Decoding ESG Reporting

YUKO AOYAMA    Deb, ESG is gaining a lot of momentum. How would you say ESG reporting has a positive effect on the Energy transition?

DEBORAH WOOD    I think, absolutely, ESG reporting will have a huge positive effect on the energy transition. I think if companies focus on their ESG reporting and make smart decisions, they are likely succeed in the energy transition. They will have more control over the choices they make. But this is a complex topic, it has to be said. 

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Hi, I’m Deborah Wood, and I'm a Product Line Director at DNV. I work with software that helps customers look after quality, health, safety, and the environment and ESG fits seamlessly into that. 

YUKO AOYAMA    I'm Yuko Aoyama, Innovation lead in DNV. ESG is such a fast-evolving topic and there are so many opportunities for innovation. That's how I support our customers to innovate in this field. 

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ESG, for me, is a company’s sustainability effort in a nutshell. ESG stands for Environmental, Social and Governance. I will give you some examples. Environmental is around how the company and its products and services are contributing to climate change through greenhouse gas emissions, etc. Social is about being responsible for human rights and labour standards, not only for their employees but also for the whole supply chain of the company. Governance is a set of rules or principles defining rights, responsibilities, and expectations between different stakeholders in the governance of corporations.  

DEBORAH WOOD    There's an awful lot packed into those three letters, ESG. And how does that link into the energy transition? 

YUKO AOYAMA    To me, Energy transition is a part of ESG. These 3 letters ESG are used to assess a company's sustainability, not only environmental footprint, or the company’s effort for energy transition. If the company has good control over ESG, then they are likely to succeed in the energy transition as well, because that’s how you show the world you have control over your ESG performance and that your strategy is backed by good ESG performance.  

Deb, we have seen a lot of focus on ESG reporting lately. What are companies trying to achieve? 

DEBORAH WOOD    Society as a whole is becoming more conscious. We live in a world of social media, the internet and newspapers. No company wants to be in the headlines for the wrong reasons. I think that’s part of the reason why companies are interested in looking at this. If they can get to grips with all parts of ESG, aside from just regulations, they will likely perform better as a company. We have seen that on the health and safety of the business before, companies that pay attention to health and safety and learn from what they have done also perform better overall. We’re starting to see similar trends in ESG.  

YUKO AOYAMA    I had the chance to speak to nine international credit banks recently, and eight out of nine banks said they assess not only financial reporting but ESG reporting for their credit risk analysis process.  

DEBORAH WOOD    That’s really interesting. Do you see this as a worldwide trend or are there different geographical variations?

YUKO AOYAMA    It is definitely a global trend. Each region is trying to do different things, but I can mention what the EU just adopted. ESRS, which stands for European Sustainability Reporting Standards, requires all large companies in the EU to disclose information on what they see as the risks and opportunities arising from ESG. Similar trends and regulations are taking shape in different regions.

However, it’s not yet fully standardized as a one-size-fits-all approach, but we must be ready to embrace this. Of course, you come from the software side of the business, what trends do you see there? 

DEBORAH WOOD    There's an awful lot going on the software side because when you have all of this information and data, you need to collect it and store it somewhere. And most importantly, you need to be able to process it, use it, and make in the end, decisions based upon it. Software is being developed to assist companies in taking care of and using all this data. Of course, I'm now touching on a topic close to your heart, Yuko: data collection.

YUKO AOYAMA    Data collection has several layers of complexity involved. First, you need to define what data you want in your ESG reporting. Second, you need to know how to calculate that. Then, you need to find where the data exists in the company. The process involves a lot of human resources, as many as 20 people – as an example from one of the large corporations, for the manual data input to spreadsheets. This, of course, can lead to mistakes and human errors. It is okay when it’s only an annual exercise like it is today, but in the future, it will eventually be a “continual” process. So, I hope different companies start focusing on how to do data collection, how to do ESG reporting, and how to ensure data quality and traceability.  

So that’s my hope. What’s your hope?

DEBORAH WOOD    My hope is that if the world figures out a good way to trace and report their ESG and make smart decisions together, so we get through the energy transition faster. When you have good data you trust, you can make good decisions and strategies to use energy in a sustainable way. And, of course, a more sustainable strategy will support the Energy transition.