3 tips for data-driven ESG compliance
Third-party ESG compliance needs to be data-driven to beat greenwashing
The expression, “What gets measured gets done”, is both a blessing and a curse for Environmental, Social and Governance (ESG) compliance. It’s a blessing because measurement creates transparency – and transparency drives accountability. But it can also be a curse. Because if sustainability isn’t measured in the right ways, it is open to manipulation and ‘greenwashing’ by those who are more intent on beating the system than fulfilling their obligations. As businesses become increasingly responsible – not just for what they do, but for what their third-party suppliers and partners do – being associated with greenwashing represents a growing reputational risk.
AI can help – but it’s not a ‘green hallelujah’
Speaking at Dun & Bradstreet’s Power of Data event, sustainability expert and author, Aurore Belfrage said that the war on greenwashing needs to be fought on multiple fronts. “If we understand our planetary boundaries and accept what has been created by humans, we can start using technology and data as tools to make smarter decisions.” Aurore shared some examples of how AI is enabling new sustainability use cases: from predictive weather modelling on a macro scale to real-time recycling sorting on a micro scale. But she warned that the coming together of the green transition and digital transition should not be hyped into a ‘green hallelujah’. “There will be opportunities within the green transition, but we can’t see it as a business opportunity. The cost of adaptation will create financial challenges. But the cost of doing nothing will be far, far greater”.
ESG responsibilities and business priorities don’t always line up
The cost of adaptation is a flashpoint for many companies. When business goals are defined by growth and profit, they don’t always sync with meeting ESG commitments. In some cases, this means businesses focus heavily on reducing upstream costs while turning a blind eye to the actions of their third-party suppliers and partners. Increasingly however, regulation and public opinion are putting pressure on businesses to not only do the right thing environmentally, but also make sure their supply chain partners do as well. That’s where reliance on self-reporting comes into focus. Because self-reporting is one of the main grey areas that enables greenwashing.
Data can be an antidote to greenwashing
“We need to measure the things that actually have an impact – but make sure we do it in a meaningful way,” says Aurore, “The key is to clearly define objective measurements that can then be standardized so that performance can be compared. And what should we measure? Well, the obvious answer is carbon – because that’s the problem.” Aurore then made the case for businesses to start calculating their carbon footprint and making data-driven decisions ahead of carbon pricing legislation. “If companies can get a better understanding of their real costs, margins, and profits; they can make data-informed decisions. Does our next M&A decision make sense? Does our next product line make sense? It’s a way to start future-proofing their business. But just as importantly, it’s a way that they can assess their partners – and make sure they’re not unknowingly contributing to greenwashing”.
3 tips to make third-party ESG compliance more data-driven
To help businesses become more data-driven, Dun & Bradstreet Third Party Risk and Compliance expert Theodora Papadimitropoulou offered 3 practical tips:
Connect the dots (to see the bigger picture)
Companies need to move away from managing risk in isolation and look at ESG as a whole. A company can’t call themselves sustainable if they have forced labour in their supply chain – or use materials that are sourced from conflict areas or contribute to deforestation. They also need to understand who the ultimate beneficiaries are behind complex corporate structures and be certain that they are not unintentionally breaking any sanctions or exposing themselves to reputational and financial consequences.
To understand how all the parts of ESG interrelate, businesses need to be able to see the big picture. That requires a comprehensive master data source that always remains up to date. They then need to be able to ‘democratise’ this data, to make it available across the enterprise and enable more visibility and transparency and pave the way for better decision making.
Look further up the stream (to know your partner's partners)
Echoing the point that companies need to answer for what their partners do, Theodora emphasized the importance of going beyond Tier 1 and really understanding what their suppliers’ suppliers do. It’s also important to understand the hidden linkages between entities so that you can understand who you are actually dealing with and what their ownership structures are. This is important as these extended ownership structures can present hidden risks.
Don’t say it, prove it (and make your partners prove it too)
The foundation of the ‘what gets measured gets done’ principle is proof. By moving beyond self-reporting and identifying the metrics that can be measured and standardized, it becomes easier to assess partners and suppliers based on their ESG performance. But more than that, it lets companies earn the currency of doing the right thing. It lets them show customers, investors, and the public that they are a company that cares about our planet and takes its responsibilities seriously.
At Dun & Bradstreet we are proud to be able to help our clients build a more resilient planet by providing them with the tools to measure the impact they and their partners have – so they can do something about it.
Report: Integrating ESG into Supplier Risk Management
Chartis Research and Dun & Bradstreet teamed up to interview leading European supply chain professionals. This must-read report dives into the latest trends in ESG risk management and showcases best practices as well as handpicked case studies. Download this report and discover how to thrive in an ever-evolving landscape!