Decarbonisation has risen to the top of the executive agenda, with every sector under pressure to reach net zero by 2050, or before. To have a chance of achieving this goal, organisations should think beyond regulation and compliance. They need to start with operational transformation – differentiating themselves from their competitors and delivering real performance on ESG for customers and stakeholders.
Though the destination is clear, decarbonisation is a complex journey and businesses can find themselves grappling with where to start or how to push forward – while financial accounting is under control, carbon accounting and sustainability reporting are less clear.
More often than not, leaders are stymied by the sheer breadth of data required from across the organisation. Data availability is patchy and targets are currently based on rough approximations – leaving organisations with no consistent way to benchmark, baseline or reliably track emissions. Good data leads to good decisions, and this is especially true on the journey to net zero.
When it comes to harnessing ESG data, organisations face three frustrating hurdles – lack of trust in available data, disagreement on where to get better data from, and difficulty in driving operational change.
Charting the course to net zero – let data be your guide
Trustworthy data: what are we basing our decisions on?
Increasingly, climate objectives are being woven into investment and corporate strategies and organisations need trustworthy data to support their sustainability goals. While targets are being set and glossy reports are being produced, there has not been sufficient focus on accuracy and reliability of ESG data. Almost all targets and reports to date are reliant on estimates of emissions, which may or may not prove to be accurate and attainable when the real data emerges.
What does ESG data quality look like? Trustworthy data is accurate, recent, complete, transparent and relevant: it thrives on solid investment and robust governance. Organisations that understand and invest in the data elements critical to decarbonisation can design new offerings and have targeted conversations with their clients to realise their climate ambitions.
Meaningful metrics: improving emissions data sources and calculations
Operations integral to an organisation should have higher-quality emissions data. The priority placed on emissions data will vary across sectors. Banks, for instance, have limited direct (Scope 1) and indirect (Scope 2) emissions and in this scenario, estimates may suffice for now. Their primary impact on climate changes lies in financing investments, granting them significant influence over our path to net-zero. Collecting real data on emissions from financed assets (Scope 3 Financed emissions) is crucial to decision making. By integrating this real data into operations, they can achieve better climate performance through incentives – one example being lower funding costs for low emission projects. Similarly, resource sector companies recognise their own operational emissions as the primary source and by incorporating the data into operations and strategic decision making, it’s driving them to identify alternative business segments to replace high-emitting ones.
Whatever sector you are in, to anchor your progress towards net zero, you need to establish a consistent ESG data framework. This includes capturing critical data elements in a data catalogue to drive shared understanding across your organisation. An associated technology strategy needs to be defined to ensure ESG data is integrated into core operational systems.
ESG transformation: from first steps to data driven change
For businesses to proactively participate in decarbonising the economy – treating climate change as an opportunity, not a risk and governance challenge - they need to integrate emissions data into their core business operations and everyday decision making. To support this change, data needs to become more granular, more directly tied to the different components of the business value chain, and better managed within the organisation.
To achieve true ESG transparency, in the future state, the use of proxy data will be minimal. Organisations should have real data – coming from clients and suppliers, as well as their own operations. It needs to be managed as critical, core data – within an organisations’ top priority systems.
This needs to be an enterprise-wide approach to ensure that emissions from all facets of the organisation are accounted for so that we can track the desired metrics accurately. This means applying the same data management and governance practices which currently applies to an organisation’s core data assets.
Data also has to be fully integrated into operations – being available and taking part in decision making in real time, not after the fact in reports and reviews. This will transform how emissions impact operations and enable climate strategy to be a true component of business strategy and execution.
ESG data management: the risks of inaction
Without robust data governance, organisations are navigating in murky waters – risking missed targets, reputational damage and lost opportunities.
They may be accused of greenwashing when their underlying data can’t be verified – leading to legal challenges, intense scrutiny from regulators and, in some cases, products being pulled from the market.
Without transparent ESG disclosures, they will struggle to secure green capital from government initiatives. Competitors with a better ESG track record will gain market share. Investors may look elsewhere for businesses that are committed to decarbonisation and sustainable practices. Most importantly, under-reporting of climate impact can lead to greater damage to communities, the environment, our planet and the economy.
ESG data transformation: the way forward
What does it take to move the dial on ESG data?
- Move beyond compliance and reporting to operationalise ESG targets – build them into core business operations.
- Establish clear metrics and focus on core business levers which are controllable and enable a real reduction in emissions.
- Review your data architecture and ESG data model to ensure it addresses business requirements and doesn’t just stop at reporting.
- Invest in data quality – focusing on critical data elements.
- Increase accuracy using real data instead of industry estimates and proxy data.
- Invest in a data platform that provides an end-to-end view across your organisation and third parties – including a robust data catalogue and data governance practices
Organisations with access to real data they can trust have an opportunity to be at the forefront of emission reduction efforts and have a profound impact on how we mitigate the risk of climate change.
Banking case study: building an ESG data framework
Financial institutions need a complete view of the carbon emissions and environmental impact of any potential investments to accurately determine their risk profile and return on investment. As providers of capital, they are uniquely positioned to influence Australia’s journey to net zero.
We designed the ESG data framework for Financed Emissions to support and accelerate client engagements in the banking sector. The framework combines years of data experience in financial services with global ESG leadership to leapfrog our clients through the ESG transformation journey, as outlined in the list above. Namely, our framework provides customised assets, such as a Financed Emissions data model, governance framework, and technical architecture.
How KPMG can help you harness the power of ESG data
No matter what stage you’re at, we can help you transform your ESG data and achieve your sustainability goals. Drawing on our sector expertise and global data experience, we’ll outline a custom data landscape for your organisation and help you create an internal plan to reliably track emissions and accelerate your journey to net zero.
