The Need for Investor-Grade Data in ESG Reporting: What Companies Should Know

The Need for Investor-Grade Data in ESG Reporting: What Companies Should Know

By | July 28, 2022

As ESG reporting is quickly moving from being a voluntary exercise to a mandatory one, the need for quality data is increasing as well. As we’ve seen in the past few months, investors, regulators and the public are demanding transparent reporting on the impact companies have on the environment, as well as the impact of climate change on companies’ performance and outlook.  

To meet these challenges head on, companies will need to have a holistic approach to collecting and reporting quality ESG data in order to meet climate targets and the expectations of investors, regulators and the public.  

At Sphera’s ESG Summit that took place June 21-23, 2022, Kim Knickle, research director of ESG and sustainability at Verdantix, detailed how companies can produce investor-grade ESG data and optimize ESG performance. 

Read on for some takeaways from the session. 

ESG and Sustainability – Two Sides of the Same Coin
ESG and Sustainability: Two Sides of the Same Coin
Over the years, ESG has become a boardroom agenda and is deeply intertwined with the overall business and organizational strategy.

What Is Investor-Grade ESG Data?

Companies can use financial reporting as the starting point for their ESG reporting. Treating ESG reporting as a regular exercise, like companies do for financial reporting, will help produce the caliber of data that investors, regulators and the public are demanding.  

Investor-grade data should have the following characteristics: 

  • Accurate: Data goes through a documented approval process to meet the needs of the C-suite and includes safeguards common in public company reports. 
  • Auditable: Data collection processes have a consistent paper trail and can be verified by a third party. 
  • Time relevant: Data collection should be continuous, so stakeholder needs can be met in a timely manner. 
  • Automated: Data collection is automated and drawn from sources or systems of record. Manual data collection processes are minimized or eliminated to increase accuracy. 

Companies that take an active approach to ESG reporting and embed it throughout operations and within the company culture tend to lead the pack when it comes to ESG performance, Knickle said. Treating ESG reporting as a bolt-on feature just won’t cut it. To stay competitive and produce the quality data that is needed, companies will need to embrace ESG programs that are based on proven processes. 

How to Optimize ESG Performance to Produce Investor-Grade Data

Effective ESG programs include strategies that are metrics-based, backed up by internal enforcement mechanisms and supported by leadership. 

Knickle outlined a few key ways companies can optimize ESG performance: 

  • Create a transition plan to change internal processes to support ESG programs. This includes setting metrics-based goals with specific KPIs in mind.  
  • Adopt voluntary standards to track and improve ESG performance over time. 
  • Embrace what Knickle calls “radical transparency” to communicate ESG performance to stakeholders. This helps build trust with them. 
  • Determine what roles the leadership team will have in your ESG program and how your program goals will be tracked and enforced internally. 
  • Before committing to an ESG program, think about the strategies that will fit the size of your organization. When deciding on a strategy, it’s important to consider the company’s goals in the short term, as well as long-term goals.  
  • Invest in ESG software to support decision-making, reporting and disclosures. Knickle said that a mistake many companies make is relying on spreadsheets and paper to track and report ESG data.  
  • Look at ESG trends and determine how ESG can be used for risk management. 
What Is ESG Reporting, and Why Is It Important?
GlossaryWhat Is ESG Reporting, and Why Is It Important?
ESG reporting refers to the disclosure of data covering a company's operations in three areas: environmental, social & corporate governance.

Creating Long-Term Resiliency Through ESG  

As the global focus on ESG continues to grow, companies will need to integrate ESG performance into operations to stay competitive and compliant. Think of integrating ESG and financial reporting like a symphony–every instrument has its part to play, but all instruments must work together to perform well and create something that’s truly inspiring.  

And, when companies invest in ESG programs and processes that produce the investor-grade data that will help future-proof operations against climate change and provide insight on greenhouse gas (GHG) emissions, that’s a tune we can all dance to.  

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Sphera is the leading provider of Environmental, Social and Governance (ESG) performance and risk management software, data and consulting services with a focus on Environment, Health, Safety & Sustainability (EHS&S), Operational Risk Management and Product Stewardship.
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