When Edelman released its 22nd annual Trust Barometer this year, the headline read: “Societal leadership is now a core function of business.” Edelman further noted that it’s not just consumers holding business accountable: 60% of employees and 80% of investors prefer organizations that align with their beliefs and values. Environmental, social and governance (ESG) performance plays a critical role in meeting those expectations. For manufacturers, ESG awareness must go beyond internal and self-reported data. You need a global perspective that spans the entire enterprise, including every tier in your supply chain. Third-party data APIs can help you capture a more complete understanding of ESG risks and opportunities.
Lack of ESG Standards Complicates Measurement
Even as ESG initiatives become more commonplace, the absence of a single framework for disclosing ESG metrics—and what those metrics should entail—makes it nearly impossible to measure and verify progress. An EY survey shows that 89% of investors would prefer a mandatory reporting requirement that measures ESG performance against consistent global standards.
The current lack of clarity also lends to the risk of your organization being accused of “greenwashing.” In turn, public and investor skepticism rises, putting both your reputation and long-term growth on the line. Given the risk of reputational damage that turns off consumers and shakes investor confidence, manufacturers may want to consider data analytics to support their ESG agenda.
Regulations Increase the Pressure to Capture ESG Insights
Having more comprehensive data will be even more critical moving forward because ESG is influencing the regulatory landscape as well. Global legal advisory Cooley explains, “New environmental, social and governance (ESG) reporting requirements in the European Union and the US are set to fundamentally change the nonfinancial reporting landscape.”
Take the European Union, for example. On top of climate benchmarks and other ESG-related regulations already in place, pending EU legislation includes a Corporate Sustainability Reporting Directive (CSRD) and a Corporate Sustainability Due Diligence Directive (CSDDD).
Remarking on the upcoming EU reporting directive, Cooley notes that, “The new EU rules will require ESG reporting on a level never seen before and will capture a whole host of companies that previously were not subject to mandatory nonfinancial reporting requirements, including public and private non-EU companies that meet certain EU-presence thresholds.” And the EU isn’t alone. At least 29 countries have some form of mandatory ESG disclosure requirement in place.
Third-party Data Delivers a More Well-Rounded ESG Perspective
Absent a universal standard, data and artificial intelligence platforms can help you better evaluate ESG performance across your organization and its third-party networks. Gartner suggests several tips for gathering meaningful insights.
- Ditch the spreadsheets for aggregating data. Instead make use of bar codes, IoT, digital twins and APIs.
- Implement analytical, reporting and other applications that can “provide the necessary hindsight, insight and foresight.”
- Take advantage of ESG ratings and other third-party data to benchmark against peers, optimize supply chains for ESG performance, and track what’s being said in the industry.
What should you look for when sourcing third-party data? First and foremost, global supply chains demand global data. If you rely on local, native language sources only, expect gaps in your awareness. What else matters?
- Source variety and volume: You can uncover ESG insights from a wide range of source types. News, particularly ESG and adverse news datasets, is useful for analyzing ESG mentions over time to identify trends within the industry. Similarly, negative news, such as media coverage of worker conditions, can bring to light red flags that suppliers might not directly disclose. Company and financial data, legal and regulatory data deliver value as well. For example, ingesting sanctions and watchlist data supports your own governance commitments while also helping mitigate compliance risk.
- Flexible delivery: Your data needs can vary depending on what you want to accomplish. You might want a bulk API to tap decades of historical data for training machine learning algorithms or analyzing how ESG performance evolves over time. Or you might want a search and retrieve API that allows you to pull down refined datasets at regular intervals to support ongoing ESG monitoring across your supply chain.
- Data enrichments: You can start using data much faster if it comes in already normalized, semi-structured, and enhanced with index terms, geo tags and other metadata. Otherwise, you could spend a lot of upfront effort just cleaning up the data. With enriched data, it’s easier to slice and dice the data to find the most meaningful bits.
PWC’s Digital Trends in Supply Chain Survey 2022 found that 58% of respondents point to homing in on ESG supplier risks (pollution, forced labor, corruption) is a major challenge, second only to keeping pace with ESG-related regulations at 66%. Organizations also recognize that the pressure to effectively manage ESG internally and along supply chains is only going to grow in the coming years. Having the right data and technologies in place can shift some of the burden—and help you protect your reputation and achieve your ESG performance goals at the same time.
Explore how Nexis® Data as a Service can help you access the data needed to make it happen.