The Financial Reporting Council (FRC) of the United Kingdom has published guidelines on how businesses may gather and use environmental, social, and governance (ESG) data to help them make better decisions.
The failure of boards and firms to recognize and utilize nonfinancial information to comprehend long-term company hazards as well as prospective possibilities has long been of concern to the corporate governance authorities.
The FRC stated in a previous report that weak, meaningless boilerplate disclosures are frequently utilized, and that corporations' systems for producing, disseminating, and using ESG data are less developed than those for financial information.
The "Improving ESG Data Production" paper from the FRC Lab, released in August, gives boards advice on how to gather and analyze important data. The paper outlines what the regulator sees as the three essential components of the collection of ESG data:
- Motivation: What motivates the company to collect ESG data? How does it identify what is needed?
- Method: How is ESG data collected?
- Meaning: How is ESG data used within the company? How does it impact decision-making?
The paper outlines 12 steps businesses may take to enhance the gathering of ESG data:
1. By identifying both current and future drivers for ESG data, determining what information is available (and what is missing), chatting with investors and key stakeholders to find out what details are important to them, and investigating what information regulators want/need, you can better understand what ESG topics and data are relevant to the company.
2. To find measures, methodologies, and sources that are pertinent to the industry, collaborate with peers through industry groups.
3. Find "internal champions" who can increase awareness and support them.
4. Determine who is in charge of and associated with data collection inside the company.
5. Establish a process for how the data should be gathered and how often, and identify the internal and external sources of the data.
6. To put controls over the data, such as evidence trails, reviews, and sign-offs, ask the finance and internal audit teams.
7. Analyze the data that has to be exposed to internal and external assurance.
8. For knowledge retention, record roles and procedures.
9. Share your knowledge with teams and subsidiaries where prior methods may have been different.
10. Think about providing the board and the entire organization with training and education on the value of ESG data and how to utilize it to make strategic decisions.
11. To assess performance and impact, risks and opportunities, progress against pledges, and what additional strategic/operational action is required, integrate ESG data into routine activities and embed it into the company's culture.
12. Analyze if the quality of the data already available supports strategic decision-making, and consider whether more systems and resources are required.
According to a news release from Josephine Jackson, head of the FRC ESG and Climate Group, "high-quality data is critical to high-quality decision-making." "Improving the systems and processes for the production of ESG data, as well as embedding a joined-up approach to data collection, will result in better decision-useful information. In turn, this will lead to more relevant and reliable disclosures for all users who rely on companies for clear reporting of ongoing performance and future prospects."
By fLEXI tEAM