Building an Effective ESG Program

With a new wave of mandatory reporting just around the corner, most regulated entities in the United States and European Union are facing fairly aggressive timelines to begin maturing their sustainability programs. In order to meet these pending requirements, a company should understand where it stands today to determine what progress may look like.

AuditBoard has broken down environmental, social, and governance (ESG) maturity into four distinct stages: fundamental, efficient, strategic, and groundbreaking.

Read on to benchmark your organization against the four stages of ESG maturity, and download the full Deloitte & Touche LLP and AuditBoard white paper, “How an ESG reporting strategy can benefit your company,” for a deeper dive into ESG disclosures and reporting.

Stage 1: Fundamental

This stage represents a company that’s just getting started with its ESG program. It likely has yet to adopt any guidance frameworks, publish an ESG report, or complete a materiality assessment. The company typically handles data collection on an ad hoc basis while fielding questions from customers and investors. In most situations, multiple teams—such as legal, investor relations, financial reporting—or the broader enterprise risk or SOX teams are responsible for producing ESG information.

Stage 2: Efficient

At this stage, the company has become more efficient in its approach to ESG. Typically, governance is in place or is in the process of being defined, ownership has been established, and data collection has begun. Companies at this stage are generally ready to identify relevant frameworks and carry out a baseline materiality assessment. From there, many early-stage companies are beginning to calculate their carbon footprint and release their first ESG report. The company may be carrying out some internal audits, but ESG controls and assurance are likely still in the future. For now, the focus is mainly on refining the teams, processes, and technology required to support more robust ESG program management and data collection.

Stage 3: Strategic

As companies continue to mature their ESG programs, leadership teams typically start to view ESG as a leading competitive advantage. This prompts executives to include ESG strategies across the organization. At this point, companies are often aligned with multiple frameworks, and one or more rating agencies, and are spending more time ensuring the company has strong ESG scores. It’s important to note that companies at this level of maturity generally view chasing ESG ratings as secondary to establishing a strong governance program and setting and achieving their own internal targets.

This is the stage when companies start to identify ESG controls and generally have technology in place to support the process throughout. Typically, a dedicated ESG or sustainability team leads robust data collection and materiality assessment efforts. The company probably has issued multiple ESG reports with net-zero and decarbonization disclosures and sometimes even third-party assurance on greenhouse gas (GHG) carbon emissions data (but unlikely broader assurance on other data).

Stage 4: Groundbreaking

Companies that are considered “groundbreaking” generally have been issuing sustainability reports for at least five years; have large teams with robust data collection efforts, much of which are automated; and have invested heavily in technology such as an ESG program management solution and a carbon data lake to aggregate data. These companies typically have invested in a public ESG posture, and their peers look to their reports for leading practices to emulate. At a minimum, these companies have already issued a public net-zero or other decarbonization target and are obtaining limited assurance on GHG data and, in some cases, full assurance on the entire report (although still rare).

Behind the scenes, these organizations often have documented their upstream internal controls and are starting to test them, often with help from their second-line risk and compliance teams. ESG strategies have likely been aligned to internal audit, risk, finance, and broader sustainability initiatives in addition to being mapped to the company’s strategic business objectives. A large, globally dispersed ESG team typically marshals the resources to innovate, meet new commitments, and communicate progress to internal and external stakeholders in regular internal updates outside of the annual reporting cycle.

For a deeper dive into ESG disclosures and reporting, get your copy of the full Deloitte & Touche LLP and AuditBoard white paper, “How an ESG reporting strategy can benefit your company.”