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Thursday, April 3, 2025

What gets mea­sured gets man­aged

Establishing a baseline

by

708 days ago
20230425

Rachel.Welch-Phillips@den­tons.com

En­vi­ron­men­tal, so­cial and gov­er­nance frame­works (ESG) are be­com­ing in­creas­ing­ly reg­u­lat­ed around the world. This reg­u­la­tion is fo­cused on dis­clo­sure of the im­pact of an or­gan­i­sa­tion’s rev­enue gen­er­a­tion on peo­ple and the plan­et.

The ap­proach tak­en is based on “what gets mea­sured gets man­aged” with a view to dri­ving ma­te­r­i­al and re­portable ac­tions on the im­pact of how a com­pa­ny op­er­ates, in­vests, grows, fi­nances, and man­ages its busi­ness.

ESG dis­clo­sures are the way a reg­u­la­tor can hold com­pa­nies ac­count­able for their im­pact on peo­ple and the plan­et. In­vestors can use these dis­clo­sures and the da­ta they pro­vide when risk-as­sess­ing po­ten­tial in­vest­ments.

Cus­tomers can use these met­rics to de­cide whether they wish to con­sume a cer­tain prod­uct or ser­vice.

Third par­ties can use this in­for­ma­tion to choose part­ners, sup­pli­ers and oth­er third par­ties in­volved in the op­er­a­tion of their busi­ness that align with their sus­tain­abil­i­ty ob­jec­tives.

Once a com­pa­ny has iden­ti­fied the ma­te­r­i­al ESG is­sues aris­ing from its op­er­a­tions, it can be­gin a base­line as­sess­ment to quan­ti­fy this im­pact and in­form tar­get­ed im­prove­ments:

What is a base­line

as­sess­ment?

A base­line as­sess­ment is the ini­tial gath­er­ing of in­for­ma­tion on the ESG stand­ing of a com­pa­ny by quan­ti­fy­ing the im­pact of its op­er­a­tions on peo­ple and the plan­et.

It is the first step of an ESG jour­ney and in­volves an in­tro­spec­tive deep dive in­to the com­pa­ny’s op­er­a­tions and the im­pact of its rev­enue gen­er­a­tion.

The ma­te­r­i­al “is­sue spot­ting” ex­er­cise that hap­pens be­fore the base­line as­sess­ment al­lows a com­pa­ny to fo­cus its da­ta col­lec­tion and analy­sis.

While there are many ben­e­fits to be­ing as com­pre­hen­sive as pos­si­ble when gath­er­ing da­ta for a base­line as­sess­ment, man­ag­ing lim­it­ed re­sources is a busi­ness re­al­i­ty that an ESG frame­work must fit in­to, so com­pa­nies should fo­cus their da­ta gath­er­ing on the most ma­te­r­i­al ad­verse im­pact aris­ing from its op­er­a­tions.

The base­line al­so pro­vides the foun­da­tion on which a com­pa­ny’s progress in re­duc­ing un­de­sir­able im­pact is as­sessed over time.

A com­pre­hen­sive and re­li­able base­line can there­fore be the foun­da­tion of com­par­a­tive as­sess­ment that de­fines a com­pa­ny’s ESG jour­ney. It is a cru­cial step and as such it is im­por­tant to get it right.

De­ter­min­ing

im­pact da­ta in­puts

At this stage, the com­pa­ny should con­sid­er the sec­tor or sec­tors that its op­er­a­tions fall with­in and choose a suit­able re­port­ing or stan­dar­d­is­ing frame­work to cap­ture the im­pact of its op­er­a­tions on peo­ple and the plan­et.

Daunt­ing as this may sound, there is no need to rein­vent the wheel.

There is a wealth of re­sources avail­able on­line and through ser­vice providers that can as­sist a com­pa­ny in se­lect­ing the ap­pro­pri­ate tem­plate and guide­lines for this pur­pose.

The cho­sen frame­work will in­form the com­pa­ny of the in­puts re­quired for dis­clo­sure in ac­cor­dance with its stan­dards there­by guid­ing the com­pa­ny as to the da­ta it needs to cap­ture in the base­line as­sess­ment.

The or­gan­i­sa­tion should de­vel­op a com­pre­hen­sive overview of the da­ta it in­tends to cap­ture, the ap­plic­a­ble met­rics, and the sub­se­quent analy­sis to be con­duct­ed to turn that da­ta in­to us­able and use­ful in­for­ma­tion.

For larg­er com­pa­nies, this stage may re­quire en­gag­ing third-par­ty tech­ni­cal as­sis­tance if the ex­per­tise re­quired is not avail­able in-house.

Col­lect­ing im­pact da­ta

The first step in da­ta col­lec­tion is to con­sid­er what da­ta you al­ready hold but have not been us­ing. For ex­am­ple, let us con­sid­er green­house gas (GHG) emis­sions. Key da­ta in­puts will in­clude non-re­new­able en­er­gy us­age, fu­el us­age amongst your trans­port fleet, the types of ma­te­ri­als used as in­puts in your op­er­a­tions, and the con­tent and man­age­ment of waste out­puts.

To de­mys­ti­fy some ter­mi­nol­o­gy used in GHG ac­count­ing, here are the three scope cat­e­gories ex­plained:

The reg­u­la­tion be­ing pro­posed by the US Se­cu­ri­ties and Ex­change Com­mis­sion would re­quire com­pa­nies to dis­close Scope 1 and 2 emis­sions as well as any ma­te­r­i­al emis­sions in Scope 3.

There are com­pa­nies in the Caribbean that form part of the up­stream or down­stream val­ue chain of US com­pa­nies so our emis­sions may be caught in this re­quire­ment.

Though da­ta col­lec­tion and stor­age may be as­sist­ed by third-par­ty tech­ni­cal ex­perts, their in­volve­ment must in­clude in­struct­ing the busi­ness and its mem­bers on how da­ta is iden­ti­fied, se­lect­ed and har­vest­ed.

This is cru­cial to the on­go­ing com­pli­ance of an ESG frame­work as da­ta will need to be pe­ri­od­i­cal­ly up­dat­ed to as­sess progress (or lack there­of).

Once busi­ness teams are trained in how to do this, ESG mon­i­tor­ing can be­come em­bed­ded in­to the fab­ric of day-to-day op­er­a­tions. The com­pa­ny should al­so iden­ti­fy where there are gaps in the da­ta and de­vise a plan for ad­dress­ing those gaps over time as part of its com­pre­hen­sive ESG strat­e­gy.

De­riv­ing val­ue

from your base­line

Think of your base­line as­sess­ment as the bridge con­nect­ing your vi­sion to your out­comes. When a com­pa­ny can quan­ti­fy the im­pact of its op­er­a­tions, it can dri­ve im­prove­ment, change be­hav­iours, and op­ti­mise de­ci­sion-mak­ing.

Some of the com­mon­ly re­port­ed ben­e­fits de­rived from gath­er­ing im­pact da­ta on ESG is­sues in­clude: re­duced costs aris­ing from im­proved en­er­gy ef­fi­cien­cy and oth­er re­source use, no­tably high­er re­ten­tion of staff and cus­tomers that fol­low the stake­hold­er con­sul­ta­tion process, and the com­pet­i­tive ad­van­tage ob­tained from dis­clos­ing im­pact da­ta as a first mover in the par­tic­u­lar sec­tor set­ting a stan­dard for re­spon­si­ble cor­po­rate be­hav­iour in the mar­ket

n Rachel Welch-Phillips is an at­tor­ney and a part­ner in the cor­po­rate com­mer­cial team at Den­tons De­lany, a pan-Caribbean law firm. Rachel is the head of ESG and Sus­tain­able Fi­nance cov­er­ing the 14 Eng­lish-speak­ing Caribbean is­lands in Den­tons De­lany’s foot­print.


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