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Exploring the long operational reach of ESG data

by jcp

By: Lorraine Waters, CDO, Solidatus

Efforts to help businesses champion today’s environmental, social, and governance (ESG) principles, frameworks and disclosures are a key market focus across a variety of business sectors.

Although most recently this topic has a strong financial and investment focus, this reach even impacts those with a strong consumer base,[1] where customers are increasingly conscious of a company’s environmental impact and how companies source labour and materials throughout their operations.

For example, when it comes to retail, ESG touches upon supplier credentials in the supply chain around environmental impact and worker’s rights, as well as the ethical production and re-use of consumer goods and fashion. According to Accenture[2], over three quarters of consumers are now influenced by a brand’s ethical stance when purchasing goods.

Additional complexity arises around ESG when considering its role in the value of business, specifically on mergers and acquisitions (M&A). Global companies and private equity firms increasingly need a clear, data-driven picture of a company’s posture, gaps in ESG functions, and any risks among a company’s suppliers or bases in different regions before completing transactions.

Currently, mapping out a business’ ESG footprint – whether with consumer sales in mind or for operational business needs, is a highly labour-intensive effort. Parameters vary wildly from one set of ESG criteria to another, and it can leave businesses repeating the same processes time and time again.

But, could taking a technology-led stance to ESG requirements actually help to root its principles of true sustainability and environmental focus more firmly within business structures, rather than treating it as a box ticking exercise, thereby supporting business growth and objectives, and also instilling confidence among customers?

The complexity challenge in context

In February 2021, HM Treasury published the Kalifa Review of UK Fintech, highlighting the usual ESG difficulties of “differing data reporting standards, terminology and taxonomy requirements [which make it difficult to create comparable metrics], increasing volumes of non-standardised data, large data gaps.” This Review then recommended the creation of a centralised electronic register for ESG data.

It is becoming widely acknowledged that getting to grips with business data is a key factor in being able to effectively manage a company’s ESG footprint. This process is vital for large multinationals, but smaller companies can also learn from their tactics to get to grips with their own ESG challenges.

For example, take the case of a global retailer spent several billion dollars to take over an e-commerce start up in 2016. Since completing the deal, the retailer’s e-commerce sales have soared, climbing 63% in its most recent quarter.

Online inventory has also grown, from just 10 million items last year to at least 67 million today. However, with this growth came additional layers of operational complexity. Sources of data became unclear, bringing difficulty in understanding how to aggregate the information and determine from which systems it originated.

After an exhaustive review of the market, the retailer implemented Solidatus to fully automate the storage, versioning and visualisation of their data lineage within the organisation – effectively providing a straightforward way to indicate the source and passage of information throughout the company infrastructure from source.

The solution is now being widely used to support and connect key business domains, providing an interface with analytical layers, and greater accuracy and visibility for the parent and acquired company. It has allowed the retailer to clearly visualise the current production environment, pinpointing any areas which could be refined. The business is also applying this approach to change management systems, where it can be deployed to model how changes within the business could impact its internal processes.

This kind of approach is applicable to ESG principles as much as keeping on top of growth challenges within the business. Data is increasingly the lifeblood of modern business, and understanding its flows throughout an operational structure can be vital from compliance perspectives, and also indicate where efficiencies can be made and systems optimised.

It’s not just start-ups and scale-ups that need to be ready for an onslaught of ESG focus. The British Government has stated its intention to introduce “mandatory reporting of climate-related financial information across the economy by 2025, with a significant portion of mandatory requirements in place by 2023.”

Listed commercial companies; UK-registered companies; banks and building societies; insurance companies; UK-authorised asset managers; life insurers and pension schemes will come under climate-related information disclosure requirements. Preparation will be key.

Many standards; one platform

Alongside the rise and rise of ESG and the data challenges every company will face, are the number of sectorial, regional, supra-regional, governmental, rating agency, and investment fund standards, principles and frameworks – each with their own set of criteria and measurements. Even if businesses aren’t motivated to get on top of their environmental creds by product sales or business objectives, some of these will impact their operation.

For example, addressing CFOs, global technology analyst firm Gartner says that “91% of banks monitor ESG, as well as 24 global credit ratings agencies, 71% of fixed income investors and over 90% of insurers.”

Businesses of every type, whether B2B or B2C, global or looking to be acquired, need to move away from spreadsheets, data silos, and slide decks, to a platform like Solidatus that enables business leaders to map and visualise its metadata to create, track and report on a company’s ESG initiatives in an agile way against relevant ESG standards, disclosures, and M&A due diligence.

Looking at ESG as a data-focused challenge in this way, provides companies with a flexible and practical approach to help bring about a ‘green evolution’ in how we manage operations for the good of businesses and consumers alike.

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