‘Don’t think about ESG simply as a reporting exercise,’ advises former SSGA asset stewardship head

Governance consultancy Diligent has been on something of an ESG push this year, with acquisitions and the launch of its new ESG Solution service on its Modern GRC platform just last week. Earlier this year the company also hired Matt DiGuiseppe to head its ESG Center of Excellence.

DiGuiseppe joined the company from State Street Global Advisors (SSGA) where he was head of Americas asset stewardship. He talks to IR Magazine about finding a framework that is right for your company, why it’s not just about best-in-class performance and what investors want when it comes to IR knowledge on ESG issues.

The ESG Solution announcement talks about the challenges companies face in trying to establish ‘impactful ESG programs and demonstrate progress’ as well as a lack of clarity around where to start. Can you talk about some of these specific challenges and how companies should be tackling them?

ESG is a big tent and there are a lot of stakeholders in a business that can pull companies in multiple directions. Add to that the lack of clarity on where some of the data exists – and if it exists at all – and it’s easy to see how taking the first step is scary.

There are a lot of ways to go about taking that first step though: you could start with a framework like SASB or the one from the World Economic Forum, collect basic data like workforce diversity, or conduct a materiality assessment. What’s important is that you start taking bites of the apple and you work with a data platform that makes sure each time you take a bite you’re not starting from scratch.

What advice can you offer companies at the very early stages of establishing their ESG reporting framework and how would that advice evolve as their program evolves?

My main piece of advice would be to not think about ESG simply as a reporting exercise. 

Reporting aligned with frameworks and the answering of ESG questionnaires should be a by-product of a strong program linked to the company’s strategy and addressing the topics material to its performance.

We are seeing investor attention turning to performance over time, not the availability of data, so you want to establish your program with that in mind.

How can a company decide between the different reporting frameworks out there?

If a framework is going to form the basis of a company’s approach, they should use one that aligns with the topics that are most material to their business. Ideally, you want a framework that is cross mapped, so you can start with a lighter lift, like SASB, and it will automatically keep track of how you’re doing on more all-inclusive frameworks like the GRI.

What are some of the common mistakes you see companies making when it comes to ESG reporting and, broadly speaking, what should they be doing better or differently?

Treating a spreadsheet as their data platform. This creates friction between the sustainability team and the business when it’s time to update data or around data integrity issues.

Also, thinking about reporting as just an annual process. If you are setting goals and making commitments to the market, you need to be tracking data and trends much more closely or you could face reputational and, possibly, regulatory risk.

Drawing on your experience at SSGA, what do investors want to see when it comes to ESG reporting – outside of best-in-class performance? Are there any no-nos that you’re still surprised to see?

Investors want clear, consistent and comparable data. Companies need to balance this with the fact that the metrics that are most meaningful to the business might not fit into the boxes investors want.

Performance too is gaining importance, not just best-in-class, but showing progress over time and a rate of improvement. In fact, I would expect more focus on the trend in data over a point-in-time datapoint.

What are some of the ESG issues you expect to come into the spotlight in the coming years and are there any you think will become less important than they are today?

I expect increased attention to human capital and the datapoints that indicate which companies are really treating their employees as their greatest asset. Over the next few years, I expect more issues to come under the ESG umbrella and very few – if any – to fade away, so companies need a platform that is flexible and can serve as the nexus of their ESG data.

Finally, to what degree do investors now expect IROs to bring a strong understanding of ESG issues at their respective companies?

Investors expect IROs to be well-versed in ESG and be able to communicate the company’s story effectively.

What that means is that they need real-time data to be informed. Stakeholder-specific dashboards can be useful, so executives can be informed going into earnings calls and IROs can have ongoing line-of-sight into progress – all without having to constantly contact the chief sustainability officer to update the data by reaching out to operating units.