In the first part of our interview with our CEO and co-founder, Patrick Elie, we discussed how companies can adapt to all the new climate disclosure regulations.
The second half of our Q&A dives into the business side of environmental, social and governance (ESG) reporting. More specifically, Patrick explains how companies can balance sustainability with efficiency and profitability, what information and tools they’ll need to start reporting and how disclosure frameworks tie into business objectives.
Many businesses equate becoming more sustainable with having to put in place additional steps and processes. Wouldn’t that make them less efficient?
Not necessarily. Change is good. No company can or should stay the same for decades at a time, at the risk of falling behind. Companies that understand external changes and are willing to adapt to them will grow and become better overall. Whether or not a change leads to a positive outcome isn’t so much about the change itself but rather about how well it’s managed.
For example, in the last two years alone, COVID-19 brought about many changes, including brick-and-mortar businesses having to switch to an online business model and figure out how their employees could work from home. Some of the companies that survived the pandemic might have realized that it was just the push they needed to adopt more modern business practices. Now they’re collaborating online more efficiently and even thriving with both physical and online streams of revenue.
Yes, in sustainability reporting, managing change often means having to put in place new tools and processes long before the old ones become obsolete. But if you start before you’re legally required to, you get to learn to use new tools and integrate new processes into your operations at your own pace, without worrying about outside pressure or penalties. And in most cases, you’ll probably realize that those new tools and processes have made the way you work more efficient.
Putting in place new processes sounds simple in theory, but real-world applications can get complicated. Could you provide some concrete examples of how companies can use the insights from their sustainability report to improve their operations and impact?
Sure! Many of the businesses we work with use their reporting to understand which of their activities are generating the most GHG emissions. By optimizing how their sites or stores consume energy to reduce those emissions, our clients also end up saving on energy bills. They can then reinvest the money they’ve saved into new sustainability initiatives.
Here’s another example: in most lines of work, it’s more expensive to find and onboard new employees than to retain existing staff. So by keeping employees engaged, happy and loyal through responsible hiring and social practices, organizations can not only optimize the way they operate but also decrease churn and save money.
Also, investors and lenders give better rates to companies that can provide clear, verified ESG information and show how they mitigate the risks associated with their business activities.
Everything is connected in a business ecosystem: that’s why correlating non-financial and financial information through integrated reporting is so worthwhile.
Many companies will be issuing their first sustainability report in 2022. Where would you recommend they start?
We always tell our clients to learn to walk before trying to run, let alone trying to fly to the moon.
I would recommend starting small for your first report, with known variables. These can lead to quick wins, which can help you motivate champions from different parts of your company and get them on board. Quick wins can also help upper management and employees experience the satisfaction of being part of the solution and the benefits of thinking and working more sustainably.
But before creating a report, the first thing you should do is figure out your materiality, or what you want to report about and who you want to report it to. This exercise will help you understand three things: which ESG issues are the most relevant to your organization and its stakeholders, who needs to be involved in the conversation and what that conversation should look like.
You should also start to ask yourself which reporting frameworks are the most relevant to your company. Some are more general, while others are more industry-specific.
Do most companies that you’ve worked with disclose their performance to every major framework, or do they usually pick only one?
Most of our clients usually choose the frameworks that are most relevant to their industry and that fit their specific needs and priorities. That could translate into anywhere from two to five frameworks on average.
Based on what you’ve seen, are framework disclosure standards very different from the internal goals that businesses set for themselves?
Since no two companies have the same business strategy or competitive advantage, it’s nearly impossible for a company’s custom KPIs to be perfectly aligned with a framework that was made to set the bar for hundreds if not thousands of organizations.
That being said, most of the major global frameworks are quite comprehensive, and many of them include ESG topics that most organizations already track, like GHG emissions and diversity. Take the SASB Standards: they’re pragmatic, easy to apply and wide-ranging in their scope, so they facilitate conversations between companies and stakeholders in a wide range of industries and markets.
An ESG reporting tool that’s flexible enough to track both internal goals and external standards can help companies draw parallels between the two.
Some organizations might be hesitating to adopt an ESG reporting tool when they’re used to using spreadsheets, for example. What advice would you give sustainability managers who need to justify the need for a specialized tool to their C-suite or board of directors?
Large organizations don’t do their financial accounting on spreadsheets anymore, so why would it make sense for them to do their non-financial accounting manually, especially given how much more complex the calculations can get? ESG tools are on the way to becoming as ubiquitous as other enterprise resource planning (ERP) tools, such as accounting, customer relationship management (CRM), human resources, project management and legal tools.
If you’re planning on collecting and approving data with collaborators in multiple business units—who might even work in different locations and countries and speak multiple languages—the only way to streamline that process is to set up a structured database and workflow that can allow all those people to manage your company’s data in a single tool.
If being able to work more efficiently isn’t convincing enough, consider the challenges involved in tracing a piece of data back to its source, from the moment it was collected in the field and entered into your system to every change and variation it’s ever undergone. Issuing internal reports is one thing; but when regulators, auditors, investment analysts and rating agencies ask you to back up your ESG results, you have to be able to show them detailed supporting documents or change logs. You can’t get that kind of traceability with spreadsheets or generic tools.
Read the first part of the interview