In the past decade, measuring and managing corporate sustainability has become and is growing as a central part of doing business for companies around the world, regardless of the industry. Environmental, social, and governance (ESG) ranking systems, which assess the three core factors involved in measuring a company’s sustainability performance, are becoming increasingly valued as key decision-making indicators by consumers, investors, and other stakeholders. This demand has driven companies worldwide to respond to sustainability questionnaires, taking a proactive approach to disclosure. These companies do so for a wide variety of reasons: to answer investor requests, improve brand reputation, assess risks and opportunities, or simply comply with regulations.
There are hundreds of existing rankings and reporting standards currently in operation. Some well-known indices include CDP, EcoVadis, ISS, the DowJones Sustainability Indices (DJSI), Sustainalytics, and FTSE4Good. Some require companies to submit a questionnaire, while others conduct their own investigations. Of course, it is becoming increasingly time-consuming, inefficient, and costly for companies to report to or account for all these standards individually. With hundreds of choices on the table, how should you decide which of them are a good fit for your company?
Step 1: Set Goals for Your Disclosure
Take a step back and answer some fundamental questions. What are your goals for the reporting process? What value or benefit does this have for your company? What would you consider a success? What is material to your business and operations? Different ranking systems cater to different desired outcomes and audiences, so establishing concrete goals will allow you to narrow your search.
For instance, the RobecoSAM (DJSI) Corporate Sustainability Assessment is primarily focused on investor relations, so may be a good choice if you are looking to show investors that your business is prioritizing sustainability and integrating ESG factors into your overall strategy. EcoVadis, on the other hand, is better tailored to companies looking to assess sustainability criteria in their supply chains. CDP is focused on carbon emissions along with the current trends of CSR action on a global level. Working with internal and external stakeholders to understand which priorities are most material to your business and operations will provide a strong foundation for future decisions.
Step 2: Ask Questions for Context
Not all ESG rankings are created equal. Some have more transparent methodologies, are more robust, or assess different types and sources of data than others. Due diligence is required to ensure that the rankings your company chooses to focus on are able to deliver your desired outcomes and move you towards your goals.
Investigating which rankings other organizations in your industry are reporting to is often a good place to start. What sustainability index best matches your business and covers the breadth of your operations and impact? You can also investigate ratings using resources like SustainAbility’s Rate the Raters Report, explore information provided by the indices themselves, and talk to experts in the field about their experience with different systems and methodologies.
Step 3: Understand the Methodology
Different organizations assess different factors and require different action plans from companies seeking a high rating. For example, CDP encourages reporting companies to set science-based targets (SBTs), implement the recommendations of the G20 Task Force on Climate-related Financial Disclosure (TCFD), and use scenario planning. GRESB Assessments, which are designed specifically for the real estate and infrastructure markets, ask responders to report on green building certifications and tenant satisfaction and engagement.
When choosing which standard to report to, consider whether your company has the resources to devote to meeting the requirements of its methodology. Is your organization prepared to develop new programs, improve certain processes and operations, and take action on the results of your reporting? The answers to these questions will play an important role in informing your choice.
Step 4: Take Action
Once you have narrowed down your shortlist of ESG rankings, you will likely need to take action to ensure your company maximizes its performance in each index.
- First, work to identify key knowledgeable stakeholders (internally and externally) to ensure you have access to the necessary data or understand how to obtain that data moving forward.
- Next, identify the actions, processes, and policies required as part of your chosen ranking(s) and develop a roadmap for how your business can achieve them. Prioritize these actions based on how those requirements match up with your internal goals, and how they can contribute to your business.
- Finally, prepare for reporting by streamlining data collection processes to maximize accuracy, reliability, and consistency, and better track how actions and policies are affecting the sustainability of your company as a whole.
Identifying which corporate sustainability ranking your company should be focusing on can take some effort, but is well worth the investment. Demonstrate that you are a sustainability leader in your industry, magnify the organizational benefits of the data collection process, and provide a platform to share your success stories with sustainability-minded stakeholders across the world.
ADEC ESG Solutions is a leading provider of ESG solutions, including fully-integrated industry expertise, software solutions, and data management. Contact us to learn more about our sustainability data management services.