Sustainability considerations are now at the top of the corporate agenda for organizations of all sizes, as strong ESG performance is increasingly linked as a key performance indicator of a healthy, thriving business and by the forthcoming EU Corporate Sustainability Reporting Directive (CSRD). Though data collection and reporting may be the first steps in a company’s journey to improve ESG performance, the reporting itself does not drive value – the value is derived from how that data is analyzed and used to inform strategy. So, how to make ESG compliance your competitive edge?
According to an NYU Stern Center for Sustainable Business’ analysis of 1,000+ studies published since 2015, strong corporate management of ESG is linked to improved return on equity, return on assets, stock price, operational efficiency and risk management. That’s why moving beyond ESG and financial data collection and reporting and into risk management and performance improvement can drive superior returns for businesses that are serious about driving value.
Insights
However, progressive business leaders understand that even though data collection and reporting may be the first steps in a company’s journey to improve business and financial performance, the reporting itself does not drive value – the value is derived from how that data is analyzed and used to inform strategy. And the same is true for ESG. ESG compliance can help companies to build an competitive edge.
A recent KPMG study showed that while 47% of businesses use spreadsheets to manage ESG data, 58% of businesses are planning to enhance their data analysis through innovative AI technologies in the next three years. This shows that organizations of all sizes are feeling an increased sense of urgency to implement advanced, agile technology to help them efficiently collect, report, analyze and assure the accuracy of their complex, often siloed ESG data – while deriving the same kind of insights they have come to expect from their financial reporting.
Lessons moving forward
So, if you’re a business leader who wants to leverage ESG to future-proof your corporate performance, what lessons can you learn from corporate performance and financial management? Here are three essential truths to keep in mind on how to make ESG compliance your competitive edge:
1. Improving ESG and financial performance both require full collaboration – like any true team sport. Just like quality financial reporting and performance, moving the needle on ESG requires multiple corporate functions and businesses to rise above their siloes to work together to collect and report data, analyze that data to identify and manage risks, and assure its accuracy. These matters can no longer be relegated to individual environmental, health and safety (EHS) or corporate social responsibility (CSR) functions. Preparing to comply with the pending tidal wave of ESG regulations and reporting requirements means prioritizing sustainability at the top of the C-suite agenda, right next to financial and business performance, and driving true collaboration among functions and leaders.
2. To measure real progress, you need single source of data truth. Just like financial reporting and performance, the success and credibility of your ESG program hinges on your ability to develop a holistic view of investor-grade data that can serve as the single source of data truth. That single source of truth is essential for ensuring data consistency, measuring your starting points on a wide variety of key performance indicators, and gauging your progress. It’s also essential to building trust in your business, financial and sustainability commitments – and your corporate reputation.
3. You can’t collect and report data like an integrated team – or have a single source of data truth – without digital transformation. High-value financial and ESG reporting and performance absolutely require investments in enabling technologies that can break down siloes, bring clarity to complexity, and assure the traceability and auditability of data – all of which are essential to avoiding legal and reputational risk. Having the right processes and technologies in place is also essential to moving well beyond reporting as a ‘check-the-box’ disclosure exercise – so you can derive insights, quantify potential impacts, and identify risks and opportunities that can future-proof your organization for years to come.
Digital transformation
While compliance with evolving ESG expectations may no longer be negotiable, beyond compliance lies the opportunity for better, faster, more informed organizational decision-making, which can, in turn, be transformed into a competitive advantage. Forward-thinking C-suite leaders are prioritizing and accelerating the digital transformation of their ESG reporting to ensure both delivery against regulatory requirements and optimization of the commercial imperative linked to securing a sustainable and resilient economic future, thereby using EGS compliance to enhance their competitive edge.
