Posted by J. Wesley Hawthorne
Recently, Locus CEO Neno Duplan described the need for credible ESG Reporting, and the evolving corporate, financial, and political drivers leading to the proliferation of ESG reporting. Here, we look at some of the practical aspects of building and maintaining an ESG reporting program. After leading audits for greenhouse gas emissions and other ESG metrics for the past ten years, I wanted to highlight the pitfalls that many organizations face when it comes to supporting their ESG reports, and provide some solutions to improve their auditability.
With the current wave of popularity for Environmental, Social, and Governance (ESG) reporting, many organizations are scrambling to assemble reports that cover these metrics. While a spreadsheet can be readily put together with enterprise-level totals for emissions, resource consumption, community involvement and other metrics, most of those reports won’t stand up to a full audit process. And increasingly savvy investors and stakeholders aren’t necessarily willing to take these reports at face value.
Whether you are getting started on a new ESG reporting program for your organization, or transforming an existing CSR program to cover ESG elements, it is critical to plan ahead for ensuring your final report is audit-ready. That means not only maintaining full visibility for the raw data, calculations, and various factors that went into the report, but also making that data easily accessible and traceable. Consider the case where a stakeholder is comparing two ESG reports where the overall metrics are similar. But one of the reports has a fully transparent data flow back to the source, and the other report can only be verified through a lengthy documentation request to a consultant. Although the final reports may be similar, the stakeholder gains more trust with less effort when the supporting data is readily available.
There is quite a bit of uncertainty over how comprehensive ESG audits should be. Current audit protocols for ESG reporting vary widely. Organizations like the Center for Audit Quality have put forth guidance on how ESG reports could be audited. However, there are no strict requirements and little consensus on what should or should not be included in the audit of an ESG report. Established reporting frameworks like GRI, SASB, and TCFD have programs in place for assurance of those reports, which include a third-party audit for the accuracy and completeness of that data. However, organizations have the choice of achieving either limited assurance or reasonable assurance, and they may choose to have only select metrics or disclosures audited, or they may opt to undergo a more thorough examination that covers the full report. That flexibility is likely to change, however, as stakeholders apply additional pressure for better quality and reliability in ESG reports.
So how do you go about developing an ESG program that can meet current and potential future audit requirements? Based on my auditing experience, here are a few key concepts to keep in mind:
Assembling an ESG reporting program is a significant undertaking, and it may be a monumental effort to simply get the report done, especially if you’re just getting your program started. But to fully set yourself up for long-term success, be sure to assess the audit readiness of your ESG program. Even though ESG auditing is not yet fully codified, more formalized audit protocols are expected soon. Some simple considerations early in your program development will make sure you are prepared for whatever those audit requirements may include.
About the Author—J. Wesley Hawthorne, President of Locus Technologies
Mr. Hawthorne has been with Locus since 1999, working on development and implementation of services and solutions in the areas of environmental compliance, remediation, and sustainability. As President, he currently leads the overall product development and operations of the company. As a seasoned environmental and engineering executive, Hawthorne incorporates innovative analytical tools and methods to develop strategies for customers for portfolio analysis, project implementation, and management. His comprehensive knowledge of technical and environmental compliance best practices and laws enable him to create customized, cost-effective and customer-focused solutions for the specialized needs of each customer.
Mr. Hawthorne holds an M.S. in Environmental Engineering from Stanford University and B.S. degrees in Geology and Geological Engineering from Purdue University. He is registered both as a Professional Engineer and Professional Geologist, and is also accredited as Lead Verifier for the Greenhouse Gas Emissions and Low Carbon Fuel Standard programs by the California Air Resources Board.