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 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.

60%

60% of CEOs see significant demand from investors for greater transparency on sustainability.¹

34%

34% of employees who changed jobs in 2021 accepted an average pay cut of 28% to work for sustainable or socially responsible organizations.¹

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 means setting measurable goals, demonstrating progress toward those goals and reporting on that progress in a way that satisfies a growing community of stakeholders.

This 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 do that 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. Set and accurately calculate greenhouse gas (GHG) emission targets.
  4. Track progress and improve performance.

 

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 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 takes up a lot of people’s 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.

 

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 is growing consensus, there is 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.

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)
A 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 EU.

 

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 the organization’s beliefs and values.

Nowhere is this 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 re-absorbed 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 or re-absorbed from the atmosphere.

Understanding GHG emissions

Scope 1

“Direct” emissions such as those generated by company vehicles, manufacturing processes and onsite fuel combustion.

Scope 2

“Indirect” emissions from the consumption of electricity, heat or steam that you purchase from other entities.

Scope 3

Emissions that are generated by organizations and activities in the supply chain that are outside of your organization’s direct control.

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.

 

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 three 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.

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. Envizi creates a single system of record that delivers auditable, financial grade sustainability data.
  • Streamline reporting and disclosure. Envizi 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 & monitor progress: By collecting and reporting on ESG metrics from across the organization, Envizi helps you identify risks and opportunities for performance improvement, engage stakeholders in positive action and track results.

 

Learn more about IBM Envizi →

A global leader

Envizi is recognized as a global leader in enterprise carbon management software, scoring highest for carbon management capabilities and market momentum in the Verdantix Green Quadrant for Carbon Management Software 2022.

Establishing a data foundation and single system of record for reporting your ESG data is a clear first step toward accelerating your sustainability goals. Understanding where you stand today can provide a clear direction on where to focus your efforts long term.

Next steps

¹ Sustainability as a transformation catalyst, IBM Institute for Business Value, 10 January 2022.