Words by Mark Mellen
Northampton, MA --News Direct-- TriplePundit
Because corporate governance is well established by most companies that report financial statements, many firms may overlook how governance applies to the way they address the environmental and social issues that matter to their stakeholders. With so much uncertainty about what regulators will require next, it’s no wonder survey results show that many environmental, social and governance (ESG) practitioners are underprepared to meet the evolving landscape.
Governance, otherwise known as the “G” in ESG, is attracting a renewed focus now that the U.S. Securities and Exchange Commission has proposed a number of disclosures around how boards and executives manage climate risk. Regardless of how far along a company is in terms of ESG reporting, without a strong governance framework, many efforts to achieve ESG goals may fall apart. The reason is ESG is not just an exercise in reporting metrics but rather an integration of critical, material factors into all aspects of business strategy, decision-making, investments, mergers and acquisitions, and so forth.
Whether your company has set ESG goals or not, governance is about connecting the dots. It relies on cross-functional collaboration to assign authority to make decisions related to goals, strategy and operations. It is both qualitative and quantitative, in that it outlines the way those decisions are made, backed by data, and how the organization is held accountable for those decisions with board and management oversight. This is why the governance of ESG requires a new set of management skills, as well as data governance and controls for success.
Governance of ESG starts at the top with accountability across teams
As stakeholders demand more information about a company’s ESG profile, keep in mind that adage: We can’t manage what we don’t measure. No matter what ESG goals your company sets, reporting on your performance with the same rigor with which you report financial results will give boards and executives better information to drive decisions.
Some ESG goals, however, can stretch beyond the typical one-year snapshot of an annual 10-K or the three-year forecasts of even the most mature organizations. ESG is unique in that non-financial data involve a different set of standards, frameworks, risk assessments, time horizons and strategic planning — all while requiring new skills by both management teams and the board.
While some boards are tying executive compensation to goals around improving safety, diversifying the workforce or reducing carbon emissions, the practical reality is that reaching these goals can also help to improve revenue and profits. Integrating ESG into an overall corporate strategy allows companies to authentically say, “Yes, we’re pursuing profits, though not at the expense of people, the environment or our greater purpose.”
Boards holding executives accountable for ESG performance will find different industries may consider different topics and risks to be material. That is part of why consistency and comparability of the data can be a challenge, though governance is key to ensure alignment in how ESG standards and frameworks are applied and that they will be used as intended. When integrating ESG into corporate strategy and to be more accountable to your stakeholders, this focus on governance will create a return on your investment in building the long-term sustainability of your business.
Operationalizing ESG and ensuring data governance with technology
At Workiva, our roots grew from the need to digitize disclosures, so we understand the need to build ESG data collection and reporting processes with auditability and data governance in mind. This is also what investors and regulators expect. The term “investor-grade” is synonymous with applying financial rigor and controls, which ultimately are guided by governance.
Similar to financial reporting, ESG teams are setting interim targets and sharing progress with the aim to not only measure and manage, but also to mitigate and monitor for ESG risks and opportunities. This can be scaled only with technology. Instead of asking employees to manually enter and update data from around the company, automate data collection with an end-to-end platform that can provide confidence for auditors to trace ESG data to the source.
Disparate teams can eliminate the need to reconcile multiple versions of documents by using cloud tools that enable real-time collaboration on a single draft, reducing the risk of a missed update. Rather than calculating Scope 1, 2 and 3 greenhouse gas emissions for different business units in silos, syncing latent data sources such as enterprise resource planning systems (or ERPs) can help eliminate the risk of human error.
Because many companies may already use technology like the Workiva platform for SEC reporting, Sarbanes-Oxley compliance or internal controls, it makes sense from a data governance standpoint to not have to reinvent the wheel when it comes to ESG. Providing timely, reliable reports with proper controls is essential to driving ESG decisions and related performance. Use technology to automate what you can so your teams can save time, be more agile to changing demands and deliver results.
Tell your ESG story authentically and with accuracy
What stakeholders value has evolved over the years, and now more than ever, being able to show measurable progress on ESG is increasingly vital to business — especially in being transparent about progress and backing it up with data.
The incentive to have strong governance in place is twofold: ensuring greater transparency and trust in monitoring ESG progress, while enabling confidence in the accuracy of that data for decision-useful business insights.
Having real-time access to dashboards and peer benchmarking insights, similar to financial goals, can help ensure what you share with the board is accurate and accountable. This is increasingly important as the SEC, European Commission and regulators around the world adopt new requirements for ESG disclosures.
ESG reports should celebrate successes, and leaders should be accountable in showing progress, regardless of the goals, as ESG is now a data-driven practice. Beyond data collection, oversight and controls, the most valuable part of ESG governance is the feedback loop it creates. Similar to corporate strategy, ESG is a continuous improvement practice, not solely a compliance exercise. After all, that’s what ESG initiatives should be all about.
This article series is sponsored by Workiva and produced by the TriplePundit editorial team.
Image credit: Jacob Lund/Adobe Stock
View source version on newsdirect.com: https://newsdirect.com/news/leading-with-governance-is-crucial-when-it-comes-to-esg-902580587