How Do You Know Which Data Is Good for ESG Investing?
Data is the most significant challenge when it comes to environmental, social, and governance (ESG) investing. People complain that data is not consistent, comparable, and verified. To better understand best practices and what’s happening in this space, there was a special session at Bloomberg Green COP27, an event co-sponsored by SAP for organizations to meet outside the negotiating rooms of the climate conference and delve into pragmatic strategies for cross-sector climate action.
One company with extensive expertise in ESG reporting is Anheuser-Busch InBev, the world’s largest brewer. The company’s strategy for growth through the digitization of its ecosystem – which includes 200 breweries, 6 million customers, and over 2 billion consumers, generating over 10 million weekly transactions – involves a lot of data.
The Right Data
“Brewing requires the best ingredients, which requires a healthy environment. We are an agribusiness. We see the far-reaching implications of climate change in our operations and sourcing regions,” said Ezgi Barcenas, chief sustainability officer, Anheuser-Busch InBev. “With operations in over 50 countries, we’re looking at many metrics. Just inside our walls, we have 400 operating practices for tracking efficiency, water, energy, maintenance, and sourcing, to name a few.”
Barcenas explained that as the company looks at its supply chain, it must think through the environmental and social impact up- and downstream, from the smallholder farmers down to the half million SMEs that are its customers selling its products around the world, all the mom-and-pop shops as well as the big chains.
“That’s a lot of data,” she said. “Now add all your research and innovation data, security data, and ideas about the future of packaging and logistics. The point is, sometimes you need better data, not more. You need to ask yourself: is this data useful for making decisions? Does it help drive the right actions through the business?”
Another data-heavy company participating in the discussion was Schneider Electric SE, a French multinational specializing in digital automation and energy management for buildings, data centers, infrastructure, and industries. By 2025, thanks to its energy and sustainability services and green product innovations, it will have helped customers decarbonize and avoid 800 million tons of CO2.
“We need to triple our speed to avert climate disaster. Reporting scope 3 emissions is extremely important, because we can only track what we measure and we can only improve if we measure,” said Michael Lofty, senior vice president, Power Products, Schneider Electric. The good news is that about 70% of Schneider Electric’s revenue already comes from green solutions. The company invests heavily in innovation. “Any innovation coming from Schneider Electric is a sustainable offer,” he explained. “Each product is more sustainable than the one before it, and metrics are key proof points.”
At Schneider Electric, the main challenge was to get suppliers on board the sustainability journey. The company launched a Zero Carbon Project to help 1,000 suppliers responsible for 70% of its upstream carbon emissions become more sustainable. “This is a movement and it’s a must-have movement, because we are only as strong as our smallest supplier,” said Lofty. The project aims to quantify supplier emissions to establish a baseline and identify key sources of emissions. This enables data-driven prioritization of intervention and road map creation.
Most people assume that ESG investing is designed to reward companies helping the planet. According to a report by the Harvard Business Review, however, ESG ratings that underlie ESG fund selection are based on materiality, an accounting principle stating that all items likely to impact investors’ decision-making must be recorded in detail in a business’s financial statements using GAAP standards.
Some businesses are already linking materiality to their own fortunes and that of the planet. A study by SAP Insights revealed that a significant minority of respondents say sustainability is already financially material to their businesses and a larger group believes it will be imminent in the near future. Companies like Anheuser-Busch IN Bev and Schneider Electric are finding ways to make that link pay off with the help of data.
“One change we’ve seen over the last few years is that investors have a better understanding of which data is material to the business, and they ask more questions around it,” said Barcenas. “We’re increasingly trying to provide more context around our data.”
Providing accurate data is the only way to really demonstrate the impact of the changing world on a company’s profits and losses. Having one global framework and mandatory reporting would certainly help address the data challenge, but that won’t happen in the near future.
“We still need to progress on some of the standards and regulations before we can make them mandatory,” said Gunther Rothermel, senior vice president, head of Sustainability Engineering, SAP. “We need to look at the common denominator underlying the regulations and cover that level first, and then grow this common denominator as the regulations mature and become accepted.”
Companies like SAP, he said, with products that also need to meet standards, will, at least for now, have to serve numerous frameworks. In the meantime, SAP solutions help organizations of all sizes and industries achieve their zero emissions, zero waste, and zero inequality goals through ESG data transparency across crucial business processes, business networking, and a large ecosystem of partners.
“We believe that embedding sustainability at the core of business strategy can help drive operational efficiency, innovation, employee engagement, supply chain resilience, risk mitigation, improved sales, and other strategic business benefits,” said Rothermel.
Having the right data proof points will help companies better understand the return on their sustainability investment (ROSI) and the materiality underlying investor decision-making, resulting in shareholder returns and long-term benefits to the environment and society.
For more information on how SAP helps companies record, report, and act on their sustainability goals, visit sap.com/sustainability.