In WTW’s 2022 ESG Risk Manager Survey, three-quarters (74%) of global respondents said that improving the ESG score is a core focus for their business. Yet only 17% have documented ESG risk management targets, with clear milestones. How do you explain this gap?
74% Improving our ESG score is a core focus for the business.
17% My organization has documented risk management targets, with clear milestones, in relation to ESG.
With increased stakeholder (regulator, customer, employee) interest in and scrutiny of ESG policies, the number of ESG ratings and scorecards has multiplied. While this is positive in one sense, in that what gets measured tends to get managed, the proliferation can also give rise to potential confusion. There are many ESG metrics and performance indicators in the market today – and organizations struggle to navigate what to measure and how to report on progress. It’s no wonder that 77% of senior executives lack confidence in their firm’s ESG approach – further exacerbating the challenge that organizations face to identify the right data and metrics.
Despite apparent quantitative ESG scores from outsiders, companies suggest that metrics don’t necessarily provide insight into a company’s particular sustainability challenges, nor do they reflect the specific challenges (or opportunities) for a company or industry sector. Moreover, they do nothing to address actionability. “How does this data help me reinforce strengths or address real gaps among my ESG priorities?” is a common point of contention.
Understanding the data that compiles and creates sustainability scores – both within an organization’s own ESG strategy and externally as part of ESG rating agency methodologies – matters.
Context is important, regardless of where companies may be in their ESG journey and the common set of pressures against which they increasingly need to respond. These include (but are not limited to) ways to:
Perhaps the greatest challenge lies in knowing where to obtain the right types of data to inform their scores. As ESG is a relatively new core discipline for most organizations, they often lack the knowledge of what to measure beyond rating requirements, where to find quality data, and how to ensure data is unbiased and representative of multiple sources and views.
Social factors in particular present challenges, with 51% of companies citing a lack of the right data, according to The ESG Global Survey 2021. That leaves most businesses today chasing the right ESG data – trying to determine what are the right metrics and where to find them. Examples include:
Are organizations outside of the 59% that said they model exposures to physical climate risks (and the 48% that project those risks to 2030 or further) missing indicators that are important to their ESG approach and strategy development?
To track the types of ESG markers noted above, organizations will benefit from access to scalable and credible ESG data sources that refresh regularly, point them toward useful insights and management feedback, enable scenario analysis, automate reporting and are customizable to their industry.
Access to these insights enables organizations to:
Today, only 9% of companies are actively using software that supports data collection, analysis and reporting on ESG1. However, the expectation for this number to rise over the next two year is high given the growing belief that ESG is influencing wider risk management strategies (see Figure 1).
ESG comes with inherent complexities for organizations as they seek to understand their strengths, weaknesses, and level of preparedness across all of their people, capital and risk dimensions. The "right" data and insights, available at the right time, will be intrinsic to making progress on these fronts – helping to highlight an organization’s current position and enable better, more informed decisions.
Accordingly, a more expansive view of available data sources and how these can be meaningfully incorporated into individual ESG strategies is likely to be an important step in how corporations take greater control of how they position themselves from an ESG standpoint, rather than being reliant on external ratings or scorecards.
5 questions to contemplate when thinking about ESG strategy data inputs and outputs
Getting meaningful ESG performance metrics can be challenging, but the right approach and software solutions can enable your organization to meet its ESG goals.
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A driving force behind ESG Clarified is the lack of relevant, timely and accessible ESG data. This has been the driving force behind the release of WTW’s ESG Clarified, a desktop-ready SaaS solution that provides ESG data and benchmarks in real time.