Three reasons why businesses need to make ESG part of their workflow

The recently held United Nations Climate Change Conference (COP26) resulted in several ambitious targets geared directly toward preventing further climate change and irreversible environmental degradation. For corporate leaders, the pledges made during the summit emphasize the critical role companies play in tackling these challenges. Legislators the world over have taken notice and placed increased focus on how companies account for environmental, social and governance (ESG) considerations. In this environment, sustainability has become more than just a buzzword – it is a core business consideration and key value driver.

Enterprises, shareholders and governments increasingly recognize the necessity of aligning their operational decisions with the sustainability imperative. A recent McKinsey survey speaks to this directly, with 83% of C-suite leaders and investment professionals noting they expect that ESG programs will contribute more shareholder value in five years than today. With sustainability continuing to broaden the traditional meanings of “success” and “value,” enterprises are increasingly aware that their achievements are not measured purely by financial statements, but also by their interconnected relationships with the environment, community and economy. But going green is no simple process. Deloitte’s Q4 2019 CFO Signals survey found that more than 70% of North American chief financial officers say their company is under at least moderate pressure to increase sustainability from at least one key stakeholder group. Despite this, about half of these CFOs cite no specific company targets, and about 80% say they do not have plans in place to establish them.

The message is clear: sustainability is no longer a “nice to have” – it is crucial for long-term success. With the clock ticking, chief financial and sustainability officers who lack a comprehensive sustainability plan and tools necessary to manage their ESG initiatives must act now. Here are three key factors pressing the need for measuring and reporting to be incorporated within business workflows.

While COP26 saw significant advancement toward the creation of a single set of ESG reporting standards, enterprises across industries are still struggling as they attempt to keep up with the numerous disclosure requirements and voluntary frameworks across global jurisdictions. For perspective, there has been a tenfold increase in the number of corporate reporting requirements on ESG issues in the last 25 years, according to a World Business Council for Sustainable Development and the Climate Disclosure Standards Board report.

From the U.N.’s Sustainable Development Goals to the EU’s Task Force on Climate-related Financial Disclosures (TCFD) framework and SFDR, the intent of these various frameworks is clear – but fragmentation has ultimately left enterprises unclear as to what is expected of them. The U.S. does not currently mandate reporting measures, but they are quickly becoming best practices in the face of imminent regulation. Recent actions by the SEC suggest it may soon institute rules similar to those introduced by the EU, including the formation of a Climate and ESG Task Force dedicated to identifying ESG-related misconduct in its Division of Enforcement.

As this trend toward increased scrutiny continues, most U.S. companies are not prepared for a comprehensive review of their sustainability compliance. The same is true for organizations presently subject to EU frameworks, as there is a universal pain point of ESG reporting that applies across sectors: efficient data storage. Despite the sophistication of modern enterprises and the growing need to access information quickly and efficiently, too many organizations trap their data in spreadsheets or data silos, inhibiting the internal flow of data. The increasing need to show compliance with a wide range of global standards magnifies the challenge.

As enterprises commit to accounting for ESG factors from the top-down, momentum toward driving sustainability across the full supply chain is rapidly increasing. A growing number of companies are pledging to procure essential resources only from suppliers that adhere to ESG standards in an effort to set themselves up for strong financial growth and resilience amid any negative effects of climate change.

These evolving criteria for sustainability and ESG compliance from enterprises mean that suppliers with no plan in place to establish relevant targets will be caught flat-footed. These organizations must understand that providing transparency around these initiatives is quickly becoming a prerequisite for success. They must reimagine their data organizations and implement robust reporting systems to prove that they are a worthwhile partner.

While it has been well established that investing in ESG does not compromise profitability, adherence to ESG standards is about more than the bottom line. Gaining visibility into monitoring operations and ensuring sustainability opens up a myriad of opportunities for organizations to make a positive impact and be good corporate citizens. Beyond the obvious benefits to the environment, ESG disclosures and parameters, such as the UN’s Sustainability Development Goals (SDGs), increase transparency throughout the supply chain and have the potential to improve the lives of countless workers across global industries, who are all too often subject to inhumane working conditions. With companies relying upon smallholder workers to supply enterprises with vital resources, demonstrating how valued they are by improving their livelihoods and ensuring their well-being should be at the core of a purposeful company vision.

As ESG continues to cement itself as a key business priority, the need for better, more efficient sustainability reporting is paramount. Organizations must make this an integrated part of their overall workflows via the integration of comprehensive, cloud-native solutions to ensure the ability to grow and evolve with a dynamic regulatory environment.

By leveraging technologies that enable efficient tracking, measuring and reporting of relevant metrics and requirements against industry standards, regulations and guidelines, companies of all sizes can ensure they are preparing for the future and serving a wider range of stakeholders.

That’s not only good for the planet, but for the bottom line as well.

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This article was first published on Businessworld.