ESG data project summary
From production to output: how companies can improve their ESG data practices
The FRC Lab’s project on ESG data sets out recommendations to help companies improve their practices and the quality of their ESG data. By focusing on what is relevant to the company and information that is decision-useful, companies can produce data that can be more effectively used for their internal strategic purposes, as well as by investors for their investment analysis and decisions. These recommendations aim to assist companies address the challenges they face in understanding what ESG or sustainability-related data is needed and how it is to be collected, including multiple requests and questionnaires by various stakeholders, as well as jurisdictional differences.
We noted three common elements of how both companies and investors consider ESG data:
- Motivation: why is the data collected?
- Method: how is the data collected and processed?
- Meaning: what is the data used for and how does it influence decision-making?
By understanding these different elements, companies can take steps to optimise how they produce ESG data but also how it is accessed and consumed by investors and third-party data providers which investors rely on. On this page we summarise the recommendations that companies should consider:
Identify what data is needed to meet business strategy, stakeholder and regulatory needs
- Perform a materiality assessment to understand what ESG topics and data points are relevant to the company as part of a holistic approach to materiality addressed in the FRC Lab's Materiality in practice project:
- Identify both current and future drivers for ESG data, such as operational needs for cost monitoring, strategic commitments including net zero targets, and both internal and external stakeholder priorities.
- Engage internal stakeholders across all levels to understand what is needed operationally and strategically (including for financial reporting), and identify what is already collected and what is missing.
- Engage with key investors and other stakeholders to understand what data is important to them.
- Review regulatory requirements and framework guidelines where voluntarily adopted.
- Collaborate with peers through industry bodies to identify sector-relevant metrics, methods and sources.
- Identify and encourage internal champions who can raise awareness about what is needed and why, while applying a materiality mindset as explored in the Lab’s Materiality in practice project.
Collect and process data effectively
- Identify the data producers and owners across the company for different data sets, and the coordinators, reporters and validators for a joined-up approach.
- Identify the internal and external sources for the data and set out the methodology and frequency for gathering the data.
- Engage with finance and internal audit teams to apply controls over the data, including evidence trails, reviews and sign-offs, irrespective of whether you have a manual or automated system.
- Assess which data should be subject to internal and external assurance, and what level of assurance may be needed for different data sets.
- Document responsibilities and processes for knowledge retention.
- Share lessons learnt between teams and subsidiaries where approaches may be historically different.
Use the data strategically
- Consider training and education for the board and across the company on why ESG data is needed and how it can be used for effective strategic decision-making.
- Do not treat ESG data just as part of an annual reporting cycle; integrate it in regular processes and embed in the company’s culture to understand:
- company performance and impact
- risks and opportunities
- progress against commitments
- what action (including strategic change, capital allocation and incentivisation) is necessary.
- Review whether existing data, and its quality, is supporting strategic decision-making and whether investment in systems and resource is needed.
Understand who your audiences for reporting are and target accordingly
- Proactively engage with investors to understand which ESG issues are important to them and how they are using your reports and communications. Web analytics may be useful, and it may also be helpful to understand your largest investors’ ESG priorities and methodologies as set out on their websites.
- Keep the annual report as the main vehicle for reporting aimed at investors, i.e. focusing on what is material, and consider whether a standalone sustainability report or other supplementary communication is more appropriate for other stakeholders. Refer to the Lab’s Materiality in practice project for further details.
Focus on what is relevant to your company in the annual report and provide further detail in datasheets
- Use your annual report to help investors further their understanding of your ESG risks and opportunities as they are more likely to get ESG data primarily from third party providers and use your annual report as a qualitative overlay. Therefore, focus on ESG issues specific to the company, explain your priorities and how these issues impact performance, business model and strategy within the annual report.
- Do not obscure relevant information. Remember that investors are time-poor and considering multiple companies. One way to address this is to use datasheets as one easy-to-find repository of a company’s ESG metrics and other information to facilitate data collection by data providers and investors’ data teams.
Ensure a coherent and interconnected narrative backs up the data
- Keep the messaging of your narrative reporting consistent throughout with the performance reflected by the data and financial reporting to avoid greenwashing and maintain credibility.
Be clear on scope of the data reported
- Clarify where issues or metrics do not apply to the whole group but to a specific geography or division so that investors can understand how they relate to overall performance.
Provide clarity and consistency of location of information year-on-year
- Signpost clearly where data on an issue or reporting against a particular framework can be found within your reporting or website, and maintain the same location year-on-year as much as possible to facilitate the process for analysts, data providers and automated data scraping tools.
Align timing of ESG reporting as much as possible to that of the annual report
- Aim to provide ESG reporting for the same period and at the same time as the annual report.
Simplify content and keep it meaningful to facilitate data collection, including digital scraping
- Keep content clear, with minimal use of images and annotate pie-charts/graphs.
- Make it clear which data was assured and at what level.
Aim for comparability of data presentation
- Provide comparative historical data, ideally up to 5 years if available, to assist in trend analysis.
- Use internationally recognised standards and industry frameworks as much as possible in relation to metrics for better comparability with peers.
Prepare for further digitisation
- Apply lessons learnt from using financial reporting digital taxonomies to ESG reporting.
Reports
Further details can be found in the reports: