The European Union has unveiled an ambitious and complex regulatory plan as part of its commitment to direct financial flows towards sustainable activities. Called the European Taxonomy, this set of measures specifies, among other things, how companies will report on their environmental, social and governance (ESG) progress. It will oblige them to carry out precise and standardised reporting.
What if these new regulatory constraints were an opportunity for organisations to assess their progress in order to go further in their sustainable growth plans?
Here are 5 tips to succeed in this ambitious evaluation project.
1. Correlate environmental and social responsibility with your company's performance
The key to the success of your ESG reporting lies in your ability to correlate environmental and social responsibility with your company's performance. Beyond regulatory obligations, this will allow you to assess the contribution of your ESG progress to your overall performance. For example, you will highlight the impact of your company's waste reduction on its bottom line, or the impact of switching to renewable energy sources on your costs. By integrating ESG into your budgeting, planning, closing, reporting and disclosure, you can better identify your priorities and see the benefits of each initiative you take to refine your plans for sustainable growth.
2. Set a strategic course
Keep in mind that you will need to embark on an overall project, which will take time and require a strategic vision. This project will involve all teams, from finance to operations to compliance. So start fostering dialogue between the different teams, presenting your vision to them in a clear and transparent way.
Linking the different people responsible for different metrics is essential, as is communication with the people who will be publishing them from a normative perspective.
The implementation of the project can be gradual, starting with the regulatory requirements and then working down the value chain.
3. Adopt a standardised compliance framework
The heterogeneity of standards and frameworks is a major challenge for companies, as 85% of them use several reference frameworks.
To gain clarity both internally and with investors, it is necessary to harmonise your ESG reporting frameworks in line with key requirements and the European taxonomy, such as the GRI or SASB. This will allow you to send positive signals to the markets and to your employees about your organisation's social and environmental responsibility.
Last year, the new European taxonomy created a common language to categorise organisations' activities according to their environmental and social impact. Each activity will be assessed against six key objectives: climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and reduction, and protection and restoration of biodiversity and ecosystems. In this context, companies will be obliged to specify what proportion of their turnover comes from economic activities that can be considered 'sustainable'. Putting your data in order to gain clarity on your sustainable activities is therefore imperative, and will save you a lot of time in meeting the European regulatory requirements.
4. Capture operational data
Without operational data, there is no reliable and accurate reporting. One of your major challenges will be to collect and analyse a large volume of data, of various kinds, to successfully highlight the required environmental and social indicators. For example, you will need to collect information on water consumption in the factory during the production process. At first glance, however, it seems complex to identify and aggregate ESG data, which is often compartmentalised, divided into categories, or recorded manually in spreadsheets.
To better organise this data, it is advisable to take advantage of technology via a comprehensive solution that can put operational data into perspective with regulatory frameworks. A single platform is essential to facilitate exchanges between managers in different departments and to avoid each one establishing its own data collection format that is incompatible with others.
5. Use the potential of AI and predictive analysis
It is not always easy to measure the impact of reputation on performance. Technology will be your best ally, especially artificial intelligence, machine learning and predictive analytics, to establish relevant correlations, suggest adjustments and help you make the best decisions. Using historical business objectives, information on ESG initiatives and reputation data, an intelligent system will be able to assess the fit between performance and actions to measure the effectiveness of the strategy in place. This will allow the company to fine-tune its goals and identify new options for achieving them. The solution you choose will have to tick all the compliance boxes and put them in perspective with the operational part.
ESG reporting does not only allow companies to comply with national and international regulations. It is a unique opportunity to take stock of your organisation's overall sustainability and to engage in a wide-ranging assessment project that will involve all business functions, based on concrete data. Technology will be a valuable asset to help you in this project.