The greenwashing legal challenge levelled at the multinational oil and gas giant Shell Plc. earlier this year cemented the increasingly top-tier risk that environmental social governance (ESG) standards represent on the corporate agenda of risk managers.
However, as noted by Neil Scotcher (pictured), director at the risk management technology provider Origami Risk, it’s not usually the case that risk managers aren’t aware of ESG exposures but more that they don’t really know where to get started on their ESG reporting journey. The discourse around potential mandatory exposures and high-profile legal challenges are creating huge concerns, he said, but the challenge around ESG is like anything else in risk management – you don’t know what you don’t know.
“When it comes to ESG, everybody needs something, but they don’t know what they need,” he said. “So, when you talk to large organizations about maximizing the data they have now to begin their ESG reporting, you soon see that their ESG data is not all in one place. Take, for instance, data on their electricity usage, if they’re in 50 countries, there are potentially 200-plus providers around the globe that they need to collect that data from.”
For Origami, which is focused on maximizing technology to support risk managers carrying out their roles more efficiently with increasingly fewer resources, it’s not about providing an “ESG solution”, he said, but rather advising risk managers on how to start their ESG reporting journeys. But ESG reporting is only as good as the data that is available, and the biggest problem facing risk managers is that often they simply don’t know where that data is stored.
“That could be HR data and a large company might have 10 different HR systems, or finance systems data and a large business will have five or six finance systems,” he said. “So, for risk managers, it’s not so much a problem of not knowing what they need but rather more a problem of not knowing where that is. And that’s where providers like Origami come in to help them collect that data piece-by-piece and identify where the gaps are.”
Risk managers are highly in tune with the importance of ESG, he said, and they know why they need to start utilizing this data. Where things start to become confusing is when they enlist the support of a range of consultancy firms which each give them a different view of what they need to be doing and how they need to do it. They’re then faced with having to choose the approach that they think will work best in the long term and with figuring out what they need to achieve it.
“It can be a daunting task for a risk manager because this information isn’t just going to be examined by a single person, it’s going to go to the board, who then send it to the investors. So, if you get it wrong, you’re accountable which is quite a tricky situation,” he said. “However, it also presents an opportunity for risk managers to showcase what they do well in a meaningful way. And as long as risk managers understand what they’re trying to achieve, we’re able to support them in doing that.
“If they come to us and say, ‘oh, we just need an ESG solution’, well, we’re not consultants, we need you to have an idea of what you need from us. And then we’ll work with you to support you in maximizing that information and plugging any data gaps that become clear. For instance, if you start loading in HR data, it will quickly become very obvious if you’re missing the data from one region or another. So, once you start building data connections, you start seeing what you’re missing.”
The ESG reporting requirements of a business vary significantly from industry to industry, and from region to region. The ESG data of a bank, for example, is going to be worlds apart from that of a logistics company, he said, but the core challenge among Origami’s clients is largely the same – how to get started when there’s so much data available from so many disparate sources.
Offering his key advice to these clients, he recommended that the starting point is to identify the KPIs that are needed as this will then determine the required data.
“From there, we can then work with them to understand what data we can get easily and what data is not going to be as easy to obtain,” he said. “And then we go on from there. For the first few times, this process is going to be a bit of a hit-and-miss exercise for a lot of companies. They’ll get maybe 60% of the data they need and they’re guessing the 40% because they don’t know where it all is. So, seeing how that progresses in terms of companies pulling together all their sources to get the right information is going to be interesting.”
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