Team members sitting at table together with wall of plants

How to execute your ESG strategy with data and cloud technologies

What is ESG and why is it important?

Environmental, social and corporate governance (ESG) is an umbrella term for strategies, reporting and/or action plans on various topics and factors that impact an organization's corporate sustainability. This includes considerations of environmental, social and corporate governance implications, alongside financial factors, to inform decision-making processes and investments.

ESG has quickly emerged as a global issue and focusing on ESG initiatives has become imperative in today’s marketplace. Not only because of new regulatory frameworks, but because an ESG strategy can be a key differentiator to help businesses build customer loyalty, attract investors, improve financial performance and make operations sustainable and environmentally friendly.

Some examples of these types of initiatives might include energy reduction, such as converting to LED lights or solar panels in your office building to reduce environmental impact and/or costs; ensuring compliance with the product liability or workplace health and safety regulatory requirements; or taking part in community initiatives, such as charitable donations or volunteering in the community.

As more companies and organizations look to implement various initiatives, it's important to understand them from a holistic perspective, and how the organization plans to both execute and report on them.

Just a few benefits that organizations can realize through these types of efforts include:

  • Attracting and retaining talent: 90% of Gen Z believe companies must act to help social and environmental issues. This generation wants to see that the companies that they are looking to work for align with their beliefs.
  • Market competitiveness: 89% of executives believe an organization with shared sustainability purpose will have greater employee satisfaction, while 85% say they’re more likely to recommend a company with strong purpose to others.
  • Value creation: Harvard Business School research shows companies committed to sustainability outperform in stock market performance and have improved profitability.
  • Stakeholder and regulatory demand: The SEC has proposed amendments to enhance and standardize registrants’ climate-related disclosures and companies with operations in the EU could also be subject to ESG-related disclosures now or in the future.

ESG reporting data challenges and best practices

ESG rating agencies, such as MSCI or ISS, examine an organization’s ESG practices and risk exposure to determine its long-term sustainability. Through proprietary scoring methodologies and algorithms, these rating agencies are able to produce a score or rating which may be used by investors and other interested stakeholders when making decisions about the organization. Often these scoring methodologies are roughly aligned with an ESG framework such as GRI, the Global Reporting Initiative, or SASB, the Sustainability Accounting Standards Board which provide organizations guidance and standards for how and what to report within ESG or sustainability reports.

Some of the common types of data that are important for ESG reporting include:

  • Environmental data: This type of data often includes greenhouse gas (GHG) emissions, energy consumption usage and waste generation, as many companies need to track these metrics to ensure that they’re environmentally compliant.
  • Social data: This can include data on human rights records, labor practices, governance programs, policies and procedures as to how work is executed or how to report engagements with your local community.
  • Board structure data: Executive compensation, risk management processes and how you're integrating ESG related risk into the holistic risk management program, are all types of data that can fall into this category. With this type of data, it’s important to decide how you will record and communicate ESG related risks to your board and stakeholders and update them on the progress that you're making against the goals you’ve set.
  • Cybersecurity data: This type of data can include the number of reported breaches and malware attacks. In addition to reporting this data, it’s necessary to be able to articulate how you’re addressing any issues or problems that you’ve encountered as well.

Often, one of the biggest challenges with ESG reporting is the lack of standardized reporting across the organization. The lack of standardization can lead to inconsistencies in the data collection, reporting and analysis. Understanding what reporting processes you may already have in place is key to ensure that you can leverage any existing frameworks, areas of communication, meetings and alignment across your organization.

As you begin to think about your own ESG initiatives and reporting processes, it’s important to think through the initial goals of your ESG journey, recognizing that it will be a continuous evolution, if there are any tasks that need to be completed within a certain time frame such as any regulatory reporting, and how you’ll record your progress. Some questions to ask include:

  • Do you have to report ESG data from a compliance perspective?
  • What are the different goals and targets that you're looking to track against? Are you committing to goals externally?
  • How are you going to identify different metrics or KPIs that can help identify and evaluate the progress that you're making?
  • When and how are you going to report this data?

Overall, it's important to not only be able to report on these types of metrics but also be able to articulate what you are doing to address any issues that are significant to your organization. Here is a recommended process for ESG reporting best practices:

ESG reporting process

  1. Define what ESG metrics support: What is material to the organization and aligns with a reporting framework
  2. Establish ESG data reporting procedures: Document processes for collecting and validating ESG data, including system, report utilized, data owner and completeness and accuracy procedures
  3. Utilize technology to manage ESG data: Assist with streamline data collection, analysis and reporting processes, consider ESG software platforms
  4. Prioritize your data and reporting: Execute a risk-based approach to ESG reporting, prioritizing the ESG issues that are most material to stakeholders. This will focus reporting efforts and ensure that the most important ESG issues are being addressed
  5. Share ESG data with stakeholders: Make it transparent and accessible, providing data sources, methodologies and assumptions, estimates or judgments and explain any changes in ESG metrics over time
  6. Involve internal audit: Request the assistance of internal audit to perform a review of ESG reporting processes, reviewing data collection and reporting procedures, as well as reviewing data sources to ensure that they are complete and accurate
  7. Verify with third party assurance: Independent verification and assurance processes to validate their ESG data and reporting to increase the credibility and reliability of ESG information

Building your ESG data strategy and governance

Once you've identified your ESG goals and reporting strategy, there are five steps you can take to build your data strategy:

  1. Data discovery and mapping: Determine the KPIs from your reporting strategy that will support your ESG goals. Where is that information stored and how will you map it?
  2. Analytical/report modeling: Can you easily read and aggregate that data back together or does a new process need to be implemented?
  3. Solution design: What kind of solution do you need to put in place to make your data readily available to end users? Where is the data going to be stored? How is it going to be moved through the system? Make sure you have an audit trail to map it back to.
  4. Identify roles and responsibilities: Who builds and maintains these things in the program? Have dedicated resources in place in case something needs to be repaired.
  5. Implementation road map: Once the above steps are completed, have a detailed plan as to how they will be implemented.

Once you have the data strategy to help identify, prioritize and move forward with the reporting elements, you should also establish a data governance program to ensure that you have high data quality and accountability across the organization.

One key aspect of creating an ESG data strategy and governance program is determining who your data stewards are. They will be responsible for ensuring the quality of your information and that it continues to flow in from the source. For example, let’s say an organization is very invested in giving back to the community and they made a commitment to contribute 10,000 hours of community service over the next year. A system needs to be in place to capture that data and a data steward must be identified to be responsible for it to ensure its accuracy.

Another foundational element to creating a strong data strategy and governance program, is the development of a data dictionary. It's really important to map the information that you have via a data dictionary, which can be as simple as an Excel spreadsheet or can be as complicated as an actual data catalog application. This will ensure that you're defining what your data elements are and where are they sourced from.

It’s also important to establish an audit trail that can come from different vendor and data catalog tools. There are various tools in the marketplace that can help you do that or you can develop it in the solutions that you build to move this data. Note what process was used to extract all of that information so you can track it back to the source.

Generally, if you want to easily report on it, you're going to need to put the data into some kind of analytical model. Analytical models can be published in various forms. They can range from raw data sets to well-formed dashboards that you can publish on your website or in investor books, or you an create ad hoc analytics through tools like Excel.

In the end, you want to make sure that you’re not just grabbing all your raw data and pulling it together, but that there is an established process to integrate the data together, in order to give you the insights you need.

Moving to a green cloud

Data center energy usage is expected to quadruple by 2030 as a combination of market growth and diminishing returns from existing approaches to efficiency improvements.

Major vendors like Microsoft Azure, AWS and Google Cloud support sustainable solutions within their environment. Each company offers solutions within their data centers that can track and minimize the environmental footprint of your operational systems and processes.

If you want to move your organization to a green cloud, you first need to assess your current state. Look at the infrastructure that you have in place and see where your data centers are located. How many machines are you supporting? What can you do to potentially move some of that infrastructure from on-premises to the cloud?

Maybe you don’t have the most efficient data centers or aren’t using your hardware very effectively. Moving to the cloud won’t always automatically reduce your energy usage, but it does provide a great opportunity to figure out how you could combine workloads and optimize your resource utilization. The major cloud providers mentioned above have dedicated environments that are built to be more efficient. These companies are committing to becoming carbon neutral, investing in cooling technology and renewable energy sources to power their data centers and recycling their hardware. They're doing these things at scale, so they can create greater energy efficiencies and help consolidate existing infrastructure into a more efficient infrastructure in the cloud.

Lastly, you want to make sure that your team is trained in your ESG strategy, so they understand what is important to the organization and can prioritize your ESG goals. Incorporating your ESG goals and strategy into the job roles and responsibilities of both existing and new employees can be a great way to ensure alignment and create an ESG mindset from the start. Creating alignment across the management team and the board is a necessary step to ensure that the entire organization can work together to achieve success and improve sustainability.

How to get started

Building a strong ESG strategy and reporting structure can feel overwhelming. It’s often best to start by identifying a few material issues that are most important to your organization rather than trying to report on everything. No matter where you are in your ESG journey, we can meet you where you are to align sustainability reporting with what is most relevant to your organization. Now is the time to build intentional reporting processes, collect and centralize data, and improve efficiencies with data and cloud technologies to record, report and reduce your environmental impact.

This article was derived from the How to execute your ESG strategy with data and cloud technologies webinar, watch the full recording below.

Mallory Thomas
Dave DuVarney
US Capitol building in Washington DC
Next up

Inflation Reduction Act direct pay regulations released