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 Cameron; Greenplaces 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.
ESG metrics and measurements are important for several reasons. They:
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.
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.
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.”
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.
“At AngloGold Ashanti, we established a baseline that represented our current suite of assets,” Cameron said. “We didn’t want to put out a figure without any substantiation.” He also added “In 2021 our Board approved a new Climate Change Strategy, and the company published its inaugural Climate Change Report in line with the guidelines and recommendation of the Task Force on Climate-Related Financial Disclosures. AngloGold Ashanti’s 2030 targets are embedded in a Roadmap to Net Zero which focuses on all sources of energy-related emissions, both at the company’s mine sites and from its electric power providers.”
“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.”
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.
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."
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:
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 will cost $1 billion. Fortunately, more than two thirds of the funding will originate from third parties. It is important to note that most of the projects are value accretive.”
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."
“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:
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.
