Insights > Save Time and Deliver Greater Insights by Rethinking Your ESG Benchmarking Process

Save Time and Deliver Greater Insights by Rethinking Your ESG Benchmarking Process

Corporate ESG disclosures have evolved significantly over the years, but companies’ approaches to benchmarking have not. Leaders should use benchmarking to drive continuous insights and action and not simply to check a box.

Over the last 12 months, a series of regional, national, and international regulations have significantly altered the ESG disclosure standards for companies. California’s climate bills, the SEC climate disclosure rule, and Europe’s CSRD are raising the stakes in the reporting of carbon emissions and risk for both private and public firms. With this ever-changing environment, corporate leaders must closely monitor what rules are applicable to their businesses, as well as how competitors are faring. With so many new standards and with ESG disclosures becoming decisive factors among stakeholder groups, periodic peer benchmarking in the ESG arena is a necessity.

Strong sustainability programs conduct peer benchmarking during both the program planning and program execution phases. For companies starting initiatives involving climate reporting or social impact, gauging performance against competitors is essential to find the right pace and scope of disclosures.

Benchmarking in the Program Planning Phase

As leaders develop the blueprints for their sustainability programs, it’s important to think of one’s strategy on a maturity spectrum. Some companies aim to be the strongest performers in their industry or sector; some companies aim to do the bare minimum; others want to minimally outperform their peers. Where a company lands on this spectrum and its subsequent appetite for sustainability initiatives and disclosures will impact its level of investment and effort but also its approach to benchmarking.

Too often corporate leaders conduct comprehensive benchmarking exercises, reviewing all or most companies within their industry, only to determine that 20-30% of surveyed companies fall anywhere near where they aim to land on the maturity spectrum. By first identifying if the business wants to be an outlier, in the middle of the pack, or do enough to get by, the relevant, benchmarkable universe shrinks significantly, saving a lot of time on the back end.

In addition to looking outwardly at peers, the benchmarking process should also involve looking to various stakeholder groups. Investors, customers, and suppliers often have their own sustainability disclosures, and while a company may not need to align its ESG practices with every supplier, for instance, it is beneficial to understand where the business stacks up relative to its stakeholders. If there are common, recurring areas of deficit, these could be the topics on which companies will be pressured the most to take action.

Benchmarking in the Execution Phase

Many leaders think of benchmarking solely as an exercise in preparation and planning, but the best ESG programs utilize benchmarking as a continuous improvement tool. In other words, ongoing reviews can provide a competitive advantage to companies relative to peers who treat benchmarking as a once-a-year effort.

For instance, while most ESG disclosures are published just once a year, one-off requests for information from customers and suppliers through platforms such as EcoVadis can be submitted repeatedly throughout a calendar year. Further, leading programs will use other events such as earnings calls or investor days to elaborate on their sustainability programs outside of the standard disclosure windows.

Keeping tabs on this provides two key benefits. The first (and obvious) benefit is it allows for a real-time view of the progress that other companies are making, allowing leaders to make decisions regarding whether they’d like to voluntarily follow suit within their own programs. The second benefit is it can provide foresight into the requests that may be coming down the pike from stakeholders based on what others are experiencing. While one company’s experience will not always translate to another, this awareness can help prepare leaders, especially for arduous and resource intensive requests.

Finally, the regulatory environment does not follow a predictable cadence. New rules and regulations, disciplinary actions, and legal stays can occur anytime throughout the year. As a result, continuous benchmarking and research can also serve as an important tool to ensure regulatory actions don’t slip by unnoticed.

Tricks of the Trade

While the strategy and approach to ESG benchmarking differs for every company, there are a few tips that can help improve the efficacy and impact for many organizations.

  1. Look to consumer brands for best-in-class examples. Benchmarking within your industry is a productive exercise, but the companies with the best ESG programs will always be consumer-facing. If you want to know what good really looks like, look to Fortune 500 retailers. The topics they deem material may be less relevant for you, but how they talk about their strategy can provide a myriad of ideas.
  2. Avoid the pitfalls of apples-to-oranges comparisons. Inevitably, your business will be compared against companies that differ in size, industry, footprint, and complexity. What is right for one business is not inherently right for another, so while benchmarking, be sure to consider the resemblance of other companies to your own. Doing so will ensure that your strategy and priorities are not misaligned relative to the makeup of your business.
  3. Have a strategic goal going into the process. The most disjointed ESG programs stem from one common place: the company leaders at that business do not know why they are prioritizing ESG efforts in the first place. To avoid this, corporate leaders need to know why they’re taking action (regulatory compliance, investor demands, etc.) and who they are aiming to satisfy (customers, suppliers, employees, etc.). Without distinct alignment on these two dimensions, sustainability programs are poised to fail.

 

If you need support with peer benchmarking both in the planning and the execution phases of your ESG initiatives, reach out. Riveron can help you navigate the wide world of ESG disclosures and deliver a comprehensive, customized peer benchmarking exercise.

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