ESG. Increasingly, these three letters are presenting big obstacles for boards navigating environmental, social and governance (ESG) issues and overseeing their corporation's efforts. Too often, boards are struggling with the complexities of the evolving landscape and unable to make significant progress in implementing their ESG initiatives.
Here are five of the biggest challenges we have seen boards face while implementing ESG standards ' and how Diligent's ESG Solutions can streamline and strengthen the process.
1. Finding the Right Framework
With SASB, TCFD, GRI and beyond, the proliferating array of ESG acronyms and frameworks have left much confusion and 'analysis paralysis' in their wake. Without standardized metrics, it's difficult for investors to evaluate companies. Equally, it's challenging for companies to know where to invest the considerable amount of time each framework demands.
The World Economic Forum's International Business Council (IBC) responded with a core collection of 'Stakeholder Capitalism Metrics,' consolidating existing frameworks into a more consistent option for measuring and reporting.
Twenty-one core metrics focus primarily on activities within an organization's own boundaries and information already being reported. An additional 34 expanded metrics represent less well-established disclosures and a more advanced way of measuring and communicating sustainable value creation. Despite the intimidating number, all are worth consideration.
'These metrics are not reinventing the wheel and don't seek to drive out other ESG frameworks,' writes veteran CEO, board member and author Betsy Atkins. 'Rather, the metrics are building upon the extensive and rigorous work that has already been done by these other frameworks.'
Diligent's ESG Solutions simplify the search: Boards can access a full library of standards and leverage the World Economic Forum standards, which are pre-loaded in the system, or upload their own frameworks to:
- Create, measure and report on ESG standards
- Manage risks and controls
- Ensure compliance against ESG regulations and standards
I strongly encourage companies to report on the entire set of 21 core metrics and the expanded 34 metrics. - Veteran CEO, board member, and author Betsy Atkins
2. Measuring and Tracking Performance
'You can't manage what you don't measure,' states the classic adage. Yet many ESG principles have historically lacked common definitions and metrics. To complicate the challenge even more, many ESG issues span organizational functions and departments.
Take for example the 'e' of ESG. Being a good environmental steward means different things for different organizations and industries, and the information used for tracking and measurement — a company's carbon footprint, for example — might be scattered across different parts of the organization, all using different systems of data collection.
Such complexities make it difficult for organizations to chart progress, identify and act on red flags, and meet the reporting policies increasingly required by key stakeholders like BNP Paribas Asset Management.
Diligent's ESG Solutions align departments: Boards can reduce the time, cost and risk involved in ESG goals with features that include:
- Built-in solutions for internal audit, risk management and improvement planning
- A customizable library of internal and external compliance obligations
- Real-time insight into compliance against these obligations
- Automated dashboards and reports
BNP's policies are now mandatory. They exclude companies that don't comply with policies from all funds and other ownership activities. - ESG Metrics, Which to Evaluate
3. Accessing Governance Data and Insights
As investors begin to shine a brighter spotlight on ESG, benchmarking becomes even more important. Boards must not only track their performance against ESG metrics but know how they stack up against competitors and peers. Boards need to identify red flags and discrepancies — and take corrective action.
This requires centralized, consistent data, including access to the same information used by investors and other stakeholders. Yet, the latest corporate governance codes and stewardship guidelines are often scattered across disparate sources. Additionally, industry data in areas like executive compensation can be proprietary or difficult to access.
Diligent's ESG Solutions deliver actionable intelligence: Boards can use tools developed with CGLytics and the largest governance data set in the world (the data used by leading proxy advisor Glass Lewis) to:
- Conduct in-depth analyses into board composition, diversity, interlocks, skills and expertise
- Benchmark expertise against peers with board effectiveness scores
- Identify inefficiencies
- Stay up to date with industry trends and stakeholder expectations
As of 2019, Diligent partner CGLytics' data coverage included over 850 million data points, including N-PX proxy voting from 2014 onwards.
4. Tracking Stakeholder Sentiment and Organizational Reputation
In today's complex and evolving business environment, staying up to speed and ahead of the curve has never been more important.
Corporate directors must increasingly tune into the sentiment of their stakeholders to proactively respond to needs and priorities and alert the board and management to any potential issues.
This visibility includes regulatory changes, investor updates, emerging trends, activist sentiments and more. A company's reputation, compliance status, revenues and competitive edge all depend on timely, trusted insight and decision-making.
Diligent's ESG Solutions deliver AI-powered business intelligence: Users benefit from:
- Automated news tracking across more than 85,000 sources, with personalized alerts
- 'Health scores' for companies, industries, and competitors ' and for their own organizational reputation
- Insight into stakeholder sentiment
- Curated reports and automated newsletters
- Advanced search and filtering
It can be helpful to see what leading corporate CEOs are saying about ESG principles and the steps to operationalize them into their respective companies. - Veteran CEO, board member, and author Betsy Atkins
5. Visualizing and Controlling Risk MitigationESG initiatives don't operate in a vacuum. For boards to most effectively quantify ESG risk, value and impact and proactively mobilize efforts:
- Internal audit efforts need to align with the latest regulations and governance guidelines
- Compliance needs a centralized view of organizational and business partner actions
- Investor relations teams need to be able to clearly communicate the latest ESG strategy to investors and other stakeholders, from the net present value of current initiatives to new opportunities
- Mitigate operational risk through improved visibility of entity compliance
- Reduce the time, effort and cost of monitoring compliance performance across business functions
- Identify risks, from compensation to board effectiveness
- Remain agile and competitive
We were able to demonstrate $10 million in savings. - Diligence Compliance customer