How to Build an ESG Bowtie
From the perspective of our Product team, the challenges of risk and compliance professionals are at the forefront. This collaborative group of developers, designers, lawyers, and risk managers uses those insights, along with rigorous R&D, to inform the way LogicManager works. It’s no question that they’ve got a lot to share, so we’ll be publishing these insights to our blog to help you make more informed business decisions.
This blog post shares Product’s Perspective on using ERM to fuel your Environmental, Social and Governance (ESG) program. Find out why ESG is so important today, how you can prove you’re following ESG best practices to inquiring minds, and how software can provide a seamless process for gathering, centralizing, and reporting on your ESG data.
Trend Alert: The Rising Importance of ESG
The See-Through Economy has dramatically changed the relationship between organizations and their investors. With transparency at a premium, organizations are expected to disclose more information about the risks and opportunities they face on a day-to-day basis, and these heightened expectations have brought a new type of governance into the spotlight: Environmental, Social and Governance (ESG).
The pressure for ESG is felt on multiple fronts:
- On March 3, 2021, the SEC Division of Examinations issued its priorities for 2021, with a focus on ESG matters, including whether examined firms’ practices match their website and 10-K disclosures. Disclosures and statements of an organization’s ESG principles and reporting programs require the implementation of an efficient and unified evidence-based way to track, measure, attest, and report on their ESG goals, initiatives, and results.
- Beyond SEC compliance, socially conscious investors have signaled that they’ll screen potential investments based on ESG criteria. With investors’ increasing priority on ESG, company disclosures have come under scrutiny with a SOX-like governance and control framework advocated to provide assurance for ESG reporting and sustainability management controls.
- Finally, ESG is tied to performance. Recent findings provide evidence that companies highly rated in terms of their Environmental, Social and Governance score report higher excess returns and lower volatility. Just as companies with strong risk management programs outperform their industry peers, ESG factors are considered important by market agents as proxy for firms’ financial soundness.
Related Post: What Is ESG?
Your ESG program is only as good as you can prove it is.
You are a good corporation, and you do a ton of ESG related activities today. What do you get for it?
Dozens of different standards and questionnaires are used to assess your effectiveness, which can take hundreds of hours to reply to accurately. So how can companies reap the benefits of ESG without creating entirely new departments dedicated to managing these new disclosures?
LogicManager can help by building you an information bowtie. Our software retrieves all the necessary information on ESG, centralizes and aggregates the information, and then distributes that information in the required formats. Suddenly, one question to a coworker can answer hundreds of ESG questionnaires.
Gathering the information (left side of the bowtie)
ESG cuts horizontally across an organization, meaning that the necessary information is spread out across departments. The team that tracks your carbon emissions is likely not the same team that can tell you your turnover rate or how many employees self-identify as having a disability. We can think of this like the left side of a bowtie, where you are trying to bring together various inputs to one central point.
LogicManager helps collect ESG data from disparate parties by automatically issuing ESG information requests on the appropriate frequency so you can be assured that your data is always up to date. If you need to request the same data from multiple sources, such as emissions data from different plants, you can have the same request be issued to different individuals at once. As your organization changes, existing and future requests can easily be reassigned to new information owners.
Distributing requests for information is only half the battle; the other half is actually receiving a response. Everyone is busy, and any hurdle can be a reason to not respond to an information request. That’s why LogicManager focuses on simplicity and ease of use. The information request will be sent to an individual’s email with a link that takes them directly to the request. That way, they don’t have to worry about monitoring or navigating a new application. The information request only asks the individual for the information they are able to provide, so they are not confused by requests for information they don’t have. If the individual has any questions while completing the request, they can use embedded comments to have a back and forth discussion with the requester and quickly get the answers they need to finish their work. Once a request has been completed, you’ll receive a notification and the information will be stored centrally in LogicManager.
You May Also Like: Free ESG Checklist
Centralizing the information (middle of the bowtie)
Now that you are receiving piecemeal information from all different departments, you need to be able to reconstruct it to build the full picture. Your employee wellbeing and resource efficiency are a culmination of many information requests. We can think of this as the middle of a bowtie, where you’ve pulled together all these various inputs into a single location.
LogicManager aggregates and centralizes these various data inputs into an information repository so that you have a single source of truth. There is a full audit trail on all information so that you’ll always know exactly when information was updated and by whom. Additionally, this audit trail lets you compare year over year, so you can see if, for example, your sustainable energy usage is trending up or down.
Distributing the information (right side of the bowtie)
You’ve collected and centralized the information, and now you have to redistribute it as proof. ESG reporting requests may be driven by numerous frameworks (such as CDP, GRI, or others) that guide what type of information you should be reporting on. While there is plenty of overlap in the information different parties require, they will typically ask for it in slightly different ways. We can think of this as the right side of a bowtie, taking your repository of information and using it to answer all the necessary questionnaires and reporting requests.
LogicManager’s Automapper AI streamlines the process of completing ESG disclosures by identifying shared questions across standards and pulling the correct information from the repository you have built. For example, the CDP asks for information regarding emissions, so LogicManager will intelligently map your emission data to those questions. In addition to speeding up your existing ESG reporting, LogicManager’s ESG Software creates efficiency by identifying how evidence that you already collect can be leveraged to satisfy other frameworks and standards.