ESG, which stands for environmental, social and governance, has captured headlines this year. As compelling as ESG investing is to those who want to do good while earning money, critics say the data just isn’t there to support real change. The lack of compelling ESG data is an opportunity for forward-thinking companies. Discover what ESG data is, how most organizations miss the chance to use it wisely and how ESG data can become a company’s competitive advantage.
What Is ESG Data?
As mentioned, ESG is an acronym that stands for environmental, social, and governance, or the internal controls that drive business decision-making. ESG data is simply data related to environmental, social or governance initiatives. For example:
- Social data: Data on employee relations, diversity and inclusion, community relations, health and safety, and other working conditions
- Governance data: Metrics that show executive pay, employee pay, employee bonus distribution, corporate board diversity and business tax liability
- Environmental data: Data on the company’s carbon emissions, waste chain, air and water pollution, deforestation and other climate change-related data
These examples show the range of potential ESG data. However, companies are not expected to collect all of this data!
Companies have ESG priorities, or goals they’re striving for. They only need to be concerned about the data that dovetails with their ESG priorities.
The Problem With ESG Data
Companies hone in on different elements of ESG. One may pursue a zero emissions policy to protect the environment, while another may prioritize diversity and inclusion or corporate transparency. None of these initiatives are better or worse, they’re simply different. However, the lack of transparency around ESG data means that investors can’t compare companies when making investment decisions.
Should they invest in a company committed to fair pay, or one striving for zero emissions? Obviously, they could invest in both — but the larger point still stands. Insufficient ESG data makes it harder for investors and companies alike.
There are rating agencies that rank companies on ESG. While this seems like it would benefit investors and companies, the ratings actually hinder more than help.
Rating methodologies are private, so investors and executives alike can’t effectively compare. This leads to mistrust and accusations of greenwashing. The real problem isn’t company performance vis-a-vis ESG, it’s ESG data management and lack of transparency.
How to Make ESG Data a Competitive Advantage
Businesses that focus on ESG enjoy stronger financial performance than those that don’t, according to McKinsey. The corporate consultants found that ESG initiatives boost employee productivity, reduce costs, decrease legal and regulatory troubles, and lead to top-line growth.
Turning ESG data management into a competitive advantage begins with the timely harvesting and communication of data. Currently, most companies tell their ESG story in annual reports. A wiser approach is to communicate findings regularly, which builds trust and transparency.
If your business wants to win investors through its approach to ESG, your priority should be transparent communications. This allows stakeholders to track performance, savor gains and invest with companies that can demonstrate a track record with ESG. It deters greenwashing claims and demonstrates commitment. To leverage data for transparent communications, seek out an AI-powered data analytics system now.