Why deep metrics and a strong learning culture are needed to drive effective ESG performance

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Cyrus Suntook, Strategy Senior Manager, Responsible Leadership Fellow, Accenture, Linda Ringnalda, Research Associate Manager, Accenture, Monique de Ritter, Research Specialist Sustainability, Accenture

• Now is the time for companies to turn their verbal commitments to sustainability into action.
• However, companies often struggle to define the right ESG metrics, collect good data and use it to inform strategy.
• Investing in deep metrics, while also building a strong learning culture, can create a virtuous cycle to improve ESG and financial performance.

Sustainability seems to be on the lips of every executive today. But for all the rhetoric, the results are somewhat disappointing. This is largely because companies have difficulty operationalising and measuring what sustainability means in practice. Even when metrics are defined and data is collected, leadership teams often struggle to use this information to inform strategy. Decision-making without data is akin to going on a hike up a mountain without a map to show you where you are going or how far you have gone. This leaves companies vulnerable in the face of increasing societal demands to become net positive or gender equal.

To overcome these challenges, it’s important for companies to focus on measuring their Environmental, Social and Governance (ESG) performance. Effective ESG measurement is not easy – it concerns data, tools and methodologies necessary to track, manage and disclose company performance. The plethora of relevant bodies, standards and regulations constitute a somewhat unpalatable ‘alphabet soup.’ Moreover, different stakeholders often have competing and conflicting perspectives. Defining the right metrics on issues such as trust, loyalty and psychological safety is not straightforward. And then there is the issue of measuring Scope 3 emissions, which are outside the company’s direct control.

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A lack of data impedes effective ESG performance

Executives also recognise these challenges: a joint UNGC/Accenture study found that 63% of CEOs say that difficulty measuring ESG across the value chain is a barrier to sustainability in their industry. Another study of finance leaders found that under half (47%) set key performance indicators (KPIs) and subsequently sourced data to track, trace and manage the performance of these KPIs. About a quarter (26%) are shown to have clear, reliable data to underpin each of the indicators.

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How can business leaders overcome these measurement challenges?

It starts with integrating ESG and its measurement into the DNA of the company. Accenture and the World Economic Forum identified 21 management practices that move sustainability from ‘bolted-on’ to ‘built-in.’ For ESG measurement, we see companies building capabilities in terms of ‘Deep Metrics’ – analysing inputs, impacts and risks across multiple time horizons – and a robust ‘Learning Culture’ – targeted skill development that builds resilience and agility throughout the value chain.

Deep Metrics and a Learning Culture are of particular relevance to companies looking to effectively measure and integrate ESG in their core decision-making processes Image: Accenture/World Economic Forum, Shaping the Sustainable Organization, 2021

Discover

What’s the World Economic Forum doing about the transition to clean energy?

Moving to clean energy is key to combating climate change, yet in the past five years, the energy transition has stagnated.

Energy consumption and production contribute to two-thirds of global emissions, and 81% of the global energy system is still based on fossil fuels, the same percentage as 30 years ago. Plus, improvements in the energy intensity of the global economy (the amount of energy used per unit of economic activity) are slowing. In 2018 energy intensity improved by 1.2%, the slowest rate since 2010.

Effective policies, private-sector action and public-private cooperation are needed to create a more inclusive, sustainable, affordable and secure global energy system.

Benchmarking progress is essential to a successful transition. The World Economic Forum’s Energy Transition Index, which ranks 115 economies on how well they balance energy security and access with environmental sustainability and affordability, shows that the biggest challenge facing energy transition is the lack of readiness among the world’s largest emitters, including US, China, India and Russia. The 10 countries that score the highest in terms of readiness account for only 2.6% of global annual emissions.

To future-proof the global energy system, the Forum’s Shaping the Future of Energy and Materials Platform is working on initiatives including, Systemic Efficiency, Innovation and Clean Energy and the Global Battery Alliance to encourage and enable innovative energy investments, technologies and solutions.

Additionally, the Mission Possible Platform (MPP) is working to assemble public and private partners to further the industry transition to set heavy industry and mobility sectors on the pathway towards net-zero emissions. MPP is an initiative created by the World Economic Forum and the Energy Transitions Commission.

Is your organisation interested in working with the World Economic Forum? Find out more here.

Deploying deep metrics

Companies must start by defining key ESG KPIs and collecting robust data – ‘Deep Metrics.’ The aim is to measure and improve sustainability performance progress over time and monitor the inputs, outputs and potential risks related to ESG factors.

Building strong performance and reporting capabilities is a key first step. A good example is the Metrics Team that Unilever established in 2016. This specialist group provides strategic oversight of ESG metrics and ensures rigour in measurement practices while making sure that every datapoint has a dedicated owner who is highly specialised. Accenture also took an important step by launching the 360° Value Reporting experience in December 2021. This offers a clear overview of its financial and ESG goals, progress and performance.

Organizations can also minimise future risks and maximise future opportunities through associated risk management practices. Iberdrola group does this by implementing TCFD guidelines (Task Force on Climate-Related Financial Disclosures) for risk management. This covers how to identify, assess and manage climate-related risks. Iberdrola also integrated the guidelines into its overall risk strategy: its risk assessments showed that the opportunities of decarbonization are greater than the risks when taking a leadership position in renewable energies, smart grids, storage and digitalisation. This shows how deep metrics can and should directly inform company strategy.

Developing a learning culture

Defining metrics and gathering data alone, however, does not make a sustainable company. To deliver the insights needed to drive organizational change and performance, leadership teams must build a ‘Learning Culture’ to develop the relevant skills, capabilities and resilience, both among the workforce and in the wider ecosystem.

Firstly, organizations should consider how they can support employee growth through the development of data literacy skills in the workforce. The aim should be for everyone in the firm to be able to read, understand, and communicate about data. Anglo American, for instance, has stated that developing data literacy is a key enabler for its transformation towards smart and sustainable mining.

Data expertise is the next step. Focused learning and data go hand in hand to improve customer offerings. The Development Bank in Singapore collaborated with Amazon Web Services to help employees develop specialised skills in AI and machine learning. This in turn helped them to develop tailor-made digital offerings for their customers, including customers in developing countries that traditionally have less access to finance.

Finally, leadership teams should move beyond their own organization and consider ecosystem development: how they share and learn from value chain data, for example, to help tackle emissions or waste. A great example of this is Rio Tinto and Schneider Electric, who partnered to accelerate decarbonisation and renewable energy solutions. This includes working together to boost traceability and transparency and making use of blockchain and Internet of Things (IoT) technologies.

Building sustainability into your organization’s DNA

By combining strong, reliable data flows with a pervasive learning culture, organizations create a virtuous cycle: collecting and analysing data, learning from the outcomes, refining their strategy, discovering new questions that require new data, and so on. By doing so, they are building the robust foundations necessary to bake sustainability into the DNA of their organization to deliver business value and sustainable impact.

Accenture’s full research into Sustainability DNA is available here. You can also take an assessment of the strength of your employer’s DNA.