Impact of ESG on Procurement & Fiduciary
ESG has become an essential component of the governance of any business.
Fiduciary managers use ESG data to manage investment in over 80% of their investment decisions managing investments and government places a minimum weighting of 10% on ESG objectives in procurement.
| Environmental | Social | Governance |
|---|---|---|
| Climate Change and Carbon Emissions | Labour relations | Board diversity |
| Energy efficiency | Diversity agenda | Auditor independence |
| Pollution | Employee safety | Corruption and bribery |
| Use of natural resources | Product safety | Anti-money laundering |
| Waste management | Human rights | Business ethics |
| Clean energy and technologies | Child Labour | Cartels and price fixing |
| Biodiversity | Working conditions | Compensation policies |
ESG implementation
An organization that seeks to become a sustainable business requires a careful plan to create and implement an ESG strategy.
Any business requires an ESG governance framework to develop a strategy and this is where it can get complicated. There are ESG frameworks and standards, so what is the difference?
ESG framework
A framework is broad in its scope, giving a set of principles to guide and shape an understanding of a certain topic. An ESG framework will guide the direction of ESG reporting, but will not provide a methodology for the collection of information, data, or the reporting itself. Frameworks are useful to use alongside ESG standards, or when a well-defined standard does not exist.
ESG standard
Standards are specific in their focus. They contain detailed criteria explaining what needs to be reported. In the context of ESG, this means standards dictate how information and data are collected, and how a report needs to be produced (what topics and business areas to include). Standards make frameworks more actionable by ensuring comparable, consistent, and reliable disclosure.
As we’ve mentioned this is where it can get complicated, the problem with ESG reporting is the lack of globally recognized standards and frameworks, making it confusing for business leaders like you to understand how you should be reporting the relevant ESG criteria.
To solve this issue, the four leading ESG framework organizations GRI, SASB, CDP, CDSB, and the IIRC are working to change this.
The SASB framework supports the TCFD framework and the best results are obtained when these frameworks are used together.
The SASB framework supports IIRC: As previously mentioned, the SASB and IIRC announced their intention to merge into a unified organization, named the Value Reporting Foundation (VRF). The VRF aims to provide a suite of resources to help organizations and investors establish enterprise value.
SASB framework and GRI: SASB and GRI aim to show how organizations can use these standards together for the best results.
Just to clarify listed below is a list of ESG frameworks:
ESG Frameworks
- Voluntary disclosure frameworks,
- Guidance frameworks,
- Third-party aggregators.
1. Voluntary Disclosure Frameworks
Under these frameworks, a company actively discloses its sustainability-related policies, practices, performance data, and information related to ESG criteria.
Carbon Disclosure Project (CDP)
The CDP asks for voluntary disclosures of non-financial data which includes greenhouse gas emissions (GHGs) and company environmental performance. The CDP framework focuses on water security, forest health and preservation, and an organization’s carbon footprint. Industry peers are used as a benchmark, as companies are scored and ranked publicly. This information is available to the public.
Global Real Estate Industry Benchmark (GRESB)
The GRESB is a framework that’s used for buildings. GRESB asks for voluntary disclosures for building-related ESG data, assets, and real-estate portfolios. Results are publicly available.
Dow Jones Sustainability Indices (DJSI)
The DJSI is another building-specific framework that provides a subscription-based survey of building-related ESG data, assets, and real estate portfolios. Again, results are publicly available.
2. Guidance Frameworks
Guidance frameworks provide recommended methodologies and guidance to help companies identify, manage and report on their ESG performance.
Sustainability Accounting Standards Board (SASB)
The SASB provides voluntary frameworks that focus on financial substantive information that’s relevant to investors. The aim of the SASB is to provide information to the SEC, which investors can then use to compare business performance on critical ESG issues.
Global Reporting Initiative (GRI)
The GRI voluntary disclosures are broad in their aim. These disclosures address a range of ESG topics that are deemed relevant to the organization and all related management approach components. Reporting principles cover the inclusiveness of stakeholders, sustainability, and integrity. GRI standards are divided into universal, sector, and topic-specific standards that can be applied to companies depending on their industry and impact.
Task Force on Climate-Related Financial Disclosures (TCFD)
TCFD provides voluntary disclosures focused on target-related risks to financial systems. TCFD recommendations are based on four thematic areas, which represent the core operating areas of a business: Governance, strategy, risk management, and metrics and targets. The impact climate change has on a business, plus the impact the business has on the climate, are both considered by TCFD.
Carbon Disclosure Standards Board (CDSB)
This is an initiative of the CDP developed to create a holistic view of a company’s performance. The CDSB framework aims to standardize the reporting of environmental information.
International Integrated Reporting Council (IIRC)
The IIRC has been developed to accelerate the adoption of integrated reporting. To this end, the IIRC merged with SASB in 2021, producing the Value Reporting Foundation (VRF). The aim is to create a baseline for corporate sustainability disclosure that can be used around the world.
3. Third-Party Aggregators
Third-party aggregators refer to frameworks that assess an organization’s performance based on aggregated, and publicly available data. Data is collected from company-sourced filings, publications, company websites, annual reports, and/or sustainability or CSR reports.
Bloomberg Terminal ESG Analysis
Public information displayed in annual and sustainability reports, CSR reports, and websites are aggregated and assessed. Data can only be accessed by those with a subscription.
Institutional Shareholder Services (ISS E&S) Quality Score (ISS)
Sustainability and CSR reports, integrated reports, publicly available company policies, and information are aggregated and assessed. The results from these assessments are publicly available.
MSCI
MSCI aggregates data from 100+ specialized datasets from governments, NGOs, and models, plus company disclosures which include: Sustainability reports; proxy reports; 10-K reports (which provide a full description of a company’s annual financial activity), and 1,600 media sources. The aim of MSCI is to show a company’s exposure to ESG risks and how it compares to industry competitors. Subscriptions are needed for this data to be accessed.
Sustainalytics
Sustainalytics aggregates and assesses company data based on public company-sourced findings and media reports.
As you can see ESG is complex and New Media can help you develop an ESG strategy that will support your business transformation, and identify opportunities to help your business thrive.
Our ESG Consultancy:
- Explain the benefits of ESG and how why an ESG strategy is essential.
- Advice on how to develop your ESG strategy:
- Scope and identity what ESG issues your company is going to prioritise.
- Test and undertake internal and external stakeholder engagement.
- Measure and develop an externally verifiable measuring effectiveness framework and associated reporting metrics to demonstrate ESG performance.
- Operationalise and develop policies and operational processes to meet performance objectives.