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Kezia Farnham Image
Kezia Farnham
Senior Manager

What Is ESG data and how do you manage It?

March 15, 2023
0 min read
Person looking at how to manage ESG Data on a laptop

Information connected to environmental, social and governance (ESG) used to assess an organization’s sustainability and ethical practices is known as ESG data.

Companies are keen to align with consumer habits as buyers prioritize sustainability, provenance and ethics. Evolving to adapt to this new world sees organizations appointing chief ESG officers, emphasizing ESG strategies and recognizing the need for robust ESG data solutions.

ESG used be a nice-to-have, but now it’s becoming a must-have.
— Lee Anne Sexton, Managing Director, Donnelley Financial Solution

Historically, ESG compliance has been lightly regulated, if at all. Companies have been free to report on their successes with little in the way of benchmarks.

However, our blog exploring the shift to ESG noted that there is a move toward more transparency and rigor in ESG reporting. In tandem, investors and asset managers use ESG data to evaluate companies’ attractiveness. All of which makes a clear framework for building and managing ESG initiatives a necessity, not a nice-to-have.

Here, we take a closer look at the following topics:

  • The meaning of ‘ESG data’
  • Why ESG data and research is crucial to your ESG strategy
  • How you can deliver best practice ESG data management through robust reporting and analytics

What Is ESG Data?

ESG data can describe any data relating to an organization’s impact on its environment, community and surroundings. Shareholders can use ESG data to assess a company’s performance and impact.

It’s this very breadth of ESG data that can make ESG data management challenging. ESG data should focus on: :

Importance of ESG Data

Companies can establish transparency and trust by managing and reporting on their ESG data. This accountability also reassures investors, employees and customers that the company takes its environmental impact seriously.

Cost of ESG Data

Investors spend over $1.3 million a year collecting, analyzing and reporting ESG data. This data largely informs their investment decisions. Nearly half of this spending is used to acquire ESG ratings and data providers to help understand an organization’s climate impact.

ESG Data Sources

Most ESG data should be publicly available. Organizations can collect data on their ESG impacts from the following places:

  • Company website
  • Annual report
  • Corporate social responsibility (CSR) reports
  • External audit reports

The Market for ESG Data

As of 2022, the U.S. market for ESG data was worth a staggering $1.3 billion. That number is expected to grow as consumers and investors increasingly focus on the social and environmental impacts of business activities. ESG data and analytics solutions alone account for over 70% of that value.

What Is ESG Data Management?

ESG data management involves measuring an organization’s performance concerning sustainability and ethics through collecting and reporting on ESG data. It’s a big ask! Consider sustainability reporting vs. reporting on board diversity; the data points are varied, the routes you take to capture this data are diverse and how they are reported differs widely. Little wonder ESG data management is a daunting topic for many organizations.

Ultimately, ESG data management needs to measure KPIs, create benchmarks and demonstrate any financial impacts in a way that creates transparency around an organization’s sustainability and ethics.

Why Is ESG Data Important to Your ESG Strategy?

What gets measured gets managed; it’s a well-worn phrase but no less true. ESG, as with any other business strategy, depends on regular monitoring and accurate data to track progress, identify performance outliers and prioritize action.

Research shows that investors are increasingly using non-finance data to inform investment decisions. ESG data is preeminent here, forming a growing element of disclosures, regulatory reporting and investor sentiment. Your ESG data management strategy underpins your ability to provide accurate data that will set you apart as a potential investment, supplier or employer.

How to Collect ESG Data

Most organizations have more than one source of ESG data. This can make collecting and managing that data rather complicated, especially given how important the data is. The most effective ESG programs continuously gather data, so they always have a feel for how the company’s ESG efforts are performing.

To collect ESG data, start by:

  1. Prioritize ESG Topics and Risks: All ESG topics are essential. Yet, most ESG teams can’t spend equal time on all the issues and risks they face. Prioritize the most critical ESG topics to the business’s activities, as well as any ESG issues that are particularly high risk. For example, a retail brand might focus more on social impacts, including racial equity and body positivity. In contrast, a home goods company might focus on environmental impacts like water usage.
  2. Perform an ESG Audit: Organizations need to know what data is avialable to them before they can start collecting it. An ESG audit should help teams identify what KPIs the business already tracks, what data gaps exist, where the data is housed and how and when the data is collected. This process helps identify the data and determine which departments are responsible for which data points.
  3. Develop a Data Collection Plan: The two most important parts of this plan are identifying where the data will live once it’s collected and which stakeholders will be involved in collecting it. With those questions answered, the plan should then consider the key ESG topics and risks for the business as well as all relevant data sources.
  4. Establish Repeatable Workflows: ESG data collection should be continuous. Once a data collection plan is in place, continue to follow it. This ensures that the organization will have a constant flow of ESG data. Monitoring this workflow is crucial because it’s possible, and even likely, that the data collection process will hit a speed bump or two. Picking up on any issues will allow ESG teams to fix them and ultimately optimize the process over time, so it better serves all parts of the organization.
  5. Consider Compliance: Like all data, organizations need to handle ESG data carefully. It’s important that the ESG data collection plan prioritizes data security and compliance with all relevant regulations. These include GDPR and industry standards like SOC II and HIPAA.

ESG Data Challenges

We’ve touched on the diverse nature of ESG data. But this isn’t the only challenge when striving for best practice ESG data and analytics management.

ESG data tend to be non-traditional. Therefore, businesses generally have no precedent for collecting it. New processes and data capture need to be established.

This also means that comparisons and benchmarks can be hard to come by — or misleading. For instance, comparing a tech company to an energy firm on equal pay is valid, but making the same comparison on your carbon footprint might be meaningless.

And, because ESG data and analytics management is a relatively new science, there are few agreed approaches or best practices. These challenges make it difficult for organizations to start their ESG data management program.

How the Best Businesses Are Evolving ESG Data Management?

Despite the challenges, organizations across sectors are perfecting their ESG data management strategies, evolving from spreadsheet-based processes that rely heavily on manual inputs toward structured ESG data capture and visualization that enables board-level insight.

By capitalizing on digital capabilities, businesses can move the dial on ESG data management, bringing greater automation and precision.

How Is ESG Data Used?

ESG data is used for companies to report to investors, employees and customers. Each of these stakeholders want to know that companies are operating transparently and ethnically.

ESG data management used ESG data to provide that transparency by collecting data, recommending where changes should be made and assessing how a company can achieve the greatest return on their ESG efforts.

What Does Cutting-Edge ESG Data Management Look Like? Here Are 5 Best Practices

When defining best practice ESG data management, several factors make the difference.

1. Flexibility

ESG regulatory and reporting requirements have evolved rapidly in recent years and will continue to do so. Your organization’s operations, priorities and disclosures may change too. Therefore, your approach to ESG data management needs to be flexible to develop with your needs.

It needs to be scalable to adapt to new inputs, additional stakeholders and a growing list of external and internal obligations. It must be able to pivot to accommodate evolving priorities; who knows what ESG data your board will rely on in the future? It has to grow to align with changing stakeholder and investor expectations.

Importantly, it has to meet your needs now to allow you to jump right in and make a start on ESG data management and have the potential to advance with you.

2. A Single Source of Truth

The complexity and breadth of ESG data points can be a barrier to efficient data collection. But with data-rich organizations stealing a march on their less insightful competitors, optimizing your ESG data collection is crucial. And ensuring your ESG platform can house and sort this big data is a must.

Your teams should be able to harness the data needed with minimal impact on their day-to-day work. The right people need access to this data in a central location, while best-in-class security practices and security-conscious software keep threat actors firmly out.

3. Accurate Monitoring

How does your ESG data translate into effective risk management? There’s no point in gathering information if it doesn’t inform action, swiftly identifying red flags and enabling remedial steps.

Tip: Incorporating machine learning into your auditing processes can fuel the effective management of your ESG controls.

When considering new ESG tools, asking how automation is used in their software and how to utilize it for your ESG programs is good. In our article, you can read more about how automation and ESG go hand-in-hand. Even if your company isn’t ready to invest in machine learning or advanced automation immediately, the functionality is available to implement as your ESG maturity develops.

Whatever ESG data management solution you choose, it needs to deliver clear visibility of your KPIs, metrics and commitments. The mountains of data generated by ESG reporting can be time-consuming to sift through and spot issues; automated monitoring can speed this process by giving users clear snapshots of key metrics.

4. Insightful Reporting

This monitoring also needs to translate into meaningful reporting. Boards and directors are short on time; when acting rapidly on ESG findings, you need user-friendly dashboards that instantly picture the most critical ESG data.

5. Makes it Easy to Track the Key Issues

Whether it’s net-zero commitments, the ethics of your supply chain, or your executive compensation strategy, your ESG data management process and solution must capture and present the core information you need.

The software should quickly surface new regulations relevant to your organization, empowering you to adjust your strategy and ensure compliance.

Clarity and prominence are vital; whether you use more manual intervention or market-leading ESG data management software, your approach needs to make it easy to spot issues you need to prioritize for action.

ESG Data Management Software: Optimize Your ESG Data

As businesses value the role of robust ESG data management, more and more rely on ESG data solutions to underpin their efforts.

Tapping into the ability of ESG data management solutions to map metrics to current and evolving regulations, companies take assurance that their approach to ESG data is aligned with stakeholder and legislative priorities and is meeting their obligations. Automated monitoring and reporting remove legwork and inconsistency, while the best software makes data presentation easy with intuitive dashboards.

But not all ESG data solutions are created equal. Any organization looking to harness the benefits of investing in ESG data management software needs to ensure their chosen solution meets their requirements.

  • Does it enable you to deliver on the five best practices outlined above with a flexible, robust approach to managing ESG data?
  • Will it evolve with your needs, and can it provide the reporting and insights you need to bring ESG metrics to the board’s attention?
  • Does it have specialized functionality in vital areas like climate to ensure you’re capturing the most critical data?
  • And does it provide the levels of service and support that enable you to make the most of your investment?

If you are researching ESG data management software, Diligent’s Buyer’s Guide to ESG Data Management Software is a must-read. Download it today to explore the challenges of ESG data management and the essential criteria you need to consider.

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