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How ESG Performance Tracking Has Empowered EHS Leaders

February 22nd, 2022 by Dakota Software Staff

How ESG Performance Tracking Has Empowered EHS Leaders

Research from PricewaterhouseCoopers (PwC) shows a full 76 percent of consumers are unwilling to buy from companies that perform poorly on environmental and social issues. This fact isn’t lost on investors, who are driving increased transparency in environmental, social, and governance (ESG) performance in businesses today.

Environmental, Health, and Safety (EHS) management has long centered on avoiding incidents that increase worker’s compensation and compliance costs. But with investors increased focus on ESG performance, EHS leaders are poised for a more influential role in creating financial value for their companies.

With that in mind, let’s examine how the rise of ESG is empowering EHS leaders in their organizations and how EHS compliance affects ESG performance. We’ll also look at how EHS software can streamline the process of tracking and managing ESG disclosures.

ESG Performance in the Spotlight

Closely related to corporate social responsibility (CSR) efforts, ESG represents a set of criteria used by investors to gauge whether or not to invest in a company. ESG reporting tracks performance of an organization across three different areas:

  • Environmental performance such as greenhouse gas emissions, waste management, and resource use

  • Social impacts like how a company treats its workers and local communities

  • Governance considerations such as executive pay, board diversity, and anti-corruption strategies

ESG is a fast-growing investment strategy, with ESG-mandated assets likely to make up half of all professionally managed assets by 2025 according to Deloitte.

New regulations are also emerging aimed at promoting sustainable investing. In 2021, the European Union (EU) enacted its Sustainable Finance Disclosure Regulation (SFDR), representing the most sweeping regulation to date around sustainable investing. SFDR requires asset managers to disclose how ESG factors into their investment processes, aiming to put sustainability impacts on par with other financial risks.

In the United States, the Securities and Exchange Commission (SEC) chairman has indicated support for a proposed rule for mandatory ESG disclosures, and has directed staff to develop this rule.

The key takeaway: ESG isn’t going anywhere, and companies that implement ESG reporting procedures will be better positioned for success in the future.

How EHS Compliance Aligns with ESG Performance

From the establishment of the U.S. Occupational Safety and Health Administration (OSHA) in 1972 to laws like the Clean Air Act and Clean Water Act, compliance has long been the foundation of corporate sustainability.

As a result, tracking EHS performance is nothing new for many companies, whether it’s mandated GHG reporting, hazardous waste tracking, or complying with voluntary standards like ISO 14001 for environmental management.

EHS and ESG reporting have clear overlap in terms of environmental performance as well as social performance indicators related to worker safety. EHS departments generate a significant proportion of the data used in ESG disclosures, including:

  • Water usage

  • Air emissions data

  • Greenhouse gas (GHG) emissions and carbon footprint data

  • Hazardous waste, wastewater, and recycling metrics

  • Worker health and safety data

  • Supply chain performance in areas related to ESG

The result is that organizations with EHS performance tracking measures in place have already done much of the heavy lifting when it comes to ESG disclosures. What’s more, EHS leaders have growing influence as ESG reporting becomes more prevalent.

Giving EHS a Seat at the Table

According to a 2021 PwC survey, two-thirds of investors say value creation is a top driver of responsible investing initiatives, with roughly half considering ESG issues within commercial investment assessments. The fact that investors are paying such close attention to ESG has led to growing focus on how EHS performance affects financial valuation.

Once viewed as a cost center, companies are now realizing that improving ESG performance can reduce risks and create new opportunities. This increased emphasis on ESG tracking has the potential to significantly benefit EHS initiatives, while giving EHS leaders a more prominent voice in their companies.

EHS leaders are now taking on a wider range of duties related to ESG reporting, which is having a positive effect on EHS budgets. In fact, according to research firm Verdantix, more than one in three respondents in its 2021 EHS Global Corporate Survey expect their budgets to increase because of ESG initiatives.

With so much data already available, EHS leaders can play a leading part in helping companies keep pace with new ESG reporting initiatives. The problem in many businesses, however, is that this data is locked in siloed systems or hidden within spreadsheets. In this context, one of the most important ways leaders can influence ESG efforts is through adoption of EHS software that integrates disparate data sources.

Using EHS Software to Support ESG Performance Tracking

Gathering the data required for ESG disclosures is a complex challenge involving multiple information sources and business systems. EHS software can help simplify the task, while also aligning processes with the plan-do-check-act (PDCA) approach widely accepted as best practice in EHS departments today.

Dakota Software’s ProActivity Suite takes the PDCA process approach and adds a fifth element crucial to ESG tracking:

  • Plan: ProActivity’s Profiler module helps organizations determine applicability of regulatory requirements and identify any necessary compliance tasks.

  • Do:The Tracer module enables a real-time view of the status of action items such as compliance tasks, corrective actions, and audit findings requiring follow-up.

  • Check:The Auditor module lets EHS teams verify compliance by centralizing audit management and identifying compliance gaps across regulatory domains.

  • Act:The Scout module simplifies capture and analysis of EHS incident data and supports investigation and corrective action tracking.

  • Sustain:An addition to the PDCA approach, sustaining EHS performance is essential to ESG reporting efforts. Dakota Metrics lets you track data such as emissions, energy use, and hazardous waste disposal to simplify ESG and sustainability reporting.

What makes the ProActivity Suite unique is that EHS regulations come built into the software, with links to citations, plain language explanations, and guidance on what to check. This ensures compliance plans are aligned with the most current requirements, while making it simple to manage compliance across multiple sites.

ESG reporting is here to stay, part of a broader trend in corporate sustainability gaining traction worldwide. With investors demanding more (and more detailed) data on ESG performance, EHS leaders have an important part to play in the financial success of their companies. EHS software is a catalyst for this transformation, streamlining compliance while making ESG data more easily accessible.

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