In today’s corporate landscape, businesses play a pivotal role in advancing a more sustainable world, making it arguably one of the most critical roles they fulfill. As public awareness of sustainability issues continues to grow, consumers are making increasingly informed choices, which places heightened importance on companies to prioritize their ESG (Environmental, Social, and Governance) initiatives and integrate them into their core business strategies.
However, as the demand for companies to establish robust ESG strategies continues to rise, it is met with resistance, particularly in the face of uncertain economic conditions. Nevertheless, taking proactive action on ESG is essential. To navigate these challenges, companies must explore ways to streamline their reporting and implementation processes, ensuring they maximize their investments and ensure sustained success.
In this blog, we will delve into four significant challenges that companies encounter on their ESG journey.
1. What is ESG?
Before we begin to understand the challenges, let’s discuss in brief about ESG. ESG evaluates sustainability, ethics, and performance of investments, aligning financial goals with personal values, and mitigating risks related to environmental, social, and governance issues.
- Environmental (E) assesses environmental impact and strategies
- Social (S) assesses relationships with stakeholders
- Governance (G) pertains to leadership, structure, and policies
2. How to measure it?
Once companies understand the concept of ESG, the next hurdles comes to light is how to measure it. The world of ESG reporting is often confusing and complex. According to EY estimates, there are 600 ESG standards globally fragmented across various industry verticals.
Even though many organizations have started discussions around ESG reporting not all have formal definitions, identified KPIs or systems in place to monitor them. This is especially challenging, as many are not quantifiable, and cannot be defined in terms of currency calculations.
3. How to streamline data collection and management
Collecting and managing ESG data is not a simple task. ESG reporting involves putting together details of everything from a company’s carbon footprint, to its metrics around diversity and inclusion, to its corporate governance and decision making. This can be a daunting task for many companies as it requires input from multiple departments, locations and sources. It involves quantifying emissions, not only from an organization’s direct business operations, but also from subsidiaries, franchises, investment portfolios, and within the value chain.
Additionally, the lack of standardization in ESG reporting makes it difficult to compare data across companies.
4. How to make ESG as competitive advantage
Many companies fail to understand that investing in a good ESG strategy can be fruitful for longer term. Today, investors believe that ESG factors are integral to assessing the health and quality of a company and thus are vital part of investment process.
Good ESG indicators reflect good governance and good governance increases the financial value of a company. According to a KPMG survey, many investors are ready to pay higher price if the target company stands out with a high level of ESG maturity with respect to issues that are important to the investor.
In order to get high maturity ESG levels, you must get data digitalized and harmonized. Digital and Sustainable maturity goes hand in hand. Normally lowest price has been winning, in the future and already existing sustainable projects ESG impact is and will be more important and savings are coming as a outcome of better and more efficient project management.
5. How to make it scalable?
Scalability is a critical part to the success of any ESG program, and organizations need to be able to do so promptly and clearly to meet their commitments. By wisely investing time and resources in creating digital platforms and process can be helpful as scaling them is easy as compared to manual work, human skills, or physical supply chains
Building sustainable businesses requires good strategies, investments and time.
In conclusion, True Routa can help you with ESG strategies, Routa Digital (our IT company) can provide solutions to several challenges associated with ESG assessment and reporting by leveraging our expertise in data management, reporting standards, and stakeholder engagement together with existing and to be built ESG products and solutions. By designing customized solutions that cater to the specific needs of each client, we can help companies very effectively to manage and report on their ESG performance, enabling them to build trust and credibility with their stakeholders. Not to forget the Carbon credits, which are direct money back to ones who can decrease their operational CO2 emissions.