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When to start managing your ESG

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As global sustainability challenges continue to present new risks for investors, environmental, social and governance (ESG) metrics are becoming increasingly important. The good news is that ESG management isn't difficult… As long as you have a plan! We’ve set out our top tips on how to get started with ESG management. The first step is the hardest, but our experts are here to ensure that you get off to a promising start.

Measuring environmental data encourages you to think about the ways you might be able to reduce water usage or carbon emissions. Social data helps you to create a positive workplace culture and attract new talent. And assessing your governance helps you to improve management practices. For each different facet of ESG, measurement leads to value creation and cost reduction.

It's a win-win!

Difficulty arises when it comes to figuring out how to get started. Once you begin, ESG measurement becomes an automatic part of your company’s processes. This is why getting it right from the outset is important.

This article is entitled "When to start managing your ESG". Our experts have a lot to say on this topic, and all of them agree that firms should start now.

Playing the long game

Even if you’re not aiming to be classified as Article 8 or Article 9 under SFDR, measuring ESG sooner rather than later makes sense. You could choose to cover the basics, or you could decide to go all in. Either way, these measurements benefit your company in the long run in several ways.

1. You should integrate an ESG focus into your fund early on

This means that you'll be better equipped to deal with new regulations as and when they arise. Governing bodies are requiring investors to report on more and more information. Implementing new metrics for analysis is easier when you already have models in place to develop on.

2. Identifying the issue is the first step to finding a solution

As you learn more about your ESG and the sustainability of your fund, identifying areas of risk and opportunity becomes simpler. Reporting on your performance allows you to better understand the impact of your practices. When you identify a solution, you can track your progress with full transparency.

3. Align ESG with your own ethical code

Many investors and employees look to get involved with firms with comprehensive ESG strategies. They understand the need for responsible investing in today's world. These customers, employees, and investors take their own ethical code into account, and choose to work with sustainable firms that adhere to these morals. You should reflect your own ethics in your ESG efforts.

Timing and new ESG regulations

Regulations are constantly adapting to include more ESG metrics and target more and more businesses. You need to prepare in advance.

For example, SFDR Level 2 will be implemented in June 2023, but it will require ESG data from 2022. Prepare now or regret it later!

Regulations and frameworks tend to be iterative, and more measurements and requirements are added over time. The earlier you get started, the better. You may find that disclosure requirements come out for a metric that you're already tracking! And if a new requirement emerges, you'll be in better position to begin tracking it if you have robust protocols and techniques in place.

As with any long term corporate strategy, it's a good idea to play the long game. With the rapid pace of regulation changes, waiting until the market has reached a tipping point is not a good idea.

Getting started with ESG measurement

Your approach to ESG will depend on your industry. But, generally, 'getting started' means 'establishing data collection procedures'.

This means that asset analysis goes hand in hand with selecting a new data management system, finance system, or Enterprise Resource Planning (ERP) system.

Software integration in itself can take 9-12 months to fully implement. And this only collates data points – most software products don’t analyse the results or drive change.

Unless a firm has the financial resources to appoint an ESG board member to support the transition, they may struggle. Many choose to outsource their ESG measurement to a service provider, but this can become expensive.

KEY ESG's software makes sense for many companies, private equity investors, and venture capitalists. Our intuitive software provides firms with everything they need to monitor and track the ESG metrics of their investment. It analyses the information, interprets the results, and provides actionable insights.

Investors feel secure in the knowledge that their ESG policy is up to code, without the financial burden of hiring an ESG manager.

Anticipating future ESG needs and requirements

65% of limited partners (LPs) say that robust ESG processes are not just “nice to have” but are imperative. The minimum standards are changing, and ESG is becoming integral.

Partners look for firms with promising ESG metrics in anticipation of increasing demands from governing bodies. Many firms that are looking to sell wish they had established ESG protocols sooner, as they are now being judged for them.

We predict that, in 2023, a suite of metrics will not only be commonplace - it will be expected. At a minimum, the ESG Data Convergence Initiative (EDCI) and SFDR will need to be adhered to. A clear narrative will be expected as well.

The earlier you start, the more time you have to build a strong case. Including as many ESG factors as possible will allow you to demonstrate your firm's diversity, its approach to tackling climate change, its social community, its green initiative, and more. The more successes and improvements you can use to develop this narrative, the more appealing your firm will be. This appeal extends not only to investors, but to prospective employees and customers as well.

Taking the first step

If you're looking for a sign, this is it!

Start improving your ESG processes today.

Head to our Learning & Insights page. From there, you can read our blog articles, download whitepapers, watch webinars, and browse FAQs. Don't forget to subscribe to our "ESG Unlocked" newsletter for all the latest updates.

Are you a general partner looking for an efficient and cost-effective way to track all your ESG metrics in one place? Or are you a fund manager looking to compare metrics across your portfolio? Well, our software is for you. Why not book a free demo and try it out?

As always, our experts are available to answer any questions you may have on best practices and ways to get going. No query is too big or small. Get in touch and we'll be happy to help.

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