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Ext. PublicationEssential Steps to Establish Effective ESG KPIs: A Guide by Weaver
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In today’s complex business environment shaped by geopolitical tensions, climate-related disasters and the rapid advancement of technologies, environmental, social and governance (ESG), metrics have become fundamental to a company’s long-term strategy and resilience. Establishing robust ESG key performance indicators (KPIs) is essential not only for aligning with regulatory requirements and stakeholder expectations, but also as a strategic tool to navigate and mitigate the volatility of external disruptions that are increasingly frequent and unpredictable. By defining the right KPIs, companies can better manage risks, optimize resources and sustain profitability, ensuring they are equipped to thrive in an ever-changing landscape. The question is: where do you begin?
Companies can build a robust framework for meaningful ESG reporting by exploring key areas, such as:
- Start with double materiality: A double materiality assessment is a leading practice under the Corporate Sustainability Reporting Directive (CSRD) framework, enabling the identification of the most relevant ESG topics from both a financial perspective and impact the company has on the environment and society. This assessment ensures that KPIs align with business priorities and stakeholder expectations.
- Evaluate regulatory and value chain obligations: Before defining KPIs, companies need to assess the regulations they are subject to (e.g., the Corporate Sustainability Reporting Directive (CSRD), the U.S. Securities and Exchange Commission’s (SEC’s)climate disclosures, California Climate Regulations, etc.) and the ESG expectations from key stakeholders in their value chain. Large corporations like Microsoft, Apple and Amazon have specific supplier ESG requirements, and companies in their supply chain must align with these to maintain or gain business. Identifying industry-specific mandates and voluntary commitments early on ensures that KPIs are compliant and aligned with market expectations.
- Data collection and systems readiness: Companies need to assess whether they have the necessary systems, processes and governance structures to track and measure ESG data effectively. This is crucial for ensuring the accuracy and reliability of your ESG reporting. Evaluating existing technology platforms and personnel capabilities will help ensure seamless data integration and reporting.
- Technology and human resources: ESG data management is not just about software solutions — it requires a balance between technology and human oversight. Organizations should assess their current technology stack, data governance protocols and the personnel responsible for managing ESG reporting to identify potential gaps. By maintaining the accuracy and integrity of ESG data, companies can make better informed decisions, reduce risks and improve their overall sustainability performance.
- Corporate culture and bureaucracy: One of the most overlooked factors in KPI development is corporate culture. Unlike utility data, culture is not easily quantifiable, but it directly influences how quickly and effectively a company can implement new ESG tracking processes. Companies need to be honest about whether they are agile or committed to legacy processes. This will shape the types of KPIs they can realistically track and their timeline to collect data.
- Setting realistic reporting expectations: ESG KPIs should be achievable and scalable over time. Organizations need to consider their internal capacity for data collection, validation and reporting cadence before committing to complex metrics that may not be feasible.
Weaver recognizes that establishing ESG KPIs is not a one-size-fits-all endeavor and requires a nuanced understanding of diverse factors. We approach effective ESG reporting as an ongoing and evolving journey. Contact us to learn how we can help you establish your company’s ESG KPIs to create value for stakeholders and drive long-term success.
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