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But waiting to act also comes at a price, and your business might end up worse off in the long run. In this blog, you’ll uncover the true cost of waiting to report on your ESG performance data. Many countries have made it a legal requirement to report on sustainability performance data, and for those industries and jurisdictions that are currently lacking rules and regulations, it’s just a matter of time. Regardless of where you live, every business has a responsibility to improve its sustainability performance.

In a previous blog, we highlighted the key challenges with sourcing, cleaning and reporting on ESG data, breaking it down into these 3 challenges:

• Sourcing data is time-consuming and hard to scale.
• Data is often fragmented and inconsistent, as are regulatory standards.
• There is a general lack of transparency, and greenwashing is increasing, both in its volume and frequency.

To rectify these challenges, it takes a sizeable technology investment, and ideally one that can cover all of your data and reporting requirements in a single system. On the flip side, an ESG investment like this will also provide a return by preventing future business risk, improving transparency and encouraging more efficient operations. The big question that many business leaders face is what makes ESG data solutions a higher priority and better ROI than other initiatives within the business.

It’s the bottom line, literally

A business’s bottom line is its net profits—that is, what’s remaining after all of the expenses and costs of the business have been accounted for. You may not think it at first, but ESG data management is intrinsically linked with an organization’s profits. The data analyzed and reported on helps to protect the reputation of the business, find efficiencies and increase performance, all of which directly impact an organization’s bottom line. Essentially, the longer you wait to implement an ESG solution, the less potential to positively impact profits.

ESG performance data and the true cost of waiting

Maybe you’re a sustainability officer, compliance manager or environmental director, and it’s your job to ensure your ESG data sources are analyzed and reported on. You raise this with your boss, but it’s quickly met with a reason for why the timing just isn’t right. As already explained, the truth is, the timing is right, and we just need to overcome some of these initial pushbacks with some well-understood counter justifications.

Pushback #1 – “Let’s wait a few more weeks.”

The justification: If you wait another 5 weeks, that’s almost another 10% of your 2023 budget gone. You will be another 5+ weeks away from realizing the scale of the challenge and another 5 weeks behind your competitors that are investing and reporting on their ESG performance data.

More than $1 trillion was invested into ESG funds over the last two years, indicating that business leaders and investors see the value in sustainability initiatives. So why is there resistance to start investing in value chain transparency solutions straight away? It’s because ESG is seen more as a capital expense, rather than an investment that will reap a quick return. Some examples include living wages, renewable energy and social programs. While it’s true that the nature of ESG data solutions requires that you make the effort to gather the data and produce meaningful metrics, once this is completed and automated, the potential savings (monetary and operational) make it an excellent investment for an organization, providing recurring ROI, year after year.

Pushback #2 – “We don’t have the bandwidth right now.”

The justification: At some point, your business will need to overcome your ESG reporting challenges and start sourcing and cleaning ESG data for reporting. Focusing on this task may be seen as a distraction for workers in the short term, but once implemented and the metrics established, the resources required are minimal. The data analysis will also help the business make longer-term performance gains, so the efficiency benefits will far outweigh the upfront time invested.

Data scientists spend on average 80% of their time collecting, cleaning and preparing the data for analysis. Just imagine if this process was automated and how much time your data scientists would gain back. The other alternative is to task a more senior person with this request in a last-minute scramble—for example, your Chief Sustainability Officer (CSO). But when the average Chief Sustainability Officer earns a salary of between $62,780 and $208,000, depending on education and experience, it becomes a huge cost and time expense to the business to have that person do the work. If a CSO earning $100k spends 80% of their time collecting and cleaning data, that would translate into 1,664 hours per year, a total of roughly $80,000 within a year. Over the course of 3 years, with manual ESG data collection and analysis, a business could end up spending around $240,000. If the process had been automated or handled externally, the CSO would have been able to focus on strategic opportunities and maximizing profits for the business. As the years mount up, so does the cost of data collection, cleaning, etc., far outweighing the cost of implementing an ESG reporting solution now.

Pushback #3 – “It is not obligatory, so it is less of a priority.”

The justification: In several countries, ESG reporting data is mandatory, and for many more it will become mandatory soon. Therefore, your business needs to become as accountable as possible in its sustainability performance and data, or risk non-compliance, potential fines and reputational damage.

Legal obligations are not the only factors to be concerned about. You might also encounter risk to customer loyalty. PwC found that 76% of consumers will discontinue relations with companies that they perceive as treating employees, communities or the environment poorly. On top of this, there are also existential costs to not making sustainability improvements, as the Insurance company Swiss Re stated, with the “world economy set to lose up to 18% GDP from climate change if no action is taken.”

ESG reporting pays off

Numerous reports show that those companies that report on ESG performance and make positive improvements are faring better than those that don’t. For example, Bank of America Merrill Lynch found “companies with a better ESG record than their competitors had higher returns, were more likely to become ‘high-quality stocks’ and were less likely to undergo substantial price declines or go kaput.”

So, there you have it. ESG performance data isn’t a quick fix, but it can provide long-term gains. And the sooner you embed a solution, the sooner you can realize those gains. We would love to show you an end-to-end value chain transparency solution that handles all your ESG data and reporting. Reach out for more information.

Only ESG solutions that connect all the dots, offer one source of truth and produce consistent reporting metrics can bring order to the ESG data collection, calculating and communication chaos. There’s no shortage of data available, but knowing what to look for, how to source it, cleanse it into readable formats and report on the relevant information is a global challenge in any industry. Propelled by the race to net zero, now businesses are under the microscope on their ESG progress. The data is there—somewhere—and stakeholders are likely to want to see tighter ESG targets, better reports and significant improvements across their value chains. Whether you have a dedicated ESG department or are a lone sustainability officer, being able to align your ESG data sources to business objectives and report on performance is crucial. Let’s break down the obstacles that can get in the way and look at best-practice solutions.

ESG Data Challenges

1. 1. Sourcing data is time-consuming and hard to scale

Most companies that are just starting out with their environmental, social and governance activities don’t really think ESG is all that complicated, so they jump on the bandwagon and announce their ESG targets and initiatives before knowing which performance data they’ll need to track so they can show evidence of their progress. Collecting all the relevant data in time for reporting deadlines is often an afterthought, sending internal sustainability departments and information management teams into panic mode. Chief sustainability officers and chief technology officers are regularly called upon to help with such data collection and cleansing, which is extremely time-consuming and expensive. But even data scientists, whose time costs less and who can complete the data sourcing and cleansing process faster, will often spend a lot of time on it, with recent stats finding that 80% of data scientists’ time being spent on data collection, cleansing and preparation for analysis. Typically, larger volumes of data means you’ll need to hire more people, making it hard to scale without incurring extra costs. Unfortunately, asking for a budget increase or hiring new people is unlikely to be well received given the current economic uncertainty and the rise in inflation. Business leaders are now more cautious than before. Their willingness to spend on ESG data has been greatly reduced. A mid-2022 KPMG survey highlights that, of the “…more than 1,300 CEOs around the world…” that were surveyed, “…59% planned to ‘pause or reconsider’ their ESG efforts within six months.” That doesn’t bode well for the future of ESG data collection, processing and reporting.

1. 1. Fragmented, inconsistent data & regulatory standards

Data comes in different formats and is collected in different ways, making it tricky to gather and decipher. A Deloitte survey found that one in four executives said they lacked access to essential data, and two out of three senior executives (35%) identified shoddy data as the biggest challenge when trying to gauge company performance in meeting environmental, social and governance best practices. Even if your company has a carbon emissions tool and a social impact monitoring platform, there’s no umbrella solution to tackle everything in one place and connect the dots. Maybe you have a stellar data scientist team, and you have overcome the initial ESG reporting challenges of gaining access to the right data sources. The next hurdle is understanding what ESG metrics you need to report on. Ernst & Young estimates there are over 600 ESG frameworks and standards around the world; Refinitiv claims there are over 630 different ESG measures; and the World Economic Forum (WEF) states that the metrics include 21 core and 34 expanded metrics and disclosures. Organizations with access to ESG data quickly realize that there is not one global standardized ESG metric to adhere to. The question then becomes, is your data team spending their time collecting and cleansing all this data in the right way? Will anyone even care about a particular metric or standard that you’ve chosen to adhere to? If you’re searching, you can follow the GRI Standards as one prominent standard to measure by. First published in 2010, the Global Reporting Institute (GRI) is an independent, international, non-governmental organization that aims to provide companies with a common language to communicate ESG impacts globally. The standards fall within three categories:

1. 1. 1. Universal Standards, for the business activities and corporate governance of all companies
      2. Sector Standards, for companies in specific industries
      3. Topic Standards, dependent on a company’s material impacts

So, ESG standards (like GRI), policies and guidelines do, in fact, exist. But to compare these standards and have them acknowledged by all organizations, there needs to be universally accepted terminology, metrics, legal obligations and consequences. This way, every organization would be confident in, and be held accountable for, its ESG performance. There has been progress in this direction. The EU is moving quickly toward greater accountability for ESG, with the European Commission considering policies from the recently published report by the European Platform on Sustainable Finance (PSF) that makes suggestions related to “inadequate or non-existent corporate due diligence processes on human rights, including labor rights, bribery, taxation, and fair competition as a sign of non-compliance.” Improved ESG accountability within Europe will give teeth to policies and close loopholes, reducing non-compliance and increasing penalties. Such regulatory enforcement in the EU affects companies throughout the world that conduct business or sell products and services within European jurisdictions. The number of countries where companies must disclose their ESG data is limited. Convene notes that 29 countries and territories maintain some degree of mandatory ESG disclosure regulation, with many policies differing, depending on the jurisdiction. Regulatory developments in this space, however, are gaining greater traction, albeit in siloed form for now. Businesses need to stay up-to-date with this information and look for solutions to avoid the potential for risk exposure. It seems many US businesses have already begun searching, according to Deloitte’s recent Sustainability Action Report, which states that “99 per cent of companies will probably invest in more technologies and tools related to ESG measurement and reporting during the next 12 months, which coincides with plans by U.S. regulators to require detailed disclosure on climate risks.” Companies are already actively trying to avoid the fragmentation of ESG data collection and reporting through investment in technological solutions. If you’re having trouble collecting the relevant data for your sustainable supply chain, we can designate professionals in the country and language of origin to collect that data… so you don’t have to.

1. 1. Poor visibility and increased greenwashing

You can’t share new initiatives and publish ESG reporting data without first having the right ESG data management in place to track. Poorly designed metrics and inconsistent data mean you’ll lack overall visibility into your true carbon emissions, social impacts and governance status. Much of ESG reporting is therefore skewed and based on the information companies can access and make sense of, rather than the whole picture. Accuracy also decreases substantially when you consider the other organizations within your supply chain that are facing similar problems with ESG reporting. Globally, supply chains account for about 41 per cent of a company’s ESG impact, so the inaccuracies in ESG reporting could be enormous. Based on an EY report on sustainable supply chains, Thomson Reuters stated “visibility has become one of the top priorities among supply chain leaders. Of the 525 large corporations surveyed, 58% said that increased end-to-end visibility in their supply chain was among their top two priorities in both the past two years and the upcoming two years. However, despite that desire, just 37% of supply chain leaders reported achieving supply chain visibility over the past two years, indicating a large gap between the desire for more visibility and the progress many organizations are practically achieving.” This gap between where companies want to be and where they are currently can be bridged with the right access to information, expertise and software. Most innovation requires a solid technology investment to generate real change. You’ll need a universal system to verify the reported ESG disclosure data. Otherwise, you have to rely on public performance reports from corporations to learn about sustainability improvements. The ESG challenges for companies with many of these reports is that businesses tend to highlight more positive contributions and exclude the less favorable ones to maintain a good brand image. The metrics contributing to these reports are also often left out, with businesses making questionable and unprovable claims and remaining unaccountable. So, it should come as no surprise that there is a rise in greenwashing in ESG performance reports and sustainability claims from organizations. This won’t last, though, as governmental bodies start to clamp down on ESG greenwashing and other forms of misleading disclosure. Recent rules have already resulted in hefty fines and investigations. A Wired article reported that the investment unit of a BNY Mellon bank was recently fined $1.5 million by the US Securities and Exchange Commission (SEC) for misstating ESG information. The SEC launched an investigation into Goldman Sachs for misleading ESG selling. The Wired article also noted that Germany’s regulator is now investigating the DWS Group, the fund unit of Deutsche Bank AG, which the German financial regulator (BaFin) raided for ESG greenwashing. The day after the investigation launched, the DWS CEO announced that he was stepping down as a result. So indeed, as regulatory pressure mounts, the monetary and reputational risks associated with greenwashing and failure to comply to ESG standards are going to threaten an increasing number of companies that don’t act now to improve their ESG data activities. Automating the data collection, cleansing, calculating and reporting process is easy with Compass software. Achieving greater value chain transparency Fortunately, there are ESG data solutions that can help you gather, calculate and report on sustainability metrics with accuracy. ADEC’s Value Chain Transparency suite of technologies provides you and your supply chains with an end-to-end solution for fragmented, inconsistent, non-scalable, multi-system and invisible ESG data. It will allow you to align your ESG data providers and consequently automate your data collection, cleansing and reporting processes, so you can begin to trust your data and gain a more comprehensive picture of your overall ESG activities, measuring your progress against reliable metrics, complying with regulations and identifying hotspots for future improvements. And, of course, you can more easily communicate your progress to all relevant stakeholders, differentiating your business from the competition. Check out ADEC’s Value Chain Transparency Solutions

You might ask, Why is real estate risk so risky? The risks to a property include environmental threats, natural hazards, land-use risks, regulatory risk, the risk of zoning ordinance violations, building code violations and property tax assessments. These potential threats can impact the value and usability of a property. So being aware of them will help you make informed decisions about the risks to and surrounding your real estate.

How do you begin to determine the risks to your property? First conduct a coordinated due diligence process that includes historical research, site inspection and data analysis. This can be time-consuming and costly, as it typically involves contacting multiple government agencies and organizations and receiving documents and reports in various formats. It can also be daunting, but it’s necessary to gain a comprehensive understanding of the property in question.

Anthropogenic environmental issues—related to past or present chemical use—are among the most prevalent and recognizable types of real estate risk. Properties may be at risk due to chemicals previously generated, stored, used or even inadvertently released. These chemicals can pose threats to human health and the environment, resulting in costly investigations, cleanups and regulatory scrutiny. It’s essential to conduct thorough environmental due diligence, which may range from a basic desktop screening to a comprehensive Phase I Environmental Site Assessment, identifying and assessing potential environmental risks associated with a property.

One escalating risk to real estate is the increased frequency and severity of naturally occurring hazards. Climate change is influencing atmospheric-related natural disasters, including but not limited to droughts, turbulent wind events, floods and sea level rise. Additionally, certain parts of the United States (and many other countries) are more susceptible to geologic hazards, including earthquakes, sinkholes, landslides and soil erosion. These naturally occurring hazards can have devastating effects on communities and individuals and can greatly impact the utility and worth of a property.

In response to this escalating trend, states are taking a harder look at real estate deals and are beginning to require sellers to disclose natural hazards and their potential impact on properties. This information is critical for professionals and non-professionals alike, as it helps make more informed decisions about necessary assessments and the triage needed to protect businesses and individuals from potential losses and liability.

In addition to environmental risks, other things that can affect a property are zoning ordinances, building code violations, property condition and property tax assessments. Zoning ordinances dictate how a property can be used where identified violations may result in costly changes. Building code violations can also increase the risk by impacting the safety and structural integrity of the property. The current condition of a property and any delinquencies, liens or loan defaults can increase the collateral risk of a property.

Key steps can be taken to understand, analyze and determine the potential risk surrounding a site or location to help navigate your property’s resiliency:

• Consider site selection when assessing potential real estate investments—it’s crucial to pay attention to the location and physical attributes of the property. The selection of the site can significantly impact the potential risks involved, as some areas may be more prone to natural hazards like floods or earthquakes. Furthermore, a building’s construction should conform to the established building codes and regulations that ensure resiliency.
• Review and protect high-valued assets and hazardous processes in accordance with national standards. This is necessary in order to identify potential dangers that may be present. By evaluating a property in compliance with national regulations, you can minimize potential risks to the property and those associated with it.
• Perform proper site assessments by hiring expert third-party companies to conduct assessments on the property. These assessments, such as zoning reports, Environmental Due Diligence and Property Condition Assessments, can help identify potential hazards or areas of concern as well as ongoing costs for maintaining the property. By being proactive and staying ahead of potential risks, you can make more informed decisions and ensure a successful investment overall. Additionally, these assessments can give you a deeper understanding of the property’s history and current condition.
• Conduct basic market analysis to gain knowledge of neighboring properties. This includes evaluating the types of businesses and properties in the neighborhood and gathering data on local rents and vacancy rates to gain a better understanding of market demand and potential for growth.
• Consistently monitor property data against updated governmental database queries to ensure resiliency and to remain informed of potential risks. This will help identify any potential issues early on and allow you to take proactive measures to reduce their impact, thereby ensuring the long-term success of the investment. The data collected from these databases can include information on zoning changes, environmental hazards and other important data points that can affect the value and usability of the property.

Leveraging technology can greatly aid in identifying the potential risk associated with your current or future real estate. These tools use intelligent mapping and data accessed frequently from various databases, such as federal, state, local, tribal and proprietary. Multiple users (buyers, sellers, developers, lenders, portfolio holders, etc.) can then intelligently access potential risk to their real estate investments. Such a comprehensive approach, which may also include manual reporting and expert opinions, helps you strategize on how to minimize potential risks and ensures the resiliency of the property for the future.

There are multiple factors that influence a property’s potential risk, such as location, construction, environment and market conditions. Keeping track of these factors and regularly monitoring your property against updated governmental data can help ensure that you are aware of any changes to your investment. Ultimately, real estate risk can be risky due to many variables that yield potentially unexpected surprises. With proper research and due diligence, you can identify these risks, make informed decisions and conduct mitigation as necessary, adding long-term resiliency and sustainability to protect your property.

But because the industry is the second worst polluter, if it makes the effort, it has the potential to make a significant difference in global emissions with new innovations and smart thinking as discussed at COP27.

Way back in 1857, American-born Eunice Newton Foote was the first scientist to conclude that rising CO2 levels could change atmospheric temperatures. Fast forward 160+ years, and we find ourselves on the receiving end of her findings. The latest United Nations figures place the Earth on track for an average rise in temperature of 2.8 degrees Celsius this century, leaving all of us and most species on the planet with catastrophic consequences.

It’s not looking good for the textile industry

The textile and apparel industry continues to produce massive amounts of carbon emissions and wastewater, mainly upstream during the supply chain’s processing and manufacturing (scope 3) stages. When we consider the opposite end of the supply chain – its consumption – the fast-fashion trend also results in terrible environmental consequences. In the UK alone, each household’s clothing consumption produces the equivalent emissions of driving a modern car for 6,000 miles (9,656 km).

No more time for inaction

We have reached a point where we are all responsible for how we consume the resources around us. Previous pledges now need action, and many people and organizations are on their way to making more sustainable choices, regardless of how great the measures are to launch these sustainability transformations.

How can we speed up change? By enforcing through local and global regulations. Some new legislation, rules and standards are expected to come into play soon, impacting future operations and supply chains. However, many people think this has already taken too long and that stricter measures must be taken immediately. The difficulty comes in achieving a level playing field for this to work internationally. The chair of the Frankfurt-based International Sustainability Standards Board (ISSB), Emmanuel Faber, is currently looking to define a global baseline for carbon emissions disclosures and to make as many countries as possible adopt it.

New initiatives to foster change

Global Fashion Agenda, in partnership with United Nations Environment Programme (UNEP), made an announcement at the conference about the launch of The Fashion Industry Target Consultation, a multistakeholder project focused on working toward a net-positive industry and forming new goals that are currently being overlooked, such as purchasing practices and circular design. The main target is to establish a clear path toward a net-positive fashion industry.

Other initiatives, such as the United Nations Fashion Industry Charter for Climate Action, are also trying to curb CO2 emissions by making it mandatory for their 130-plus signatories to report their greenhouse gas emissions annually. The Fashion Charter was launched in 2018 with an international industry mission statement in which fashion and textile companies commit to achieving net-zero emissions by 2050 and address their roles in climate change. 89 percent of companies submitted data this year, with those that failed to comply, facing removal as signatories. It is clear that while strides forward have been made, more needs to be done as a report by Stand.Earth shows. This report looked at the progress of 10 major brands (all Fashion Charter signatories) and found that only Levi’s was on course to cut greenhouse gas emissions by 55 percent by 2030.

Source: World Meteorological Organization (WMO) – United in Science 2022

Responsible sourcing steals the show

The call for responsible sourcing and innovative, sustainable fabrics was heard loud and clear at this year’s COP27 conference. Fashion leaders Stella McCartney and Kering both pledged to source low-carbon fibers to reduce their environmental impacts on endangered forests. Kering, H&M and Inditex (parent company to fashion brand Zara) also vowed to purchase over half a million tonnes of low-carbon, low-footprint alternative fibers for fashion textiles and paper packaging.

According to Reuters, eco-friendly fiber comes from waste textiles and agricultural residues instead of forest fibers, including a fast-growing renewable bamboo fiber that has minimal environmental impact. The announcement from the fashion giants above will help to unlock the funds for 10-20 low-footprint pulp mills to produce these sustainable fibers, with every ton of clothing produced with alternative fibers saving between 4-15 tons of carbon.

These take-aways from COP27 will certainly be difficult to swallow for many brands and suppliers. But you are not alone. ADEC Innovations has designed the CleanChain software to help make improvements in textile sustainability with a few clicks. In that way, you can quickly create a doable plan for transforming your brand or supply chain for the better.

Clean up your supply chain and demonstrate progress toward your brand’s environmental commitments.

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Stand out as a sustainable supplier and help your brand clients get more insights into their supply chain’s environmental performance through responsible sourcing.

Learn more about CleanChain for apparel suppliers.

A successful sustainability plan allows you to identify and implement goals, milestones, and metrics to measure success and address environmental concerns, economic conditions and social equity within your community.

With the 2022 CDP season behind us, now is the time to take steps for future progress. We’re taking a look at what you can do to prepare for next year’s disclosure. What steps can you take before 2023 to set your organization up for sustainability success? How can you improve your ESG (environmental, social, governance) reporting workflows and program performance?