ESG Data: How Businesses can use Data to Gain an Edge

To make the most out of their ESG data, companies of all sizes can draw on different approaches to benchmarking and increase their attention to governance.

Key takeaways:

By looking at ESG-related topics or risks at fixed points in time, along with real-time analysis of trends, organisations can get a more complete picture of their own progress and where they stand in relation to peers.

A focus on governance can help to determine the best way to discuss ESG across different business units. Continuous assessment paired with a thorough understanding of data can help businesses stay aligned with regulatory requirements and their ESG goals.

Overview

Though environmental, social and governance (ESG) reporting has become commonplace for businesses, many organisations are still working hard to find the best way to assess their ESG performance. Changes in the economy, environment and political landscape have left many companies unsure of how to share their ESG progress with stakeholders — and how they can track their progress against competitors and other industries.

Laura Wanlass, global head of ESG at Aon, says defining an effective ESG strategy is a journey that starts with the basics. “This idea that everybody else has ESG figured out isn’t true. Because of all the external variables and because this is cross-departmental and complex, everyone is always looking for how they can improve.”

A strategic, data-driven approach to benchmarking, coordination and governance could help companies gain the insights they need to make better decisions around ESG.

In Depth

Though ESG strategy has received widespread attention during recent crises, there are still myths and uncertainties about its reporting and defining “what good looks like.” For example, by focusing heavily on environmental or social metrics some businesses may be underemphasising governance. On top of that, inconsistencies in regulatory requirements and ratings systems may create confusion for investors and other stakeholders. It’s a rapidly evolving world, with expectations and needs always changing.

Combining Benchmarking Strategies

Two kinds of ESG data analysis — point-in-time and real-time — give businesses the context they need to interpret results. “You have to do point-in-time analysis but also monitor in real-time to be thoroughly prepared,” Wanlass says.

Point-in-time benchmarking provides a regular check-up, in which businesses can assess their ESG data at consistent intervals. This lets businesses see how they are doing relative to their peers in terms of oversight practices and disclosure levels, giving the C-suite or board a clear view of where the company might need to make changes. This could include an annual review of key goals and metrics as part of the company’s Diversity, Equity & Inclusion program.

But using this approach alone has its drawbacks. “It’s dependent on when you look at it because things change,” Wanlass explains. Organisations using only point-in-time analysis could miss out on opportunities to differentiate themselves from competitors and improve ESG ratings.

Incorporating a real-time assessment allows for monitoring trends as they develop, and it can help organisations take a proactive approach to issues such as growing reputation risks among peers. “Identifying things that might not yet have impacted us yet, but that we can start to see trending for our industry — that’s a forward-looking way of using data to help inform strategy,” Wanlass says.

Businesses should also be mindful to balance their own performance with awareness of the competitor landscape when developing an ESG benchmarking strategy. Undergoing an external review can help companies discover whether they are making the same progress as the rest of their industry. However, although getting external perspectives is valuable, organisations also need to consider what’s suitable for their business. And that means making sure the right governance structure is in place.

The Importance of Governance

Environmental and social considerations are critical parts of ESG, but governance insights are also necessary — and sometimes overlooked. “You can’t do E and S without the G,” Wanlass says. “You have to start at the basics. Who’s going to own ESG within your firm? How are you going to work across the different business units? Before you do anything, it’s about governance.”

Governance can be particularly important in new and growing businesses. Wanlass explains that in a pre-IPO start-up, potential investors will want evidence of proper board governance to prove their decision to get involved is sound. “As you grow in maturity, the expectation is that you become more mature in terms of what you’re doing on E, S and G,” Wanlass notes, adding that financial stakeholders look at how pre-IPO companies treat ESG relative to their peers.

A strong governance strategy can also help businesses in times of uncertainty. “When the world changes, having proper ESG governance in place allows you to flex or change course and then determine how to communicate what you’ve done to all external stakeholders in a coordinated way,” Wanlass says.

Understanding Data and Achieving Consistency

Though ESG data can be valuable in mitigating reputation risk and ensuring alignment with company goals, organisations may struggle to translate this information into action that resonates with financial stakeholders and employees. Tools like Aon’s Digital Business Insights platform help by making sense of data and curating key topics for companies to easily monitor, in real-time. “Companies can see what’s happening and if they are aligned or misaligned to peers,” Wanlass says.

Ensuring ESG messaging strategies are consistent across business units is also critical, and companies that fail to do so could leave themselves exposed to reputation risk or litigation. “If marketing is in charge of the website and they’re not coordinating with legal on the ESG reports, or some business unit makes a commitment and it doesn’t tell corporate, you could quickly find yourself in trouble,” Wanlass explains.

It’s vital that communication is consistent across each of an organisation’s platforms. For example, employees might look at a company website instead of ESG reports while other stakeholders, including prospective employees, may look at online sources like social media. “There’s a huge opportunity for you to set your narrative and to really showcase what you want to,” Wanlass says.

ESG Lessons for All Companies

How an industry performs against certain ESG metrics may also factor into a company’s ESG approach. “In a transportation logistics company, your carbon footprint is a material part of your business that you’ll have to be prepared to explain to financial stakeholders,” Wanlass says. Having a firm understanding of the relevance of this kind of ESG data and the ESG performance of competitors can give companies an edge when communicating their progress and value.

While large companies may have advantages in terms of resources, any company can take steps to improve its ESG performance. “It’s not that the largest companies are a better E, S and G risk than other companies — they disclose more. The current data environment reflects a disclosure bias at the moment,” says Wanlass, adding that this may change as ESG reporting regulations become more standardised.

As regulatory requirements change, organisations will need to take an agile approach to ESG. Wanlass says some companies are taking a “wait-and-see” approach to disclosing more quantitative data until they have more clarity around the regulatory landscape, though they can still use data internally to see where they can take action and make immediate improvements. “Get started on it now so that once it is required, you’re not scrambling to come up with something — you’re prepared to go out with a well-worded, great disclosure strategy,” Wanlass advises.