Learnings from GreenBiz 21: Just How Big is the ESG Data Challenge?

At this year’s GreenBiz 21 conference, the drive to act to address climate change and social equity challenges was palpable. Bill Gates highlighted the ambitious goals for Breakthrough Energy, followed by a thoughtful discussion about human rights and social justice with Sanda Ojiambo, CEO of the United Nations Global Impact. The conversation was inspiring, and the energy levels high!

With the Task Force on Climate-related Financial Disclosures (TCFD) reporting that their support has grown to “1,340 companies with a market capitalization of $12.6 trillion and financial institutions responsible for assets of $150 trillion,” CFOs are starting to take notice.

At GreenBiz, I helped a Microsoft partner, ESGeo, with several interactive sessions. ESGeo is an integrated reporting tool that is designed to collect data from disparate sources and stakeholders, turning them into insightful dashboards, proactive alerts, and audited reports to help companies manage the entire value chain of Environmental, Social, and Governance (ESG) factors. The feedback was that ESG data challenges are as big as the ESG challenges themselves.

Capital Markets: Longing for Accurate, Real-Time Data

ESG has captured Capital Markets’ imagination with its 2020 financial performance which has led to more ESG indexes, green/sustainability-linked/social/transition bonds, environmental and social SPACs, and more. While there are global accounting standards and regulatory bodies, they remain largely unenforced today.

From Capital Markets to stakeholders to customers to even the Wall Street Journal, everyone is looking for historical and real-time ESG data, like we have for the financial markets. The challenge is that self-imposed reporting spans the entire eco-system that a Corporate operates in, not just its financial statements. The pressure on Corporates is intense!

The Corporates that understand their ESG impact and their supply chain’s will not only show a greater understanding of their business but will be able to mitigate material risk and gain capital allocation, leading to business resilience. Let’s look at the ESG data pipeline to see just how complex it is.

Corporates: The (In)Complete ESG Data View

ESG data starts with the Corporates, whether private or public. The data challenges start as teams gather data from internal systems, collaborating across business units. This data shows their own ESG footprint and could include things like building and product CO2 emissions, diversity strategies, and transparency reports.

Fortune reported that “94% of the Fortune 1000 companies are experiencing disruption to their supply chains as a result of COVID-19,” a black swan ESG event. To understand their ESG risk, Corporates need to gather data externally from their supply chain. This data collection could range from tens to hundreds or even thousands of suppliers. Corporates will encounter a wide range of ESG maturity across their supply chain, including those downstream companies that are not equipped to respond.

In the supply chain, there are further downstream signals sourced across the environment, local community level and social media, and customers that have upstream impacts. Fabrizio Fiocchi, CEO of ESGeo explains how they can help, “Businesses have conflicting priorities between global sourcing and the sustainability teams — keeping costs low while looking for a sustainable supplier. Businesses need conduct due diligence of both new and existing supply chain members, create materiality maps, and benchmark the suppliers against each other.”

By the time the supplier provides the data (if they are equipped to), and the Corporate consolidates and analyzes it, the data is likely already out of date and watered down. This can be mitigated through integrated reporting. “Circularity cannot be achieved with weak links in the business value chain and seamless reporting is the first step towards achieving global SDGs”, says Leonardo De Biasi, VP of Data Intelligence.

When the Corporate finally compiles the internal and external data, creates their story, and publishes the report, several things happen.

• Data providers pick up the report for analysis. The report is assessed and goes into their ratings, which are assessed by Capital Markets.
• Capital Markets firms conduct their assessment and glean material risk. They also look for opportunity to drive capital allocation into.
• Internal and external Stakeholders examine it. They might ask questions to leadership, creating a feedback loop that continually improves ESG.
• Eventually, but not today, regulators will assess the data and act.

Understanding ESG risk leads to business resilience

Ultimately, ESG is about understanding how material ESG factors intersect with your future risk and identifying new opportunities. Think about it as ‘pre-financial’ material risk. The risks may or may not be costing the company money today, but they could impact future results.

It starts with understanding the journey from your own company’s risk to your supply chain’s through to how that data will be used. Dynamics 365 Supply Chain Management can help manage procurement and sourcing to start, but expect mountains of data that will need to be analyzed. The good news is that many of the data tools used for existing financial analysis can be repurposed here and unleashed on ESG data.

If your company gets this right, it will have a better understanding of its risk, be able to mitigate it, and create business resilience as a result!
Learn more about ESGeo’s solution for simplifying your ESG reporting, how Microsoft is helping create ESG solutions and our own Corporate Social Responsibility initiatives.