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Driving Sustainable Growth: ESG Metrics and Compliance Guidance from Energy & Technology Industry Leaders
Monday, June 24, 2024

Womble Bond Dickinson’s content series—Innovation Interchange: The Power of Cross-Industry Insight—explores emerging challenges from the viewpoint of trendsetting industries. As part of this series, WBD Partner Mark Henriques held a panel discussion on effective ESG metrics and measurement practices with AngloGold Ashanti Vice President for Decarbonization Tim CameronGreenplaces CEO & Founder Alex Lassiter, and WBD Denver Office Managing Partner Scot Anderson.

Plenty of empirical evidence exists to show that pursuing ESG (Environmental, Social, Governance) goals also has an economic benefit for companies. But how do businesses know they are going about ESG in the right way? How should companies track and measure ESG progress? What type of data should be collected? And what roles do various company stakeholders play in ESG tracking and reporting?

The answers to these questions ultimately can spell success or failure in a company’s ESG program.

Why Do ESG Metrics and Measurements Matter?

ESG metrics and measurements are important for several reasons. They:

  • Provide accountability;
  • Allow companies to track progress;
  • Offer transparency to government agencies, customers, business partners and other stakeholders; and 
  • Give companies a competitive advantage.

A Marsh & McLennan study on more than 7,500 companies around the world found that “[a]s a workforce strategy, ESG performance has become a competitive advantage—both in engaging today’s employees and attracting tomorrow’s talent.”

Anderson said, “You want to be able to demonstrate that your ESG efforts are paying off.” He also noted that ESG measurement can help with risk management. “When you put information out in the world, everything you say matters,” he said.

Henriques noted that ESG matters to customers and clients, even for non-public companies.

What Should Be Measured?

Sample environmental metrics may include greenhouse gas emissions, air pollution/particulate, energy consumption, water usage, and waste output.

In the social category, companies often choose measurements relating to workforce diversity, equity, and inclusion; employee engagement; the gender pay gap; and human rights.

Governance metrics may involve board diversity, ethical practices, and corporate transparency.

Carbon emissions generally fall in three categories: Scope 1, Scope 2, and Scope 3.

  • Scope 1 is for emissions under the company’s direct control. For example, emissions from the company’s fleet of trucks would fall under Scope 1.
  • Scope 2 emissions are those caused indirectly by the company through the consumption of energy. The emissions created to generate the electricity to power a company’s facility would be Scope 2 emissions.
  • Scope 3 emissions are those created by a company’s suppliers, contractors, and other business partners.

Lassiter said, “At this point, the vast majority of the Fortune 500 has made ESG, and particularly sustainability, a vendor requirement. Most companies are looking at Scope 1 and Scope 2 emissions at a minimum. What we’re seeing more now is businesses requiring Scope 3 measurements—your total impact on the environment and how you can measure it.”

Challenges to Establishing ESG Metrics Programs

However, the panelists noted that there certainly are difficulties in creating effective ESG metrics.

Companies first must establish baseline measurements, which future results will be measured against. Also, key metrics must align with legal requirements and industry standards. Also, measuring environmental impact is complex and difficult to accurately assess.

“For us, establishing baselines was a debate,” Cameron said. “We didn’t want to put out a figure without any substantiation.”

“Being a green company isn’t just about measuring a footprint,” Lassiter said. “Being green means having sustainable procurement policies, it means working with finance to understand sustainable options for our components.” Also, are there better ways to utilize real estate? And how do you engage employees? He said one good question to ask is, “What’s the highest impact thing you can do for the least amount of effort?”

“Being a green company isn’t just about measuring a footprint. Being green means having sustainable procurement policies, it means working with finance to understand sustainable options for our components.”

ALEX LASSITER, CEO & FOUNDER, GREENPLACES

Company leaders need to see sustainability as a collection of many smaller decisions. “That’s what turns this from grandiose statements to real action,” Lassiter said.

Anderson said, “If you’re a global company doing business in different countries, you have to harmonize those different regulatory requirements as best you can.” Even in the U.S., different states (most notably California) have different ESG requirements that apply to any company doing business in those states, not just companies headquartered there.

Many regulations are reporting requirements—disclosing certain types of information. Companies need to get that information from their vendors, too.

“Creating a commercial framework that allows you to get the information you need within the process of how you are doing business is the best way to try to navigate a very complicated and shifting regulatory regime,” Anderson said.

How to Collect ESG Data

Establishing a data collection and measurement process isn’t easy or inexpensive. Cameron said AngloGold Ashanti spent eight months creating this process.

“While the initial focus was to deliver emission reductions, most of the projects were actually valuable to the business,” he said. AngloGold Ashanti instituted a rigorous internal audit process to ensure the accuracy of its figures, as well as an external auditing process.

“Being a public company, it’s critical that we release accurate information to the market,” he said.

“While the initial focus was to deliver emission reductions, most of the projects were actually valuable to the business."

TIM CAMERON, VICE PRESIDENT FOR DECARBONIZATION, ANGLOGOLD ASHANTI

So, what exactly should companies measure? That can vary from sector to sector. But Lassiter said a company’s specific regulatory requirements can provide a roadmap.

“What regulations are you running up against? That’s going to help determine what you should be covering,” he said.

Once a company determines what it wants to measure and how, it should try to make the process as automated as possible, both to simplify efforts for team members and to standardized processes.

Other solutions in establishing ESG metrics include:

  • Retaining an outside consultant (preferably someone with experience assisting companies in the same industry);
  • Reviewing policies and procedures to ensure that they address ESG goals and are consistent with legal requirements;
  • Creating a standard ESG framework within the company;
  • Determining how to connect internal policies with outside suppliers, customers, and stakeholders;
  • Implementing continuous effective education throughout the organization;
  • Establishing a regular board review cadence; and
  • Using a central, digitized system for collecting data for ESG metrics

Lassiter said, “We can all make good choices if we have good data.” He said companies should take what information they have and identify business decisions they can make.

“In the future, every CFO is going to make decisions like this—and they’ll benefit from it,” he said.

Cameron added, “For us to put this strategy in place costs $1 billion. However, there’s a lot of return on that.”

Anderson said, “There’s this uneasy relationship between the law and innovation/technology, because the law is always one step behind. But there’s also the opportunity to use technology to comply with regulations"—ex. using AI and the Internet of Things to prevent spills before they happen or using blockchain to better track the production and movement of goods and raw materials.

“There’s this uneasy relationship between the law and innovation/technology, because the law is always one step behind. But there’s also the opportunity to use technology to comply with regulations."

SCOT ANDERSON, DENVER OFFICE MANAGING PARTNER, WOMBLE BOND DICKINSON

Meeting Stakeholder Expectations

“Investors have made it clear this really matters to them,” Cameron said. “There’s been a rise in ESG investing by investment companies.”

Many have developed ESG scorecards, which Cameron said makes accurate reporting even more important. “It’s an important aspect of our business.”

Even for non-public companies, important stakeholders have ESG-related expectations. “Your customers, in particular, have expectations,” Lassiter said. Private equity investors also have ESG-related concerns, he said, and companies will have to present hard data to these investors.

Employees also can be considered ESG stakeholders.

Anderson said that companies need to be careful not to engage in “Greenwashing,” or extending untrue or exaggerated environmental claims. He added, “If you say true things, you’re going to be in good shape.” Having objective data is a great tool to defend a company from accusations, he said.

The benefits of meeting stakeholder expectations in ESG include:

  • Building investor relations and increase to access to capital;
  • Regulatory compliance incentives; and
  • Improved customer loyalty and brand reputation.

The success of an ESG program hinges on implementing the right strategies, tracking progress accurately, and engaging various stakeholders effectively. By collecting relevant data and establishing robust reporting mechanisms, businesses can ensure they are on the right path toward achieving their ESG objectives. Corporate executives must champion these initiatives to secure long-term sustainability and drive meaningful change.

Now is the time to act—implementing ESG strategies is not just a trend but a crucial step towards a more sustainable future.

Key Takeaways

  • Determine Relevant ESG Metrics: Identify the specific ESG metrics that are most relevant to your industry, regulatory requirements, and company goals. This may include environmental data like greenhouse gas emissions, social metrics such as workforce diversity, and governance indicators such as board diversity.
  • Establish Baseline Measurements: Begin by setting baseline measurements for all identified metrics. This will provide a reference point against which future progress can be evaluated.
  • Automate Data Collection: Simplify and standardize data collection processes by automating them as much as possible. This reduces manual effort and error while ensuring consistency in data.
  • Engage Stakeholders: Regularly communicate your ESG progress to stakeholders, including investors, customers, and employees. Transparency builds trust and demonstrates accountability.
  • Consult Experts: Consider retaining outside consultants with specific industry experience to help establish and refine your ESG measurement processes. 
  • Review Policies and Procedures: Update internal policies and procedures to align with ESG goals and relevant legal requirements. Ensure that these policies are comprehensive and consistently applied.
  • Continuous Education and Training: Implement ongoing education programs to ensure all employees understand ESG objectives and their role in achieving them.
  • Regular Board Reviews: Establish a regular cadence for board reviews of ESG progress to ensure continuous oversight and strategic alignment.
  • Leverage Technology for Compliance: Utilize advancements in technology, such as AI and blockchain, to ensure compliance and enhance reporting accuracy and efficiency.
  • Avoid Greenwashing: Focus on genuine and substantiated claims in your ESG reporting. Objective data is crucial for defending against any allegations of exaggerated or false claims.
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