Reducing energy consumption in production, cutting down on loss of inventory, paying your employees a fair wage etc. aren’t done because they fall under the umbrella of sustainability. They are done because they make economic sense. By economic sense, I mean that such practices either create efficiencies that impact the bottom line or remove risks related to regulatory concerns, access to markets, employee churn etc.
Let’s take a look at an example. If, say, your shipping company manages to cut down on fleet emissions by optimising your logistics routes, you just might feel inclined to declare that sustainability is at the core of your business, when in fact optimising your routes and thus improving unit economics for a delivered package is what you’re good at and that just happens to manifest in positive ESG metrics.
I’m not saying that companies shouldn’t act in a manner that takes environmental, social or governance-related issues into consideration. Instead, I’m proposing that most companies lack the capabilities to actually do so. When your sustainability-related data is aggregated once a year, claiming it affects your company’s decision-making is disingenuous. But is sustainability reporting a redundant regulation-driven exercise then?
Not at all. It delivers at least three positive contributions. It provides a certain level of exposure to a company’s sustainability activities. Sustainability reporting also reinforces accountability towards stakeholders. Finally, it helps build up awareness and ambition within a company to travel further on its sustainability journey.
We should be realistic though: sustainability reporting isn’t enough. The world is burning around us. We all need to demystify sustainability-related talk if we want to get anything long-lasting done. Because something needs to get done and fast.
CSRD
Yup. Sorry to drop that in there without a warning. If you work in corporate functions, the new Corporate Sustainability Reporting Directive is most likely giving you a lot of grief. For those of you unfamiliar with the subject, please hang in there, there’s some juicy stuff just a couple of rows down.
CSRD is a new EU-level set of reporting requirements that will impact the majority of all businesses in the years to come. As there is a wealth of good public material on CSRD, it’s most likely best that I don’t get into the nuts and bolts of its details. The reason I’m bringing it up is that it sets the bar on sustainability data-related practices and capabilities significantly higher.
At Solita, we’ve been giving sustainability data a good look. Here are some of our findings.
1. Sustainability data is business and operating data
It’s a cliché but bear with me. When companies report on their sustainability, they are in essence presenting a view of themselves through a lens of ESG. ie. they aren’t producing data on a novel facet of their business operations, but subjugating existing data assets into a format that is unfamiliar to their day-to-day use.
However, compiling and transforming this data into a report is a cumbersome ordeal. Why is that?
2. It’s all about frequency
Companies make daily decisions based on available business data, but report outcomes of these decisions from a sustainability point of view most commonly once a year. If this data is transformed into a sustainability format so infrequently, that data doesn’t impact the companies’ actions and thus will remain laboursome to gather. Meet the chicken and egg of all sustainability data issues.
3. Build on existing capabilities
The majority of the data our clients are looking for already exists in their organisations in a business context and has a wealth of use cases utilising it. Similarly, they have established practices embedded in their business processes of sharing data with their suppliers and customers. Smart work on sustainability data isn’t about building something totally new, but leveraging existing data and augmenting processes that the data feeds into.
Choose the right path
CSRD requires companies to both gather ESG data from their sourcing and supply chain and provide quite granular information on the company’s ESG impact on their customers. As a generic example, a paper mill needs to know (and report) what ESG impacts occur prior to a shipment of wood arriving through their gates and similarly, they need to provide information to their customers about what kind of ESG impacts a specific roll of magazine grade paper took to produce. Their customers in turn will enrich this data with figures on what it took to design and print a magazine and land it on the shelf of a store.
If you’re feeling a little overwhelmed, I understand your pain.
But, making sustainability data actionable must be done. Not only for the sake of CSRD and a myriad of acronyms to follow but to actually create competitive advantages related to it. Here are three principles to help you along this journey and our framework for helping you choose the most sensible path forward.
1. Set a realistic target
If your company is struggling with sustainability data, try to scope out the size of the problem and then identify an attainable target. If you estimate getting all CSRD-related data into order once a year carries an overhead of undue manual labour of two weeks, set a goal and plan accordingly to cut it down to one.
If you’re having issues in ingesting and handling supplier Scope 3 data, design a solution, with clear metrics for success, that is feasible and viable to address that specific problem.
2. Remove friction
Even without CSRD, managing sustainability data has a lot of inbuilt friction and inefficiencies in any company, due to the reasons outlined above. Choose removing friction and thus creating efficiencies as a singular design principle and a measurable target for all sustainability data-related development.
It is easy to understand for any development team and is relevant for both improving internal practices and solving your supplier/customer sustainability data needs.
3. Shift your gaze outwards
CSRD requires new data transferability capabilities in the whole production process of an item or a service. Your suppliers and customers are simultaneously trying to figure out the most feasible and viable ways of exchanging data between parties. We are picking up faint signals of major players putting their weight behind certain kinds of practices that will invariably trickle up and down their value chains. In exploring common ground with your key suppliers and customers, there is a lot of value to uncover.
Read more about sustainability data