A beginner’s guide to sustainability and ESG reporting frameworks
The conversation about environmental, social, and governance (ESG) criteria is more important than ever, with the ethical footprint of your company’s practices increasingly under scrutiny. Proactive ESG reporting goes beyond just ticking the boxes for regulatory requirements. It’s a critical strategy that demonstrates your company’s dedication to being green and ethical in how you operate.
From a facilities management viewpoint, buildings consume a significant amount of energy throughout their lifecycle. According to a report published by the European Commission (EC), buildings are responsible for 40% of total EU energy consumption, and 36% of total EU greenhouse gas (GHG) emissions.
Technology plays an important part in reducing building energy consumption, with smart buildings that automate consumption setting the standard. Reports like those from Accenture and the World Economic Forum predict that in the energy sector, digital use cases can deliver up to 8% of GHG reductions by 2050 through processes like enhancing energy efficiency in buildings.
As we embrace more technology, there’s a growing call for smarter regulations. Why? Because to get clean energy technologies off the ground at the pace we need, regulations can help make them more affordable, hit our net-zero goals, and boost global economies. As such, the EC is focused on establishing sustainability best practices to address concerns and create clear, achievable standards.
Which ESG framework is the best?
The best ESG reporting framework is the one that aligns best with the needs of each organisation. An organisation therefore needs to consider its location, the industry, and its priorities to determine which ESG framework is the best fit.
A survey published by Mott MacDonald and KPMG found almost 40 different ESG reporting frameworks across the infrastructure sector, giving companies many options to choose from. The report, which surveyed ESG data users and data preparers, aims to determine whether an industry-wide standard framework is required.
Some of the main ESG reporting frameworks include:
- Sustainability Accounting Standards Board (SASB)
- Carbon Disclosure Project (CDP)
- Global Reporting Initiative (GRI)
- Task Force on Climate-Related Financial Disclosures (TCFD)
- Total Outcomes Measurement System (TOMS)
Until the introduction of a unified ESG framework, companies can choose whichever framework aligns best with their unique requirements. In practice, many organisations opt for a mix of different frameworks to thoroughly report their ESG activities.
The location of an organisation plays a crucial role in selecting an appropriate framework. For instance, companies in EU countries might be required to adhere to the recently implemented Corporate Sustainability Reporting Directive (CSRD).
The specific industry in which a company operates also greatly influences the choice of sustainability metrics that need to be reported.
For example, as one of the largest contributors to CO2, the transport sector typically reports on metrics such as carbon intensity, average vehicle occupancy, and transit accessibility, to name a few.
Facilities management companies may have to report on metrics such as water usage and insulation R-values, as well as heating, ventilation, and air conditioning (HVAC) status.
Moreover, a company’s central priorities will guide the selection of an appropriate ESG framework. While some companies might integrate ESG deeply into their core operations, others may simply want to comply with regulations to avoid penalties and fulfil regulatory requirements.
What is ESG methodology?
ESG methodology is all about the nuts and bolts of calculating a company’s ESG rating or score. In simpler terms, it’s how we figure out a company’s scoreboard in handling its ESG responsibilities.
These ESG scores are useful, letting both the companies themselves and the outside world get a clear picture of how an organisation is stacking up. It’s worth noting that there’s no one-size-fits-all methodology to rate companies, even though many rating agencies are completing their assessments.
How do I create an ESG framework?
An ESG framework can be created by first considering an organisation's priorities, then establishing how its key performance indicators (KPIs) will be measured, where its performance gaps are, and how changes will be executed.
Although every organisation's approach will be different, a solid first step for creating an ESG framework is to conduct a materiality assessment to determine priorities and what ESG metrics to measure.
Setting ESG targets is crucial for benchmarking performance. These targets could range from maintaining current levels of performance to identifying and enhancing areas of weakness and boosting the energy efficiency of properties.
The performance then needs to be quantified, so companies need to gather data and resources, looking at factors such as employee diversity, pay and benefits, water usage, carbon emissions, security breaches, ethics, and financial auditing.
But what happens when the numbers reveal a gap between where you are and where you need to be? That’s when you strategise. Companies must create a game plan to tackle those gaps, take focused action, and then keep an eye on those KPIs to check progress. Then, it’s time to go public with an ESG report that’s as transparent as it is informative.
Regardless of which framework is used, gathering a large volume of data on a wide range of metrics from various sources is challenging. This is where the benefits of a smart building come into their own.
According to research from IOT Analytics, 58% of commercial and large-scale residential buildings have the underlying technological infrastructure for further digitisation. Having a smart infrastructure in place enables data collection to be automated, saving companies time and money. With the right software, companies can identify performance patterns and predict outcomes, helping companies optimise the energy performance of their buildings.
With machine learning algorithms, building operators can ensure estates run more efficiently, reducing their carbon footprint, and meeting their sustainability targets. Likewise, smart software can provide regular status updates on a system’s performance, so you can take immediate action if potential faults emerge.
Why should I develop an ESG framework?
An ESG framework is critical because it enables an organisation to assess and evidence its impact on people and the planet. Additionally, it assesses the potential for a company to sustain growth long term.
Furthermore, data from PWC indicates a striking trend: 76% of consumers are ready to turn their backs on companies that poorly manage their treatment of the environment, workforce, or local communities.
Having an ESG framework in place can improve a company’s public perception, and according to a 2019 McKinsey report, affect operating costs by as much as 60%. Frameworks can increase a company’s efficiency, lower its costs, and mitigate supply chain and environmental risks. As the global focus on climate change, social responsibility and corporate governance increases, stakeholders want to know how companies are managing these issues. Frameworks like the Total Outcomes Measurement System (TOMS) can play a crucial role. By using TOMS to measure and manage their social impact, organisations can enhance their ESG performance and provide stakeholders with meaningful data on their contributions to society.
Through the lens of an ESG framework, organisations display a commitment to transparency, helping them draw in customers and investors alike.
Get in touch with our experts to find out more about our smart building solutions and how our technology can enable you to deliver your ESG plan.