to date. These fears are often unfounded, as many investors, customers and ESG raters look beyond the current-year data to focus on companies’ commitment to reporting their data, goals and continuous improvement over time. ESG data points can vary greatly by year, industry and company. You always have the opportunity to provide justification, rationale and background to put the data in the proper perspective. For example, if your company’s greenhouse gas emissions increase in a given year, that may be due to change in product mix, rapid growth or perhaps an acquisition. When framed in the proper context, this potentially unflattering data can be indicative of a company’s strength and continued evolution. In addition, even if you consider your current data underwhelming, sharing where you start (i.e., your baseline) will help demonstrate how far you’ve come in your ESG journey in future years.
2. Focus on metrics from sustainability reporting standards and frameworks. When selecting the metrics to report on, consider using key performance indicators (KPIs) that align with leading ESG standards and reporting frameworks such as the Sustainability Accounting Standards Board (SASB), Task Force on Climate-Related Financial Disclosures, and Global Reporting Initiative.
This will enhance the consistency and comparability of data for investors, customers, ESG raters and other stakeholders and steer your company toward metrics that are not only widely recognizable, but also likely essential for your business. In fact, SASB’s metrics are based on ESG topics that are deemed “financially material” to businesses, defining material topics as those that are “reasonably likely to affect financial performance of the typical company in an industry.”
3. Share data in a clear and complete manner. Clarity is key in publishing your data. We recommend sharing metrics for at least the last three years, ensuring the scale of graphs is consistent and logical, and using footnotes or the report narrative to clearly define the parameters, assumptions or limitations. Knowledgeable ESG stakeholders – particularly ESG raters, investors and activists – can distinguish between strong, data-driven narrative and information that is less forthcoming or unintentionally overcomplicated or confusing for stakeholders.
4. Develop a cohesive message. Fostering collaboration among your data analysts, subject matter experts, communications professionals and other parties responsible for helping generate a report is critical for ensuring that your data are communicated in an accurate and clear manner. When disparate groups work in harmony, you can summarize complex information and offer context that allows audiences to easily comprehend the information. Great sustainability storytelling is supported by strong data and metrics, but having a unified voice allows this information to be transmitted – and received – as intended.
5. Consider third-party assurance of your data. If your company has the resources and motivation to pursue third-party validation of your ESG data, it could be a worthy investment that enhances the credibility of your reporting and builds trust with your stakeholders. Various sustainability-minded companies have their reports validated and reviewed by third parties, while others pursue assurance for select ESG data within their reports such as greenhouse gas emissions and health and safety performance.
The importance of data assurance is likely to continue to grow as ESG considerations become more ingrained in the U.S. and global regulatory environment. Read about key ESG considerations on the Securities and Exchange Commission’s agenda here.
To learn more about how Dix & Eaton can help you enhance your data narrative and ESG communications, reach out to me.