Published: 25 Oct 2022 · Last updated: 25 Oct 2022
Peter Drucker, the father of management thinking, argued that "you can't improve what you don't measure". Environmental, Social, and Governance (ESG) metrics are no exception, and the ESG improvement initiatives developed by KEY ESG can help.
Too often, companies or financial market participants attempt to “solve” their ESG-related problems by drawing up various plans, such as setting a net zero target. Whilst often well-intentioned, setting these ambitions can only be meaningful if the firm understands the challenges associated with reaching these goals, and then set the appropriate measures to get there.
The next wave of international ESG regulations is on its way. These regulations will impact public and private entities of all sizes in the coming years. Their main focus will be ensuring that disclosures are reinforced by accurate data.
Regulated entities are right to be concerned about the burden that these disclosures will have on their business operations in the short term. The initial effort required to gather the necessary data will prove to be difficult. This is particularly the case for those who have not needed to disclose this type of information up until this point.
However, these efforts should not come at the expense of improving ESG performance in the long term. The short-term focus of these regulations is to eliminate false claims surrounding ESG performance, known as “greenwashing”, but the long-term goal involves improving ESG performance.
The last few years have seen a significant shift regarding ESG. Stakeholders have increasingly begun to concern themselves with the ESG performance of financial and non-financial bodies alike.
A particularly important stakeholder group is the investment community. The increased interest of investors in ESG performance was evidenced in a PWC study conducted towards the end of last year.
PWC conducted a survey of 325 investors from around the world. Most were asset managers. 75% agreed that companies should address ESG issues, even if doing so reduces short-term profitability. In fact, two of the top three ESG issues cited in the responses concerned improvements made to ESG performance. The first was related to carbon footprints, and the second pertained to gender diversity.
Another larger PWC survey carried out earlier that year found that 83% of consumers think companies should be actively shaping ESG best practices, and 86% of employees prefer to support or work for companies that care about the same issues they do.
This reveals that the increased interest in ESG extends beyond the investment community. The influence of these other stakeholder groups should not be underestimated. These insights further reinforce the need for regulated entities to go beyond reporting and consider tangible improvements.
It is important that companies prioritise the optimisation of their measurement and reporting processes in the first round of ESG reporting, but this should not come at the expense of the overarching goal to improve ESG performance. Implementing effective and accurate measurement processes enables firms to identify “hotspots” for potential improvement. These should be prioritised ahead of the subsequent round of reporting.
For example, carrying out a full carbon footprint assessment may reveal that there is significant scope for emissions reduction in Scope 3 emissions. This is typically achieved through reduced international travel. The measurement process reveals the areas for improvement. Companies then report the metrics and action the changes.
At KEY ESG, we have developed a suite of improvement initiatives across all metrics. This allows companies to assess potential areas for improvement based on the identified hotspots.
These initiatives have been developed with practical implementation in mind, meaning they are relatively quick and easy to action. They are also sector-agnostic, ensuring broad applicability.
Various implementation barriers, such as use of shared office space, have been considered based on our experience working with a range of companies. In this case, guidance on how to bring an office manager on board with the initiative is included. These initiatives usually serve the interests of the whole office building.
The improvement initiatives are laid out in the form of a series of steps. These steps walk companies through the complete implementation process without the need for additional external research.