In 2021, a survey conducted among institutional investors and wealth and asset management firms revealed that 61% of billionaire investors participated in investment activities relating to environmental, social, and governance (ESG) financial products.
Investors actively seek a company’s ESG data before making decisions. The findings of the same survey capture a significant shift towards ESG-prioritized businesses.
This global trend is driving more companies to proactively improve their ESG performance. So, what exactly is the significance of ESG data, and how does it relate to ESG data management? Here’s how the dots connect.
The Growing Importance of ESG Data in Business
Traditionally, the most important data for businesses were connected to profitability. However, in today’s world, alternative sources, namely environmental, social, and governance (ESG) data – have emerged, which are equally important.
Here’s a snapshot of what ESG data comprises:
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- Environmental: Factors such as climate change and pollution due to fossil fuels are growing concerns. Companies are actively working on reducing their carbon footprint and water wastage, moving towards more sustainable practices.
- Social: Companies are prioritizing human capital via improved working conditions, focusing on diversity and inclusion, gender equality, and upgraded labor standards.
- Governance: This pillar refers to how businesses plan, manage and execute business activities and if they are upholding business ethics in the process.
Significance of ESG Data in Business
Today, ESG data has become extremely valuable in several contexts. For instance, a venture capitalist looking to invest in a business will request ESG disclosure, along with other financial data points, when making decisions.
A high ESG score inspires confidence because these factors demonstrate longevity in a scenario where sustainability regulations and demands are continuously changing.
Today, sustainability and socially-conscious retail investors are also prioritizing investing in financial instruments such as ESG mutual funds. ESG data is thus playing an important role in financial decision-making.
Hence, companies must not only work towards improved ESG performance but also be able to collect, categorize and report ESG data with efficiency. This is where ESG data management plays a critical role in the process.
What is ESG Data Management?
General data management is the process of accumulating, categorizing, and maintaining data in a secure, efficient, and cost-effective manner. Access to data in an actionable format is an outcome of effective data management.
Traditionally, financial data was of the utmost importance to businesses, and this data was much easier to accumulate. However, ESG data is not financial in nature. Hence, it demands a unique approach to collecting and managing it accurately.
Ultimately, access to efficiently managed ESG data is leveraged by organizations and individuals to understand the ESG index of companies and make decisions to engage with these companies accordingly.
Basics of ESG Data Management
ESG data management is a subset of enterprise data management (EDM), a tech-enabled process with superior intelligence capabilities.
ESG data management software helps companies validate, analyze, visualize, govern, and maintain massive amounts of data as a single source of truth for all stakeholders.
EDM essentially integrates all sources of internal and external transactional, trade, operational, customer, and financial data, making it available to stakeholders in an accessible manner. However, ESG data management is not as simple.
The data sets that come under ESG are very specific and hence, need to be identified and customized based on the company’s specific business model.
For instance, the social data for a company with factories around the world will have a different data extraction and categorization model compared to a corporation that hires white-collar software engineers.
Dimensions of ESG Data Quality
The goal of any data management activity is to bring transparency and inspire trust and confidence in all stakeholders.
The Enterprise Data Management Council, a global association, has identified seven key dimensions against which data quality can be measured.
The Council’s recommendations aim to raise the quality and credibility of data management worldwide. It is even more important for ESG data management software to satisfy these conditions due to the very nature of the data points and the outcomes the process aims to drive.
Here’s a snapshot of the seven dimensions against which a company’s data management system can be evaluated:
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- Accuracy: This dimension measures the precision of data by cross-checking original documents or authoritative sources and validating them accordingly.
- Completeness: This dimension measures the comprehensive existence of all required data when populating data records.
- Conformity: How well does the data comply or align with industry, internal and external standards?
- Consistency: This dimension offers assurance that there is a standardization of data values, formats, and definitions, across all data.
- Coverage: This dimension aims to ensure that data is furnished by all providers and that nothing is missing due to negligence or on purpose.
- Timeliness: Ensuring that accurate, well-categorized, actionable data is made available promptly so companies can use it to respond to evolving market conditions.
- Uniqueness: Ensuring that there is a “single source of truth” of data available so there is no scope for duplication and misuse.
Driving ESG Data Management Outcomes
There are several reasons for companies to prioritize ESG data management as follows:
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- Having access to actionable data enables companies to take proactive measures to improve their ESG performance.
- It also enables them to comply with various environmental labor and governance regulations.
- It builds confidence amongst consumers looking to buy products and services from companies with a superior ESG track record across sectors.
- Potential business investors or companies seek ESG disclosures when deciding to invest capital or merge/acquire companies.
In Conclusion
Many companies still struggle with poor, incomplete ESG data. However, digitized data management can completely transform the impact of organizations’ ESG data on key business decision-making.
Yodaplus offers bespoke ESG data management solutions as well as implementation of packaged solutions with an industry-standard data model, out-of-the-box rules, and workflows. We help you develop consistent ESG data architecture solutions that give you access to accurate, high-quality, actionable ESG data.
Connect with us to start a conversation and partner for your enterprise data management needs.
