While no data is 100% accurate, challenges like disparate reporting standards and disconnected data management methods mean that getting reliable ESG data is often hard to do. Reporting bad data can have serious reputational and financial consequences for your business.
How accurate is ESG data?
The answer is, of course, it depends.
For starters, there is no universal global standard for ESG reporting. Different companies may use different reporting frameworks and metrics depending on where they operate, what industry they are in, and their level of ESG reporting maturity. For example, some companies may report Scope 1, 2, and 3 emissions, while others might only report emissions from sources they own or control directly.
Companies also differ in what they consider “material”. While a food and beverage manufacturer might report on water scarcity, a healthcare company may decide that this is not relevant to its operations. The lack of standardized reporting means that these kinds of decisions are largely left to the companies themselves.
So are decisions around how individual companies handle their data.
The way your company collects ESG information can impact how well the data reflects the reality of your sustainability performance. For example, there is a big difference between measuring actual emissions at the asset level versus estimating emissions based on utility bills. Ultimately, data captured at the operational level is always going to be the most accurate.
How and where you manage your data also matters. Spreadsheets are notorious for being prone to errors. Decades of audits and experiments have shown that 88% of all spreadsheets contain “significant” errors and even carefully developed spreadsheets will contain errors in 1% of all formula cells.
If you use multiple different systems to manage your ESG data, this can also increase the chance of errors. When this data gets compiled for reporting, records can get left out or duplicated. Plus, it can take weeks or months to pull the data and compile it into a usable format — and by then, it is already out of date.
What are the risks of using inaccurate ESG data?
ESG data quality issues have led to the rise of what ICE Data Services calls “accidental greenwashing” — when companies unwittingly report misleading information on their sustainability performance because of incorrect or incomplete data.
Intentional or not, reporting inaccurate ESG data poses a real risk to your reputation and bottom line. But with ESG regulations on the rise, companies are about to face a reckoning.
The number of ESG reporting provisions issued by governmental bodies has grown 74% over the last four years. In the EU, more stringent sustainability disclosure rules will go into effect in 2023. In the US, the SEC has proposed new climate disclosure rules that could begin in 2024.
These regulations — especially the ones coming out of the EU — will hold companies more accountable for the accuracy of their ESG data. Legal liabilities could arise from reporting inaccurate information, or from not having adequate internal controls and governance to ensure quality data.
What can you do to improve your ESG data?
Ultimately, companies need better guidance on how to measure and report their ESG data — including uniform global reporting standards.
Until then, one prudent step you can take to improve your ESG data is implementing a proper data management system.
An ESG management software that helps standardize and centralize your ESG data. Data can be collected at the operational level from various sources, including frontline worker observations, sensors, assessment forms, and more to roll up into ESG reporting.
ESG Management software packages replace disparate systems, eliminating data double-entry and improving accuracy. And, the information is available in near real-time for immediate management visibility into ESG performance.
