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Growing pressure on ESG performance

Sustainability is no longer a nice-to-have approach to operating. It’s a business imperative driven by the growing demands of internal and external stakeholders—from customers and employees to regulators, investors, governments and NGOs.

In fact, 60% of CEOs say they’re already feeling pressure to be more transparent about their organization’s sustainability performance.¹

And it’s not just about meeting compliance obligations, but also for making critical investment decisions. A focus on sustainability improvement can be a great way to get stakeholders excited about what the business is achieving. Making a positive impact can attract talent, win new customers and give the business an inspirational story to tell.

Pursuing a sustainability agenda can be better for business, too. The 2022 IBM Institute for Business Value study, Sustainability as a transformation catalyst, found that transformation trailblazers—organizations with a strong executive commitment to sustainability, embedded in strategy and operational processes—outperform all others in terms of revenue growth.

The need for a single system of record for your ESG data

But sustainability is more than just talk. You must have tangible evidence that the business really is making a positive difference. That evidence includes setting measurable goals, demonstrating progress toward those goals and reporting on that progress in a way that satisfies a growing community of stakeholders.

This process requires a new approach to environmental, social and governance (ESG) data management: one in which ESG-related data is consistently gathered and results are reported as robustly and clearly as any statutory financial disclosure.

How do you accomplish these tasks without everyone drowning in spreadsheets? More and more organizations are choosing to address this challenge by implementing a dedicated ESG system of record.

Find out how an ESG system of record can help your organization:

  1. Build an ESG data foundation.
  2. Report on sustainability performance.
  3. Choose an ESG reporting framework.
  4. Set and accurately calculate greenhouse gas (GHG) emission targets.
  5. Track progress and improve performance.
1: Build an ESG data foundation

Without ESG data, sustainability isn’t viable, actionable or operational. The issue is that ESG data is complex and difficult to capture. It’s diverse, broad and spread across disparate and siloed systems within the organization—and beyond. The challenge is amplified when you consider the amount of ESG data you need to collect about participants in your supply chain.

And that’s just capturing the ESG data.

Organizing and structuring it in a way that make it easier to extract, analyze and derive insights from that data creates more challenges. Some companies try to manage this problem using spreadsheets, but that’s not a robust or scalable solution. It requires a lot of employee time and the resulting disclosures often lack the accuracy, transparency and auditability that stakeholders demand.

Just as organizations use dedicated software for financial reporting and performance management, they need financial-grade software to do the same for sustainability.

  • Meet stakeholders’ disclosure requirements by mapping ESG data to relevant reporting frameworks and producing reports that are accurate, transparent and auditable.
  • Manage GHG accounting in a systematic, auditable way.
  • Accelerate sustainability transformation by highlighting opportunities to go further and faster in meeting ESG goals and collecting data to assess the impact of sustainability initiatives.
2: Report on sustainability performance

Sustainability reporting is the practice of reporting performance based on ESG metrics. ESG reporting is now a high-stakes business imperative. Reports must be financial grade, fully auditable, comparable across periods of time and approved by a corporate officer.

Although there's growing consensus, there's no global agreement on the ESG activities that should be measured, which metrics should be used or what the reporting should look like.

With multiple reporting frameworks available, organizations need to understand what kind of disclosures external stakeholders want to see. And to hold themselves to account and measure improvement over time, they should set clear and meaningful internal goals.

3: Choosing an ESG reporting framework

From investors to regulators, external stakeholders are demanding robust, transparent and auditable ESG reporting. But frameworks vary, so it’s critical to choose one—or more—that best aligns with stakeholder expectations.

Example frameworks include:

Global Reporting Initiative (GRI)
The GRI is globally applicable guidance framework that provides standards detailing approaches to materiality, management reporting and disclosure for a comprehensive range of sustainability issues.

Taskforce on Climate-related Financial Disclosures (TCFD)
Designed to address climate risks to the business, the TCFD helps organizations articulate how ESG performance is most likely to materially impact future financial performance and value creation.

Corporate Sustainability Reporting Directive (CSRD)
An update and extension to the European Union’s Non-Financial Reporting Directive (NFRD), the CSRD sets out new and more stringent ESG reporting requirements for companies operating within the European Union.

Guide to ESG reporting frameworks

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ESG frameworks: articles

4: Set and track performance against GHG emissions targets

Many organizations want to do more than just report their ESG metrics. They want to set meaningful and achievable goals that align with their organization’s beliefs and values.

Nowhere are these goals more prevalent than in the realm of climate impact. In 2021, 60% of the Fortune Global 500 had formal climate and energy use targets, albeit with varying degrees of ambition and urgency.¹

Setting clear goals upfront allows progress to be measured and can motivate companies to take action.

Typical emission reduction goals include:

  • Becoming carbon neutral: Carbon neutrality means that any GHG emissions caused by the organization’s activities are balanced by an equivalent volume of GHGs being removed from the atmosphere. This goal allows for carbon offsetting of GHG-producing activities.
  • Net zero: The UN defines net zero as “cutting greenhouse gas emissions to as close to zero as possible, with any remaining emissions reabsorbed from the atmosphere.” Net zero goals are typically expressed in terms of achieving net zero by a specific year. Some organizations may choose to align with the year set by a national or regional government.
  • Becoming climate positive: Climate positive goes beyond net zero by cutting the organization's own GHG emissions to zero and conducting activities that allow additional CO2 to be removed from or reabsorbed into the atmosphere.
Guide to GHG emissions accounting

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Carbon accounting explained

More on GHG emissions

Scope 1 GHG emissions Direct emissions, such as those emissions generated by company vehicles, manufacturing processes and onsite fuel combustion.

Scope 2 GHG emissions Indirect emissions from the consumption of electricity, heat or steam that are purchase from other entities.
Scope 3 GHG emissions Emissions that are generated by organizations and activities in the supply chain that are outside of an organization's direct control. Scope 3 emissions explained further

Access to accurate, granular GHG emissions data is essential because it helps organizations identify where to focus emissions reduction efforts, develop a strategy and track the impact of emissions reduction initiatives.

But GHG accounting is a complex process that requires access to accurate energy, and the ability to track calculations back to the source for audit and compliance purposes.

Some key considerations are:

  • Organizational structure: Data captured about energy use must reflect the complexity and hierarchy of the organization so reporting can align with the business structure and adjust to accommodate changes.
  • Source tracking: GHG calculations must include track-to-source capabilities to manage and support audit requirements.
  • International standards: Emission calculations should be rooted in internationally accepted standards, such as the Greenhouse Gas Protocol.
5: Track progress and improve performance

For organizations looking to improve their sustainability performance, action must be driven down to the operational level.

We typically see organizations focusing their sustainability improvement efforts on 3 key areas:

  • Facilities and asset management systems, with a focus on water and waste management, and decarbonization initiatives
  • Supply chain management systems, including responsible sourcing, waste reduction and scope 3 emissions reduction initiatives
  • IT infrastructure management systems, including initiatives to minimize data center energy consumption and reduce waste through equipment recycling

Data from the ESG system of record can identify performance improvement opportunities in these and other operational areas—and then track the impact of actions taken and inform ongoing reporting.

Averting CO2 emissions at Celestica

A 21.3% reduction in scope 1 and 2 GHG emissions in one year. Over 10,000 tons of CO2e averted. See how Celestica is achieving its ESG goals with IBM Envizi.

Master ESG data management with IBM Envizi

IBM® Envizi ESG Suite captures, consolidates and manages over 500 types of data from your existing systems and your value chain to create a centralized ESG system of record that helps you achieve your sustainability transformation faster.

With Envizi you can:

  • Build a data foundation: IBM Envizi ESG Suite creates a single system of record that delivers auditable, financial-grade sustainability data.
  • Streamline reporting and disclosure: IBM Envizi ESG Suite supports GHG calculations for scopes 1, 2 and 3, and flexible reporting tools to meet internal and external ESG and sustainability reporting requirements.
  • Catalyze action and monitor progress: By collecting and reporting on ESG metrics from across the organization, IBM Envizi ESG Suite helps you identify risks and opportunities for performance improvement, engage stakeholders in positive action and track results.
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1. Sustainability as a transformation catalyst, IBM Institute for Business Value, 10 January 2022.