Put simply, ESG benchmarking allows you to take a temperature check on how you are faring with your current ESG offerings against competitors and others and will help you shape future strategies. Whether you want to keep up with the pack and ensure you match pace with competitors’ ESG performance or streak out ahead to become an ESG top performer among ESG leaders, benchmarking Is an essential tool to help you get there.
What is ESG
Environmental, Social, and Governance or ESG is a collective term for how companies asses their sustainability performance across a series of metrics, such as carbon emissions, hazardous waste, human rights, diversity, compliance, and many more. Measuring ESG data is also a way of measuring the risks facing your business, whether it is assessing climate or water risks or the risk of legislation relating to human rights. Collecting ESG data helps you identify and mitigate risk and exploit potential opportunities. Reporting ESG metrics, strategies, and targets builds trust, transparency, accountability, and relationships with a company and other businesses, customers, suppliers, and other stakeholders.
What is ESG Benchmarking
Benchmarking in ESG refers to the process of comparing and evaluating the performance of a product, service, or business compared to competitors. Benchmarking is an essential part of a company identifying opportunities for improving their business, products, or services and ensuring they stay competitive with industry leaders.
Why is ESG Benchmarking Important
Just like with any other type of benchmarking, ESG benchmarking allows you to see what is happening across the competitive landscape. It gives companies context on their ESG strategies, targets, and performance and helps decision-making for their future ESG strategy. Benchmarking also allows stakeholders (investors, customers, employees, etc.) to assess where your performance ranks in the sector. A good benchmarking score could be the difference between hiring an employee, winning contracts, or receiving investments.
What are the benefits of ESG Benchmarking
The benefits of ESG benchmarking may seem difficult to quantify, but there are some tangible and slightly more intangible benefits to starting the process. Some of these benefits include:
ESG Performance Evaluation: ESG benchmarking allows companies to evaluate their performance in relation to their peers, customers, and suppliers and assess industry and regional averages. By comparing their ESG practices, companies can identify areas where they excel and areas that need improvement.
Risk Assessment and Mitigation: ESG benchmarking helps companies identify and assess various risks associated with ESG factors. By benchmarking their ESG performance, companies can assess their risks of negatively affecting their brand reputation, losing out on deals to competitors, climate risks, and more. This information enables them to develop strategies to mitigate these risks proactively.
Better Stakeholder Confidence: ESG benchmarking can enhance a company’s reputation and transparency, increasing investor, consumer, and employee confidence. Many investors and consumers now consider ESG performance when making decisions. By demonstrating a strong ESG performance against peers, companies can attract investments, talent and grow their customer base.
Potential Cost Savings and Increased Revenue: ESG benchmarking can help companies identify areas where competitors have made efficiencies, reduced waste, or won contracts. Companies can replicate these sustainable practices and reduce their environmental impact. This can result in reduced energy consumption, lower waste generation, and optimized resource utilization, leading to cost savings over time.
Key Components of Performing Effective ESG Benchmarking
To better understand what specific ESG factors and metrics are important, companies should perform a materiality assessment in tandem with their benchmarking. Conducting a materiality assessment helps them know what factors are most relevant internally to their business and stakeholders. These factors could include greenhouse gas emissions, water usage, or waste management; social metrics like employee diversity, labor practices, or community engagement; and governance metrics like board diversity, executive compensation, or risk management.
Once your company knows the ESG factors they are assessing their performance by internally, they can then take these three steps to get an external pulse check through effective ESG benchmarking:
ESG Data Collection and Comparison: You should first set up a robust internal data collection plan to understand where your progress lies. You can then compare your company’s data to relevant benchmarks, such as industry peers or sector averages.
Analysis, Planning, and ESG Target Setting:Analyze the data between you and your competitors and in your materiality assessment to assess where gaps in performance are. This can then guide how ambitious a company’s ESG goals should be. Accurate target setting helps companies quantify their aspirations in each important area and shape strategy and planning for measuring and reducing ESG impacts.
Monitoring and Reporting: Once you have made your plans, set your goals, and begun to track progress toward them, it will be important to report your progress in annual ESG reports. Reporting on your goals, strategies, and action improves trust and accountability. Continual benchmark monitoring and tracking is also important to ensure you are not falling behind.
To help apparel manufacturer and merchandiser Bioworld Merchandising meet its aspirations “to be a leader in the sustainability space,” they partnered with Good.Lab to perform extensive ESG Benchmarking to assess their ESG program scope and performance relative to customers, competitors, and peers, what ESG targets to set, and what relevant ESG metrics they needed to collect and report.
Conducting ESG benchmarking with Good.Lab enabled us “to focus and prioritize our efforts around key impact areas and to build a data-backed foundation for tracking ESG progress.”
The power of ESG benchmarking as a way of improving a company’s ESG performance is undeniable. However, two common criticisms of ESG are the lack of a consistent standard or framework companies can align with to make better comparisons and the lack of accurate data. For these reasons, ESG benchmarking is trending toward standardized data collection and reporting and regular data auditing by a third party to ensure accuracy.
ESG Data Standardization: More jurisdictions expect to merge their data collection and reporting under the International Sustainability Standards Board (ISSB) in the coming years. Additionally, some regions, like the EU, are planning to introduce minimum standards for ESG benchmarking to bring “standardization and transparency” to benchmarking. In the US, the SEC’s climate disclosure proposal, when adopted, will bring standardization for climate data across US companies.
ESG Data Quality: As ESG data becomes more important for decision-making, there is a greater focus on data quality, accuracy, and transparency. To help with this, more companies are using software to record and report their data to ensure they meet the expectation of providing more detailed and verifiable ESG information.
Discover How You Measure Up on ESG
At Good.Lab, we can help you perform both a materiality assessment and benchmarking to provide you with a full picture of best practices in building a winning ESG program for your company.
Our ESG performance management software gives you an accurate benchmark in days instead of weeks. With 1,000+ industry targets available on our platform, across 21 industries, you can easily get inspired by what ESG leaders are doing or check on competitors, customers, and suppliers to calibrate your own ESG targets.
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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