Whether focusing on materiality or product lifecycle, an important part of the ESG journey for companies is to make a business case for the investments needed to transition to more sustainable business practices. This means first establishing a baseline for consumption of resources, and emissions, and calculating how much can be made in savings via certain treatments – and over what timeline.
How an ESG Baseline Assessment Helps You to Understand Your Impact
An ESG baseline assessment is used to gather information on the ESG reality of a company prior to instituting initiatives and programming that aim to address ESG topics. It should be every company’s starting point in the ESG journey wherein they determine where they are currently before envisioning where they wish to go. Most importantly, it creates a basis for comparison, so that initiatives and programs can be analyzed for their effectiveness in reference to this benchmark. Without a proper baseline, a company is unable to monitor progress and improvements over a period of time.
For example, once you’ve decided that logistics is a priority area of ESG focus for your company, how would you know whether your fuel consumption is unsustainable? First, you need to know how much fuel your logistics processes consume. Once you understand the amount consumed, then you can begin to think about the impact it has. You may ask yourself, “How is this contributing to air pollution, marine and avian health, and community and employee wellbeing?” If you find negative consequences that you would like to mitigate, you can begin to build from your baseline and measure your performance over time with the hopes of creating positive improvements.
This is precisely the value of the SEG baseline assessment; only once you begin to understand your company’s direct impacts on various systems can you move on to improving your impact and having a benchmark point to serve as a comparison.
The materiality assessment informs which elements should be included in the baseline assessment by providing visibility around the importance of various ESG topics (both positive and negative impacts) to your organization and its stakeholders. The baseline assessment is the next step where you begin to benchmark and measure these effects. Together, these two essential elements of launching your company’s ESG initiatives give power to your ESG decision-making.
Companies may find the specific data they want to measure does not exist or is not as reliable as expected, or even just a painstaking process of extracting data from different sources, perhaps even from different locations around the globe or supplier tiers or business partners, then transforming that data into a usable and trusted resource, and loading it into systems for business users to access it to solve their business problems.
Typically a straightforward ETL business process, for ESG data it can be complex as the importance of ESG issues varies by industry and sector, from company to company, or even country to country. At Good.Lab, for example, we may prioritize Diversity Equity & Inclusion as a company operating in the crux of consulting and technology, two industries poised for nurturing a more agile and diverse workforce, but unlike other similar businesses we do not need to baseline things like waste or water, because we do not have physical office locations.
It can be challenging to understand what your company should be measuring and to ensure that the metrics chosen in fact matter, however, pairing an ESG baseline assessment with a materiality assessment can facilitate focus in these processes and accelerate your journey towards ESG measurement and improvement.
Tips for Conducting your ESG Baseline Assessment
A baseline assessment is essentially a bridge between planning and action. When properly conducted, it can drive improvement, shape behaviors, and maximize your ESG efforts. Good assessment means responsive and iterative actions that drive real impact by helping your company to make decisions about what the best next steps might be.
Align Your ESG Baseline Assessment With Your Fiscal Year
Now that you’re convinced that a baseline assessment is an essential part of the beginning of the ESG journey, a key consideration is to align it with your fiscal year. This allows for it to occur at the same point in time as other reporting across your organization and can make it easier to incorporate ESG initiatives into programming and budgeting. It also facilitates organizations to map performance for both financial and non-financial metrics across the same timeframe.
Develop An ESG Committee Of Subject Matter Experts
A second tip is to develop an ESG committee of subject matter experts. ESG topics touch on so many aspects of a business, and not every company has a dedicated sustainability team, therefore it can help to identify a team of people that will help gather the necessary information to advance these initiatives for your company.
Involve Leadership Early On In Your ESG Initiatives
Ensure leadership is involved in your ESG efforts. Business leadership should either play a role in the baselining activities or actively communicate to the rest of the company why you’re engaging in these initiatives. Again, because these topics are difficult and not always easily measured it may be the first instinct to not take it seriously, but a top-down emphasis on the importance of ESG will reaffirm that accurate measurement is integral to the evaluation of the company’s overall performance.
I’ve Calculated our ESG Baseline, What’s Next?
The output you get from your baseline assessment is exactly that – a baseline! The starting point for your ESG journey is the moment that you will refer to when comparing your progress and understanding impact improvements over time.
You’ll see many companies reporting on ESG improvements from the first time they benchmarked – for most companies, it is within the past ten years even if they’ve been operating for decades. This is likely due to the recent explosion of ESG among highly visible industry leaders and mounting pressures to measure and report on ESG performance metrics.
With your baseline completed, third parties (and our own data team here at Good.Lab) can help you create dynamic systems to track, store and analyze your ESG data for measurement, improvement, and internal and external reporting. You might also be interested in our next article, where we’ll be discussing setting measurable and achievable ESG goals for your company and why without a baseline assessment, performance setting can often lead to disadvantageous situations.
I need some help calculating our baseline, what’s next?
Today, ESG measurement and reporting are no longer just for the Fortune500 set, and every company should be looking to first conduct a baseline assessment.
For companies early on in their ESG journey, Good.Lab’s ESG Calculator can help you to prioritize issues, assess progress, and uncover opportunities within your operations. Our network of experienced ESG and sustainability consultants can guide you through these activities and help you to conduct a materiality or baseline assessment.
Disclaimer: Good.Lab does not provide tax, legal, or accounting advice through this website. Our goal is to provide timely, research-informed material prepared by subject-matter experts and is for informational purposes only. All external references are linked directly in the text to trusted third-party sources.
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