October 26th, 2021 by Dakota partner, Scope 5
More than ever, stakeholders want to know about an organization’s Environment, Social and Governance (ESG) performance. They want to know that information appearing in a company’s annual sustainability report is accurate, supported by evidence, and tied to actions that produce results. If you’re embarking on this process for the first time, or are looking to improve processes already in place, there are five common sustainability reporting pitfalls to be aware of.
In the early days of sustainability reporting, so-called “greenwashing” could result in bad PR and a loss of consumer confidence. But now the stakes are higher. Today ESG data is used to drive business decisions. If the data is not reliable, then wrong decisions can get made. For example, more organizations are putting a price on carbon, so errors in greenhouse gas accounting (GHG) may have real financial consequences.
77% of institutional investors believe building ESG into a company’s business model is a smart business decision, according to public relations consultancy Burson-Marsteller. Investors want sustainability reports to include how ESG data is tied to business impacts.
This means companies need to back up performance claims with data and transparency. Things can go wrong if they’re not. For example, power group ABB over-reported sulfur emissions by a factor of 1,000 by using kilotons instead of tons three years in a row. Staff at a Swedish conglomerate did not know that the company owned a paper and pulp business that was the subsidiary of an acquisition.
Modern cloud-based tools for managing ESG data incorporate error checking and warn of outlying, missing, or duplicate data. Other capabilities like automatic unit conversion eliminate a common source of errors. Advanced ESG tracking and reporting software can quantify the quality of the data so that the user can decide whether he or she can be confident in the information provided.
Spreadsheets suffer from a lack of flexibility and control.
For example, rolling up spreadsheets from tens or hundreds of facility managers for year-on-year analysis or facility-by-facility comparison is time-consuming and error-prone. These problems get worse fast when one or more of this same group changes a copy of “the spreadsheet” arbitrarily to suit their needs.
When a different type of data is required such as launching a new project to track water and waste use at the same facilities, a new spreadsheet must be designed and re-circulated.
The viable solution needs to be flexible within reasonable constraints like adding facilities or new resources tracked. Cloud-based sustainability software lets users work on the same copy of the application. As a result, data structure and consistency are assured.
This approach also makes fine-grain analytics possible. A user can instantly chart their facility’s electricity and fuel use relative to other facilities. If the application stores the area of each facility, the user can chart energy intensity, or energy per square foot for each facility. Such a chart reveals facilities that are using more energy per square foot than the average, or less.
As sustainability reporting has increased, so has the number of software tools. All purport to help companies reduce the burden of collecting, standardizing and reporting environmental data. But beneath the surface, there are two choices: purpose-built, cloud-based solutions like Dakota Metrics and so-called “big software” like Enablon and SAP.
“Big software” is typically an on-premise system geared towards environment, health and safety (EHS) scenarios. These systems are useful when trying to track complicated regulatory requirements. But they have their limits. For example, there are large “hidden” costs like systems integration and IT support.
If you are considering an ESG data management solution, especially if GHG inventories are important, and even if you already have a large EHS system with a sustainability “bolt-on,” a cloud-based alternative still makes sense.
Why?
The reason is buying, deploying, configuring and maintaining that “bolt-on” costs a lot more than buying, deploying, configuring and maintaining a sustainability software solution that was built from the ground up for sustainability reporting. Coaxing the EHS “bolt-on” into producing a GHG inventory is tedious, error-prone work that requires significant effort from IT specialists.
Data and analysis are often not readily available with “big software.” Users must go to their IT staff for answers to every question and each report. This makes the EHS “bolt-on” less useful for a broader set of strategically valuable needs like tracking progress, revealing waste and driving action.
Before you consider either launching an ESG initiative, or getting an existing initiative to the next level, ask yourself some basic questions that focus on materiality. Many companies make the mistake of focusing purely on the data instead of thinking about what internal and external stakeholders consider important.
For example, who is this for, and how important is it? Will ESG data be used as decision-support for internal efficiency initiatives, compliance with supply chain requirements, or external schemes such as CDP, GRI or the Dow Jones Sustainability Index?
A company might decide to track emissions related to air travel, but does this relate to issues that interest stakeholders? Is there a mismatch between what is material to the organization, or its strategic goals and objectives?
Take for example the water risks for a drinks company. In this case, you might look at the process they are going through to identify those risks for manufacturing in high water stress areas where there is a risk for future water supply. This may be more important than looking at water use data for the previous year.
Leaving sustainability reporting to the last minute is never a good idea. By starting early, you will get much more value out of the process. You should be asking yourself early on, what do we want to track? How does that influence the expertise needed to do the work? Then you can work internally to decide what you need.
Another point worth mentioning in this pitfall is the “once-a-year-lift” many organizations go through. A more frequent data collection and management rhythm would make it easier to identify and react to trends more quickly, and make data readily available when you need it.
As a leader in helping organizations turn ESG data into outcomes that matter, we know that what isn’t measured can’t be improved. Using data can reveal previously hidden opportunities like reducing electricity, lighting, fuel, and waste among others.
If you are looking to improve economic and environmental impacts, Scope 5 is committed to sharing best practices learned from working with our clients and partners. So, whether looking to get started, or advance to the next level, we can help with your ESG materiality assessment and usage of software tools like Dakota Metrics to achieve your Sustainability Reporting goals.
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