ESG performance and metrics for finance professionals

ESG performance and the role of finance professionals

Module overview

In this module, you will explore the reasons behind the widespread adoption of environmental,
social, and governance (ESG) topics in the market, and investigate the role that the accounting
profession can play in seamlessly incorporating these concepts into everyday business
operations.

By completing this module, you will be able to:

 understand the importance of measuring and managing ESG-related matters

 analyse the role of finance professionals in financial decision-making and evaluate their
impact on organisational performance
 explain the link between sustainability and ESG
 identify the benefits of reporting ESG-related matters
 demonstrate the pivotal role finance professionals and the accountancy profession can
fulfil in addressing sustainability issues by providing stakeholders with valuable and
relevant information.

The importance of ESG for finance professionals

Accountants and finance professionals have a key role in sustainable development, and in
environmental, social and governance (ESG) initiatives. Listen to the following interview with
Reinoud Clemens, who explains his role as a Portfolio Manager of Sustainability at DSM (Dutch
State Mines). The interview sheds light on accountants' unique role in integrating sustainability
and finance while making informed business decisions.
ESG and sustainability

Environmental, social and governance (ESG) is an alternative way to describe matters related to
sustainability.

The UN World Commission for Environment and Development (WCED) originated the most
widely accepted definition of sustainability. The WCED is a United Nations-sponsored group
chaired by former Norwegian Prime Minister Gro Harlem Brundtland and is often referred to as
the Brundtland Commission.

“The Brundtland Commission defined sustainability as meeting the need of the present without
compromising the ability of future generations to meet their own needs.”

- Brundtland Commission (1987) -

ESG issues

ESG refers to the environmental, social and governance characteristics and impact of a company
or business. Collectively, ESG issues provide a holistic view of the company's attitude and
actions on sustainability.

The scope of ESG issues is wide. Issues relevant to each of the three ESG categories are
identified below. You may already be familiar with these categories, but it is worth refreshing
your memory.

ESG issues

This section explores ESG issues.

Environmental

Environmental issues relate to the quality and functioning of the natural environment and natural
systems including:

 biodiversity loss

 greenhouse has emissions

 renewable energy

 energy efficiency

 natural resource depletion or pollution

 waste management

 ozone depletion

 changes in land use

 ocean acidification
  changes to the nitrogen and phosphorus cycles.

Social

Social issues relate to rights, well-being and interests of people and communities including:

 human rights

 labour standards

 health and safety

 relations with local communities

 activities in conflict zones

 health and access to medicine

 consumer protection

 controversial weapons.
Governance

Governance issues related to the management of investee entities. Issues include:

 board structure and size

 diversity, skills and independence

 executive pay, shareholder rights and stakeholder interaction

 disclosure of information, business ethics and bribery and corruption

 internal controls and risk management issues dealing with the relationship between a
company's management, its board, its shareholders, and its other stakeholders.
Who benefits from ESG reporting?

ESG data and information is required and demanded by a wide range of stakeholders. Much ESG
data and information is of most interest to investors and capital providers.

Click each heading below to learn how data is used by the investment community and
wider stakeholders.

Investment community

ESG is used by the investment community to describe a set of criteria used to screen and
evaluate potential investments, but also to evaluate companies that might pose financial risks due
to their ESG practices and behaviours. Fund managers will use a range of factors, metrics and
data when evaluating an investment, and therefore, it is important for businesses to demonstrate
ESG performance by providing robust data through disclosure.

Wider stakeholders

ESG information is increasingly important for wider stakeholder groups including, for example,
regulators, civil society and NGOs. These audience types will be interested in the data for
different reasons – from understanding the risk-adjusted returns of an investment to changing
consumer behaviour towards sustainable products and services.

The ESG data that is collected, managed and disclosed by a company will vary depending on the
audience and purpose of the data and information. ESG metrics are used to understand
performance relating to key issues.

The breadth of issues that could be considered under the ESG umbrella is potentially very large.
Therefore, it is always important to keep in mind the intended audience and how the information
will be used.

Effective measurement and management of ESG-related matters can also benefit the reporting
organisation itself as we will now explore.

Why is ESG important?

The increasing focus on ESG, especially by investors, requires companies to better reflect and
report on their impact and risk associated with sustainability.
Select each heading to learn more about why companies should be concerned with ESG.

Promoting long-term viability

Although ESG is still a relatively new concept, there is evidence to suggest ESG can safeguard
long-term financial success. The shift from a short-term to a long-term focus on value creation
promotes resilient business strategies that offer stronger returns in the future.

Although embedding ESG within an organisation may have immediate costs, the long-term
benefits of reducing costs and promoting efficiency could counteract rising operating costs.
Providing robust ESG data to management also allows them to make strategic decisions,
capitalising on potential opportunities for innovation.

Recognising and managing emerging risks

The COVID-19 crisis is a stark example of a systemic risk, which has required a significant shift
in the way both businesses and wider society are able to function. The impacts of COVID-19 will
be felt in the future, and it is important companies are prepared and resilient to future shocks to
the market. ESG risks are just like any other risk.

By understanding potential risks and creating mitigation plans, companies will be prepared to
minimise significant impacts. In a previous module, you have already looked at climate change
and the complexities that could lead to significant financial impacts on business, for example
from asset stranding which risks impairment and changes to company valuations.
Accessing capital

As we have already noted, investors are increasingly asking for more clarity on ESG matters to
use in their investment decision-making processes. ESG-oriented investors rely on high-quality,
consistent and comparable information to make these decisions. However, it is not only ESG
investors that are starting to take notice. Mainstream investors recognise the importance to
measure and manage ESG to minimise future risks, and therefore it is possible that ESG will
factor into their criteria in the future.

ESG also provides the potential for increased access to capital and new working capital
solutions, such as new types of working capital ie green bonds and sustainability loans.

Demonstrating good ESG performance can improve the creditworthiness of a company and
therefore result in better credit ratings and lower financing costs. For example, demonstrable
good governance practices can lower the cost of equity and the cost of debt as they indicate the
company is trustworthy and that there are due diligence processes in place.
Competitive advantages and strengthening brand value

With heightened attention on the impact of companies, ESG performance is quickly becoming a
strong market differentiator. As global awareness and consumer demand for sustainable products
and services increase, companies that can demonstrate good ESG performance will be able to
increase brand value. In contrast, companies that do not adequately measure and manage ESG
issues, and are subsequently exposed, face reputational risk with consumers.

By implementing long-term objectives for ESG, and reporting on progress against these
objectives, companies are able to distinguish themselves from their competitors, potentially
bringing significant opportunities.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 The growing demand for ESG in ASEAN countries

 The challenges of ESG reporting

The role of finance professionals

Accountancy has always been an evolving profession. As the needs of business, the economy and
stakeholders have changed across time, accountants have adapted to meet these new demands.
Both the core skills and the unique position accountants have within an organisation mean that
they are well-placed to respond, support or lead the integration of ESG within their organisation.

For example, accountants possess the skills and experience to help transform organisations
through their abilities in:

 identifying and managing financial risks and opportunities

 understanding the impact of ESG on financial planning and strategy
 connecting with senior leadership and other functions to make the business case
 understanding and applying criteria for the governance and interpretation of data
 providing the rigour and scepticism needed to analyse data to report on performance
 providing credibility through internal controls and assurance.

“In order to improve ESG performance and reporting organisations need to invest a
significant amount of resources such as financial and human capital and such investment
may not have an immediate effect on the companies’ financial performance.”

- Herbert Yung Risk Advisory Director at Deloitte China (in Ho, 2020) -

Finance professionals have the requisite skills and competencies to enhance management of
ESG-related matters.
Bridging the gap between finance and sustainability

ESG can be the bridge between finance and sustainability. Taking both an “inside out” and
“outside in” approach to understanding the relationship with ESG issues, requires not only an
understanding of the impact of companies but also an understanding of the financial implications
on the company.

Traditionally, sustainability teams have collected ESG data to illustrate the impact the company
has on the environment and wider society. Accountants can work with these teams to add an
additional layer of understanding about the financial implications of ESG matters on the
company.

Transforming the role of accountants

Accountants are already making a difference in the world of sustainability. Earlier, we heard
from Ravi and Reinoud, two accounting professionals that have incorporated sustainability into
their roles, transforming traditional accounting skills and competencies towards meeting the
demands of sustainability. They are leading activists for sustainability.
Select each name to read more about these professionals and their impact on sustainability.

Ravi Abeywardana

Chartered Accountant with ICAEW and the Technical Director at the Climate Disclosure
Standards Board (CDSB)

A global standard setter committed to advancing and aligning the global mainstream corporate
reporting model to equate natural capital with financial capital. As a member of the IFRS
Foundation Working Group, he is closely involved in the establishment of the International
Sustainability Standards Board, which is aimed at accelerating the convergence of global
sustainability standards.

Previously, Ravi held management positions in industry, within both finance and corporate
sustainability departments, having operated across multiple geographies, and covering capital
markets.

Reinoud Clemens

Sustainability Portfolio Manager within the Corporate Sustainability team of DSM

A global, purpose-led, science-based company active in Nutrition, Health and Sustainable

Living. He is responsible for the Brighter Living Solutions program, which measures the
environmental and social impact of the DSM product portfolio. In his previous role, as an
Operations Controller, he gained valuable exposure to the financial side of business, which he
now combines with a strategic sustainability role.

This combination enables him to contribute to the development of new sustainability KPIs,
value-creation measures, and related reporting frameworks within the industry sector of DSM
and beyond.
Module summary

In this module, you have considered why ESG issues have become so prevalent in the business
environment and the role that the accounting profession can play in addressing these issues. You
have gained a deeper understanding of the significance of ESG measurement and management
and recognized the influence of finance professionals on financial decision-making and the
interconnectedness of sustainability and ESG.

By completing this module, you can now:

 understand the importance of measuring and managing ESG-related matters

 analyse the role of finance professionals in financial decision-making and evaluate their
impact on organisational performance

 explain the link between sustainability and ESG

 identify the benefits of reporting ESG-related matters

 demonstrate the pivotal role finance professionals and the accountancy profession can
fulfil in addressing sustainability issues by providing stakeholders with valuable and
relevant information.
ESG data processes and reporting principles
Module overview

In this module, you will learn about the approaches that can be taken to identify the core ESG
issues, understand key steps to build robust data processes, and the principles for reporting core
ESG metrics.

After completing this module, you will be able to:

 identify core ESG issues

 understand key activities to build ESG data processes
 explain the principles for reporting ESG information.

Identifying material ESG issues

The expectations of companies to measure and manage ESG issues are widely recognised and
the implications of ESG and sustainability issues have implications for business models and
value chains.

It is unrealistic to expect that every organisation will be able to respond to the large variety of
ESG topics. Therefore, organisations need to identify and decide upon the ESG issues that are
material to them, which will then inform what data needs to be collected and disclosed. These
decisions require evaluations and judgments – skills accountants already possess for financial
and business matters.

As a starting point, the audience for, and purpose of, ESG data should be determined. The
objectives for collecting and disclosing ESG data, as well as the intended audience for the data,
will impact the quality, quantity and characteristics of the data.
Finding the purpose

There should always be a clear objective as to why specific data is being collected and disclosed,
and this is the same for ESG data as it is for financial data. Whether for internal decision-making
purposes, regulatory compliance, response to investor requests, or to demonstrate corporate
performance, the objectives need to be established and clearly communicated.

Broadly speaking there are two main reasons that companies disclose ESG information,
regardless of the drivers behind these reasons. We can summarise these reasons as follows:

Select each heading to learn about the reasons for disclosure.

Impact reporting ("inside out" approach)

Purpose

Demonstrating the company's positive and negative contribution to sustainable development

goals, and the actions taken by the company.

Audience

Capital providers and wider stakeholders.

Type of reporting

Reporting of business impact on ESG issues.

Risk reporting ("outside in" approach)

Purpose

Demonstrating the impact and risks of ESG matters on the business, and the actions taken by the
company to mitigate and manage these risks.

Audience

Capital providers (investors, lenders, insurers.)

Type of reporting

Reporting of ESG impact on the business model.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 Enhancing Corporate Reporting: Sustainability Building Blocks

Materiality assessment

Once the intended audience and purpose for collecting and reporting ESG information has been
established, a materiality assessment can be completed to identify the core ESG issues that are
relevant to the organisation and decision-makers.

The concept of materiality is familiar to the accounting profession.

Different reporting frameworks and standards define materiality slightly differently, depending
on the intended audience and purpose of the disclosures. The International Accounting Standards
Board defines materiality in its Conceptual Framework:
Definition of 'material'

From IFRS (2018)

Information is material if omitting, misstating or obscuring it could reasonably be expected to

influence the decisions that the primary users of general purpose financial statements make on
the basis of those financial statements, which provide financial information about a specific
reporting entity.

In other words, materiality is an entity-specific aspect of relevance based on the nature or

magnitude, or both, of the items to which the information relates in the context of an individual
entity’s financial report.

Consequently, the Board cannot specify a uniform quantitative threshold for materiality or
predetermine what could be material in a particular situation.

Using this financial reporting approach to materiality, a company should seek to identify the
ESG issues that are financially material. However, there are further approaches that could be
taken to materiality in the context of ESG issues.

Take note

This course does not advocate for any one approach but intends to provide insight so that the
most appropriate approach can be determined by your organisation and the context in which it
operates. The application of materiality will depend on judgments and will ensure information is
not obscured and satisfies the purpose of reporting.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 Applying materiality
Notable approaches to materiality

The following Sustainability Reporting Standards and Frameworks outline notable materiality
approach examples.

Select each heading to learn more.

Global Reporting Initiative (GRI)

The approach taken by GRI focuses on the impacts companies have on the economy,
environment and people (“inward out” approach). Using this approach, a company should
determine the ESG topics that are material based on the organisation’s significant impacts on the
economy, environment and people, and the importance of this information to its wider
stakeholders. The primary audience for this approach covers a broad range of users and
objectives.

Sustainable Accounting Standards Board (SASB)

SASB align their approach to materiality with financial accounting standards. They assume the
primary audience for ESG information as investors, and therefore their definition focuses on
identifying issues that are reasonably likely to impact on the financial condition or operating
performance of a company (“outward in” approach). This information is deemed important for
financial decision-making purposes.

EU Corporate Sustainability Reporting Directive (CSRD)

EU's CSRD requires companies in scope to report on their double materiality. CSRD elaborates
on the double-materiality perspective and emphasises that organisations should consider and
disclose information on both impact materiality and financial materiality perspectives.
ISSB – IFRS Sustainability Disclosure Standards

IFRS S1 and S2 use the same definition for materiality as IFRS Accounting Standards to ensure
investors understand sustainability risks and opportunities relevant to their investment decisions,
and strong linkage with the financial statements.

IFRS definition of ‘material’ applied states that: information is material if omitting, obscuring or
misstating it could be reasonably expected to influence investor decisions.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 Global Reporting Initiative

 SASB’s Materiality Map

 European Sustainability Reporting Guidelines 1 Double materiality conceptual guidelines

for standard-setting

 Corporate sustainability reporting

 IFRS - An update from the International Sustainability Standards Board

 IFRS - General Sustainability-related Disclosures

Dynamic materiality

A final concept we will introduce is that of “dynamic materiality”, which seeks to create a
common view based on a blend of different approaches. The underlying idea to this nested
approach is that materiality should be seen as a dynamic concept where issues that may be of
concern to one stakeholder group may become material to financial decision-makers. Fast
changing developments in science, technology, policy and consumer behaviour will impact
which issues are deemed material in the future, and therefore the concept of materiality should be
viewed as a flexible mechanism for understanding relevant issues for companies.

The table below is a summary from the Statement of Intent to Work Together Towards
Comprehensive Corporate Reporting and outlines the different approaches to materiality and
how they can be applied together.

The different approaches to materiality and how they can be applied together

Stakeholders whose main

Reporting on matters that reflect the
interest relates to the ESG
Level 1 organisation's significant impacts on the
impact of the organisation will
economy, environment and people.
focus on these issues.

Stakeholders whose main

Reporting on the sub-set of sustainability
interest relates to the ability of
Level 2 topics that are material for enterprise value
the organisation to create value
creation.
will focus on these topics.

Reporting that is already reflected in the

Level 3 financial accounts. These may include
assumptions and cashflow projections.

Source: CDP, DCSB, GRI, IIRC & SASB (2020, p. 5)

Take note

The relative importance of different issues changes over time. Reporting may be driven by the
consequences of the organisation's activities, or by the impact of sustainability issues on the
organisation.
Key considerations when applying materiality

No matter which approach is taken to assessing the materiality of ESG issues, there are a few
additional points to consider:

1. some ESG issues will have a greater impact over a longer-term horizon. Dynamic
materiality deals with this issue, but it is important to remember that issues that might not
seem material today might have a significant impact in the future. For example, many
companies did not consider climate change a material issue until the 2000s or even later.
As the physical manifestations of climate change become more apparent, climate change
and its impacts are becoming more material
2. a “core and more” approach can be taken, where the focus is given to a select group of
material ESG issues initially, and more are added if deemed necessary to respond to
stakeholder demands
3. where there are regulatory requirements for specific metrics, these metrics should be
disclosed regardless of materiality. For example, in the UK, listed companies are asked to
disclose their gender pay gap on an annual basis.

Once the core ESG matters that are material have been identified, the next step is to establish
metrics to regularly measure performance and set up processes to ensure the relevant data is
collected, analysed and disclosed in a robust manner.

The next topic focuses on setting up ESG data processes and the principles for reporting. These
processes are generalised and introduce key considerations for building robust systems.
However, there may be some metrics that require specialised attention and systems, and we will
look at these later in the course.
Building ESG data processes

Once the key ESG issues have been identified, robust data processes will need to be built, from
collection to disclosure. This is where an accountant’s experience in the governance of data is
particularly beneficial. Given that ESG is relatively new to many organisations, there are
challenges to data collection and management that need to be addressed. By applying similar
robust structures used in the management of financial data, accountants can provide credibility
that ensures ESG data is of high-quality and reliable. ESG reporting is becoming more complex
as the demand for the information continues to rise. By collecting and maintaining data
management processes, companies will be in a good position to respond to these changing
demands.

There are a number of elements that need to be defined, including the:

 objectives
 structures
 processes
 data points and
 calculation methods that will be used in the collection and management of the ESG data.

The policies that ensure robust ESG data processes that can respond to current and future
demands for ESG information cover four key steps:

1. data sourcing
2. data collection
3. analytics
4. reporting.
Data collection and management structures

Creating and maintaining rigorous policies and processes is important to ensure the quality of
data collection and reporting.

Select each heading to learn more.

Systemic processes

Systemic processes, which are those that are clearly communicated and implemented across the
organisation, prevent errors and ensure the credibility of the data. Designing such policies and
processes should include all stages, from data collection to final reporting, and should ensure that
data is treated the same way year-on-year. There should also be documentation that records the
methods, processes, systems, assumptions and estimates, which should be updated on a regular
basis, to ensure an appropriate audit trail. This enhances the credibility of data to management
and wider stakeholders.

Integrate and extend existing systems

Where possible, these policies should integrate and extend existing systems. However, unlike
financial accounting, there is an additional level of scientific complexity to some ESG data that
needs to be considered. Existing data governance structures may need to be strengthened or
extended to encompass the specificities of ESG data.

Amend or adapt

Due to the variety of ESG topics and this additional level of complexity, there may be instances
where the policies and processes need to be amended or adapted to encompass the nuances of
specific ESG metrics. In these cases, the documentation should identify where adaption of the
policies is needed and justify why this is the case. As we go through this topic, we will highlight
a few places where this might be necessary.

Determining sustainability reporting period and setting a base year

The emergence of sustainability reporting standards, guidelines and regulations has resulted in
organisations establishing annual reporting periods for sustainability and climate related
disclosures, typically aligned to the financial year.

Most organisations include their sustainability and climate related disclosures either in the
Annual Report, or issue a separate Sustainability Report. Aligning the financial reporting and
sustainability disclosures over an annual reporting period allows key stakeholders and report
users to better compare both financial and ESG performance over different periods.

Enabling meaningful comparison of an organisations’ sustainability performance over different

time periods and benchmarking against peers, requires establishing a base year as a reference
point against past performance, with clearly defined ESG metrics, targets, measures and key
performance indicators (KIPs).

Availability of standardised, complete and accurate ESG data is a critical input to producing and
comparing sustainability and climate disclosures over different time periods in a consistent
manner.

As an example, Greenhouse Gas (GHG) Emissions fall under the ‘Environmental’ pillar in the
ESG umbrella, and the GHG Protocol provides guidelines for companies and other entities to set
their reporting base year for which verifiable emissions data is available. Companies are required
to choose as a base year, the earliest relevant point in time for which they have reliable data.
To maintain consistency between data sets, base year emissions need to be recalculated when
structural changes occur in the company that alter the inventory boundary (such as acquisitions
or divestments).

Reporting boundary setting

In addition to establishing sustainability reporting periods for organisations, it is equally

important to set the reporting boundaries with clear parameters for collecting and reporting ESG
data to enhance transparency and comparability of sustainability and climate disclosures. Setting
reporting boundaries and parameters can help organisations to improve identification of reliable
data sources and data collection approach.

It is recommended for companies to use the same ESG data for both sustainability and climate
disclosures, and financial reporting, and ensure clear reporting boundaries are set. This allows
key stakeholders and report users to closely link financial and sustainability performance, and
better understand performance on the triple bottom line of people, planet and profit.

As an example, the GHG Protocol provides a useful approach and guidelines to support defining
emissions reporting boundaries:

Select each heading to learn about how the GHG defines reporting boundaries.
Financial control boundary

The financial control boundary is where companies should report all sources of (ESG) impact
over which it has financial control.

Operational control boundary

This is where companies should report on all sources of (ESG) impact over which it has
operational control.

Equity share boundary

This boundary is where companies should report on (ESG metrics) from operations according to
its share of equity in the operation.

It is recommended for companies to disclose their reporting boundary setting approach in

published Annual Reports and Sustainability Reports. This should help to increase transparency,
reliability and credibility in published reports and supporting data input used.

Using proxy data and estimations

It is always best to use primary data. However, there may be some cases where the primary data
is not available or sufficient. In these cases, proxy data may be needed which includes estimates
and industry-average figures.

To ensure estimated data is reliable, it could be compared with historical data and/or industry-
average figures to ensure the data is within a reasonable range. Any uncertainties should be
noted, which is especially relevant for ESG data that might also have a degree of scientific
uncertainty.

Where proxy data has been used, it is important to be transparent and systematic in the approach.
The policies and processes that have already been set out and documented should take into
consideration the need for proxy data and should lay out controls to prevent errors.

Select each heading to learn about ESG data issues.

Primary data

It is common for greenhouse gas (GHG) emissions data to include a degree of estimation due to
difficulties in collecting primary data. In many cases energy usage data can be used a proxy. For
example, proxy energy use data can be used to calculate emissions for facilities that are similar in
characteristics. By collecting data from one facility, a benchmarking approach can be taken.

Estimates

A further example is the calculation of waste. Organisations that contract waste removal services
will be able to collect this data with a degree of ease. For those that don't, estimated data can be
calculated by measuring the number of waste receptacles that leave the facilities in a defined
period of time.

Data owners and information flows

In establishing data collection policies, there are three questions organisations must answer in
order to establish how the data will be handled.

Select each heading to learn more.

Who is responsible?

It is important to establish who is responsible for data collection as part of the documented data
processes and policies.
This individual should be aware of the purpose and scope, and should be sufficiently trained on
the processes for data collection and reporting. They should also understand their place within
the flow of information, which can be achieved by providing a clearly defined data trail from
source to final reporting.

Multiple reporting facilities with numerous data owners?

It is also important to define the information flow where there are multiple reporting facilities,
with numerous data owners, to reduce the risk of error.

Defining the flow of information will identify points that are likely to have a higher risk of error,
allowing strategic implementation of mitigation activities to reduce or prevent the errors from
occurring. One mitigation activity would be to clearly communicate the policies and processes to
every data owner from all the reporting facilities to ensure that they are compiling the data in a
consistent approach across the organisation.

Centralised or decentralised data collection?

When determining the information flow, also consider whether the data is going to be collected
through a centralised or decentralised approach.

A centralised approach will require the data owners to collect the data and report to the corporate
level where is it consolidated and calculated.

Alternatively, a decentralised approach will require the data owners to collect and calculate the
data before it is reported to the corporate level. There are benefits to either approach, but they
require clear communication and training of the data owners.

Gender pay gap information will need to be collected by a number of facilities across an
organisation in order to get a holistic view on gender pay disparities. The data owners for this
metric will be situated either in HR or payroll departments. If taking a centralised approach, the
data owner will collect payroll information for each employee within the facility and report it
through the data management system to the company’s HQ where the data will be consolidated.

Alternatively, the data owners can calculate the percentage pay gap and report that figure to HQ
in a decentralised approach. If the company would like to undertake analysis of where the
greatest gaps occur across the organisation, then a decentralised approach could be helpful.
However, if the purpose of the data is to report on the company-wide gender pay gap, then a
centralised approach might be more appropriate to ensure the calculate methodology is applied
consistently and to reduce errors.
Standardisation

There are three means through which organisations can standardise data collection and reporting.

Select each heading to learn more.

ESG data policy

It is essential to develop a robust ESG data policy to ensure appropriate guidelines are in place to
ensure the parameters for collecting and reporting on ESG information are clear. It is
recommended to create ESG data management procedures that set out the scope and thresholds
as part of the data policy documentation. Similar to accounting policy manuals, ESG data policy
and procedures should provide guidance to data owners on the appropriate type of information
that needs to be collected, the processes for collecting it, and the protocols for reporting the data.

The ESG data policy and procedures should document the system processes, responsible owners
across the end-to-end data lifecycle, their roles and responsibilities. It should also contain
information on methodologies and assumptions used, and needs to be updated when significant
changes occur. The policy should help to drive standardisation, embedding of procedures and
awareness of ESG data management across the whole organisation.
Capacity building

Bespoke training and communication on the ESG data management policy and procedures, is
essential to increase awareness of responsibilities, dependencies, process efficiency, governance
and controls across the organisation. Training can help with sharing lessons learned and best
practices to enhance ESG data quality and management, accountability, credibility and security
over information sourced and managed at all levels in the organisation.

Data management systems

There are various ESG data management solution options organisations can consider to enable
ESG data sourcing, storage, analysis and reporting. Solution options include ESG data
integration into existing systems to create a single golden source of data, developing a bespoke
system to meet ESG data needs, or outsourcing to a specialist external ESG data platform
solution provider. Selection of a preferred system solution depends on various factors such as
costs, organisation size and structure, complexity of requirements, suitability of existing systems
and interoperability, ESG data volume and number of users, current functional capabilities and
resource capacity. A thorough assessment to review ESG data system functional and business
needs is required to establish the business case and preferred option to achieve the desired
outcomes from a system which can provide the organisation with the most benefits at a
reasonable cost, to manage information end-to-end securely and reliably through streamlined
processes and operations.

Calculation approaches and tools

There are various methodologies and tools available to enable ESG data capture, analysis and
reporting, that can deliver consistent and comparable outcomes for organisations.
Take note

 When developing and documenting ESG data processes, it is important to include the
calculation approaches and tools adopted.

 When disclosing ESG data externally, it is recommended to outline the methodologies

and tools used, and disclose any variations and updates made.

Double counting

There are a number of concerns about double counting of ESG data. In some cases, for example
GHG emissions, this has been factored into the methodology, however there are a number of
issues that companies should be aware of.

Select each heading to learn more.

Overlap

When aggregating ESG data from various sources, a key concern relates to double counting and
its potential impact on sustainability disclosures. Having clearly defined ESG data parameters
and scope, can help minimise the risk of double counting.
Miscalculation

Organisations may use one or multiple systems and methods for ESG data collection, storage and
analysis, resulting in siloed approaches, fragmented activities and limited transparency across
functions resulting in potential analytical errors and reporting misstatement. Clearly defined
ownership over ESG data, analysis methods, review and independent assurance can help
minimise the risk of analytical errors and reporting.

Cut-off

Companies should clearly define and communicate cut off periods for financial and sustainability
reporting, to avoid use of ESG data in the incorrect period. Independent assurance of cut off
periods can provide useful review checks to ascertain accuracy of disclosures.

Restatements and recalculations

Recalculations and restatement of Annual Reports and Sustainability Reports become necessary
to resolve material errors or incorrect calculations included and identified in prior period
disclosures, which have resulted in the veracity of an organisations’ reporting for specific
period(s) being compromised.
It is essential for financial and ESG data quality relied upon as an input to the production of
Annual Reports and Sustainability disclosures to be complete, accurate and valid, and applied to
the correct period. Furthermore, organisations need to ensure they adopt the correct calculation
methodologies applicable to their business and context, and use reliable systems and tools for
information management.

Any assumptions made and the basis for calculations need to be thoroughly tested, fully
disclosed, and independently reviewed to increase assurance for the users of Annual Reports and
Sustainability disclosures.

Significant changes to calculation methodologies and restatement of prior period disclosures,

may arise for example due to organisation changes such as acquisitions, disposals, availability of
more accurate data, or change in reporting period. This may necessitate an adjustment to a
company’s base year to ensure accurate comparisons in future periods. Any changes to the base
year along with the justification, should be documented in the revised approach in policies,
procedures, and external disclosures.

Example – Recalculations and restatements

A manufacturing plant for the production of computer hardware is reliant on water as part of the
manufacturing process. Although water has been identified as a material ESG matter, the first
few years of data collection of water usage was based on proxy data taken from a similar plant in
another region.

However, new equipment installed has shown that water usage was in fact underestimated by
approximately 25%, which is considered significant. In this case, it has been determined that the
previous year's data, in particular the base year, is restated by increasing the proxy number by
25%.
Internal controls

In financial reporting, embedding internal controls is essential to ensure the quality and
reliability of the data. The same concept can be applied to ESG reporting. By setting appropriate
controls and measures to manage the accuracy of the data, management will be confident that the
data is free from error and complete.

You have learned that a number of elements that could be part of internal control mechanisms.
Internal control activities need to be defined, documented and responsible owners assigned, and
linked to the relevant processes and procedures. Execution of internal controls must consider
what, when, how and who will perform the activity. Independent assurance through ongoing
monitoring and review of the effectiveness of controls performed is strongly recommended.

Performance of ESG data quality checks across the end-to-end lifecycle is key to ensuring data
reliability, accuracy and completeness. Data quality checks can involve automated controls
augmented with human judgement, allowing for prevention and detection of issues.
Sustainability Assurance

External assurance on sustainability reporting and ESG data is essential to meet the rapidly
evolving requirements of key stakeholders such as investors, regulators and other parties who
require increased confidence and trust in financial and non-financial reporting.

The global demand from key stakeholders for reliable and transparent sustainability reporting by
organisations has grown significantly, and is changing rapidly from voluntary to mandatory
disclosures.

As with financial reporting audits, assurance review on sustainability reporting and ESG data
aims to provide independent and unbiased review on the adequacy and effectiveness of a
company's controls, processes, guidelines, policies, methods and compliance with regulatory
requirements.
To meet key stakeholder needs for globally consistent, comparable, credible and trusted
sustainability reporting, the International Auditing and Assurance Standards Board (IAASB,
2023a) has developed proposals for the International Standard on Sustainability Assurance 5000
(ISSA 5000).

The proposed ISSA 5000 will serve as a comprehensive, stand-alone standard suitable for any
sustainability assurance engagements. It will apply to sustainability information reported across
any sustainability topic and prepared under various frameworks, including IFRS Sustainability
Disclosure Standards S1 and S2.

The aims of the proposed ISSA 5000 are to address:

 both limited assurance and reasonable assurance

 framework neutrality – provides flexibility and ease of implementation, irrespective of
the sustainability reporting framework, standards, or criteria adopted by a company
 scalability – it can be applied to assurance on a single metric for a small entity, or entire
sustainability information reported by a group, or entity's value chain
 practitioner agnosticism – practitioners from diverse professions performing
sustainability assurance engagements can use the standard
 areas of sustainability assurance engagements where priority challenges have been
identified, and more specificity is required (Hartman, 2023).

ISSA 5000 has been developed in collaboration with key global and regional standard-setting
bodies responsible for sustainability reporting including the International Organization of
Securities Commissions (IOSCO), International Forum of Independent Audit Regulators
(IFIAR), Financial Stability Board (FSB), International Ethics Standards Board for Accountants
(IESBA), International Sustainability Standards Board (ISSB), and Global Reporting Initiative
(GRI).

The proposed ISSA 5000 is open for public consultation and stakeholder feedback until 1st
December 2023. The final standard will be issued before the end of 2024 (IAASB, 2023b).

In preparation for Sustainability assurance reviews, we anticipate organisations will need to

maintain and share up-to-date documentation to evidence their sustainability disclosures and
reliability of ESG data. For illustrative purposes, examples of documentation evidence to support
sustainability assurance reviews could potentially include:

 ESG strategy
 Climate policies
 Carbon emissions calculation methodology
 ESG data management approach
 ESG performance against targets and KPIs
  Internal governance review outcomes.

Take note

This is not an exhaustive list of information that may be required for sustainability assurance.
Our assumption is that ISSA 5000 should set out guidelines on information requirements to
evidence sustainability assurance reviews.

Setting up ESG data policies

For further support in setting up and maintaining ESG data policies and processes, take a look at
the "Guidance on improving the quality of ESG information for decision-making" by the World
Business Council for Sustainable Development. This guidance provides detailed step-by-step
guidance further to what you have learned in this topic. It also provides the following stages of
improving ESG data quality:

1. the business case

2. setting an objective and developing a roadmap
3. understanding the improvements your company needs
4. making changes to improve data quality
5. reporting on internal controls
6. monitoring and ongoing improvement
7. assurance.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 Appendix E to the GHG Protocol Corporate Accounting and Reporting Standard

 The Consideration of Climate-Related Risks in an Audit of Financial Statement

 Guidance on improving the quality of ESG information for decision-making

Principles for reporting ESG information

Principles for reporting, both financial and ESG information, are designed to ensure that the
information disclosed is decision-useful for users of the information, accurate and complete.
These principles should be embedded within both internal strategies and external disclosures.

A number of reporting standards and frameworks specify reporting principles for determining,
preparing and presenting disclosure. The International Sustainability Standards Board (ISSB)
was established in 2021 to develop the IFRS Sustainability Disclosure Standards S1 and S2
published in June 2023, effective for accounting periods from 1st January 2024. ISSB operates
under the IFRS Foundation.

Furthermore, the International Accounting Standards Board (IASB) and Financial Accounting
Standards Board (FASB) – specify qualitative characteristics of useful financial information,
which have been adapted by ESG reporting standards and frameworks for ESG information.

The Financial Conduct Authority (FCA) in the UK is developing a new ESG Data and Ratings
Code of Conduct to provide a globally consistent voluntary Code of Conduct that can foster an
effective, trusted, and transparent market with integrity for ESG data and ratings.

The FCA Code of Conduct aims to enable value-adding ESG data and ratings providers to:

 be transparent on methodology adopted and data inputs

 be underpinned by systematic processes, and robust systems and controls in place to
deliver required outcomes
 have mechanisms to identify, manage and disclose conflicts of interest
 operate with robust governance.

The FCA Code of Conduct is due to be finalised by the end of 2023 following a consultation
process.

This topic will focus on a number of key principles and will then answer the questions of what
and where to disclose ESG information.
Principles for disclosure

Most reporting frameworks and standards include a list of principles for reporting ESG
information. Below is a selection of principles, predominantly taken from the CDSB Framework
for reporting environmental and climate change information by the Climate Disclosure Standards
Board (CDSB). This framework draws upon the work of the IASB and has adapted the
qualitative characteristics of useful financial information into a list of reporting principles which
can be used when preparing and disclosing ESG information.

Select each heading to learn more.

Clear and understandable

Information needs to be clear and understandable to the intended audience to make it decision-
useful. This means that disclosures need to be easy to navigate, read and search. By using plain
language that is free from jargon, with definitions for technical terms, companies are able to
effectively demonstrate performance.
To enhance the readability of the information, companies can make use of illustrations, graphs
and charts. This is particularly helpful when demonstrating year-on-year progress against targets.

Consistent and comparable

The need for consistent and comparable data is driven by investors, and other report users, who
require data that support their decision-making processes. Applying a consistent approach to the
collection and disclosure of information is the means to achieving comparability, both within an
organisation across time, as well as between an organisation.

Firstly, data needs to be collected and disclosed in a consistent approach within an organisation
to ensure that year-on-year disclosure is comparable. For example, it would be difficult to
understand a company's progress if the methodologies applied to the calculation of the data are
continuously updated or changed.

Additionally, consistency is also ideal between multiple organisations within a single period of
time, making companies comparable within a sector or geography. This can be achieved by using
international or sectoral standards that promote consistent approaches across the market.
Faithful representation

Transparency is an essential element of credible disclosure. Information that is published should

provide a faithful representation, which means that it should be neutral, free from error and
complete. This information should also be balanced – celebrating success and progress, but also
noting negative ESG impacts or lack of progress towards targets.

The information should also faithfully represent the topic that it purports to represent. For
example, information about diversity and inclusion should accurately and faithfully represent the
diversity of the entire organisation, rather than a segment or specific facility.
Verifiable

Data that is verifiable minimises the risk of misstatement or bias within the disclosure. Verifiable
information is characterised by providing supporting evidence of the data trail from source to
final disclosure.

Assessments of verification can either be direct, where the data points are tested and confirmed.
Indirect verification considers the systems and processes in place and checks the validity of the
approach taken. By having robust data structures and documentation, companies should be able
to trace data to prove its accuracy and verify the conclusions that were made.

What to disclose?
We have already looked at the principle of materiality, which should be used to determine what
core ESG matters are most relevant to the organisation and to the intended audience of
disclosure. The materiality assessment should define the ESG data that is ultimately disclosed. In
the next module, we will take a deeper look at what to disclose.

The ESG metrics should be accompanied by narrative information that describes:

 the purpose behind collecting the information, including an explanation as to why is it

relevant for the organisation
 the data collection and calculation approaches, including the methodologies, assumptions
and tools used
 the scope and boundary applied data collection
 the justification for why some information is excluded. For example, specific activities or
geographies that are not included
 any context for year-on-year movements and broader narrative on overall progress
against baseline years and/or targets, where these have been set.

What to disclose - World Economic Forum guidance

In 2020, the World Economic Forum (WEF) released a set of ESG metrics and disclosures
suitable for companies regardless of their industry or location. The aim is to enable companies to
report against non-financial aspects of their business in a way that’s transparent and comparable.

The WEF ESG recommendations specify a core set of 21 metrics and disclosures grouped into
four areas or pillars.

Select each heading to learn more.

Pillar 1 – Principles of Governance

The company’s purpose and how it manages risk and ethical behaviour.

Pillar 2 – Planet

The company’s dependency and impact on the environment.

Pillar 3 – People

The company’s treatment of employees.

Pillar 4 – Prosperity

How the company’s profitability and financial health affects the financial well-being of its
community.

Where to disclose?
There are a number of channels that can be taken when disclosing ESG information. These
channels can be categorised as:

 mainstream annual report/financial filings

 integrated report
 sustainability report
 company websites and communication materials
 specialist reporting systems.

The chosen channel will depend on the purpose of the information, the intended audience, and
the capabilities of a company. If a company is reporting on the links between ESG information
and financial information to their investor audience, then the mainstream annual report would be
the most appropriate channel.

Where companies present multiple channels for disclosure, there should be a clear connection
between the reports and references to where different ESG information is located.

In any case, the information should be placed in such a way to explain the links between the
company's overall strategy and ESG performance. The information should be disclosed either in
sections or integrated throughout a report, as long as it is easily found and not obscured.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 Code of Conduct for ESG data and ratings providers

 FCA Terms of Reference

 CDSB Framework

 General Sustainability-related Disclosures

 ISSB describes the concept of sustainability and its articulation with financial value
creation

 WEF ESG report

 ESG reporting in Hong Kong SAR and Mainland China

Module summary

In this module, you learned about the approaches that can be taken to identify the core ESG
issues, how to build robust data processes, and the principles for reporting core ESG metrics.

By completing this module, you can now:

 identify core ESG issues

 understand key activities to build ESG data processes

 explain the principles for reporting ESG information.

Reporting ESG metrics

Module overview

ESG metrics are indicators that are used to measure and report the performance of companies on
core ESG issues. ESG metrics enable organisations to monitor and compare ESG performance
between different periods, and benchmarking versus peers, by using quantifiable measures to
provide detailed insights - for example on areas of strong ESG performance, or need for
improvement. By providing ESG metrics, alongside information on the company's business
model, risk management processes and financial performance, companies are able to provide a
complete picture of the organisation’s strategy and performance.
In the previous module, we looked at how to identify material ESG issues and how to build
robust processes to collect and manage ESG data. Building upon what you have already learnt,
this lesson highlights and digs into a core set of ESG metrics.

By completing this module, you will be able to:

 investigate a diverse range of common environmental metrics and potential strategies for
mitigating environmental risks
 examine a wide array of common social metrics to enhance social responsibility
 explore ways to strengthen corporate governance frameworks and promote responsible
leadership through the examination of governance metrics
 analyse common financial and forward-looking ESG metrics to promote sustainable
investing.

Selecting ESG metrics

According to the Reporting Exchange, there are over 1,400 indicators that could be used when
reporting ESG information. Companies will need to decide which ESG metrics are most relevant
to use for their business and industry, to best demonstrate ESG performance. This lesson focuses
on a number of common metrics that are industry-agnostic and are widely used by companies
around the world.

However, depending on regulatory requirements and the outcomes of the organisation's

materiality assessment, a wider selection of metrics may need to be considered.

The following standards provide an array of metrics that have been standardised by topic or
sector:

 GRI Standards
 SASB Standards
 WEF Common Metrics
 Taskforce on Climate-Related Financial Disclosures (TCFD) metrics and targets
 Taskforce on Nature Related Financial Disclosures (TNFD) draft metrics.

Mandatory regulatory reporting requirements will also need to be considered. For example, in
the UK listed companies are required to provide energy and carbon emissions data through the
Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018.

Under the EU Corporate Sustainability Reporting Directive (CSRD 2022/2464/EU) rules

effective from 5th January 2023, large companies and listed companies are required to publish
regular reports on the social and environmental risks they face, and on how their activities impact
people and the environment. CSRD modernises and strengthens the rules concerning the social
and environmental information that companies have to report.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 Reporting Exchange

 GRI Standards

 SASB Standards

 WEF Common Metrics

 Taskforce on Climate-Related Financial Disclosures (TCFD) metrics and targets

 Taskforce on Nature Related Financial Disclosures (TNFD) draft metrics

 Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon
Report) Regulations 2018

 Corporate Sustainability Reporting Directive

Impact or risk metrics

Depending on the purpose for collecting and disclosing specific ESG data, these metrics can be
used to demonstrate the company's impact on the ESG issue, or the risks to the company itself
from ESG-related matters.

Certain metrics can be both an impact and risk metric, depending on the context in which it is
being disclosed. For example carbon emissions contribute to climate change, but may also pose a
financial risk due to the introduction of carbon taxation policies. In this example, metrics on
carbon emissions can be used to demonstrate impact, but also to identify financial risks.

Environmental metrics

Disclosure on environmental issues seeks to demonstrate the impacts and dependencies of

business on the natural environment through their operations, supply chains, and products and
services. There is a growing understanding of the relationship between nature and the economy,
with both being inextricably linked and dependent on one another. In this respect, both the
impact of the company on the environment, as well as the business risks posed by the changing
environment, are key elements reported by companies.

Additionally, the impact of companies on the environment is a growing concern for consumers,
with a growing expectation for companies to behave in a more environmentally conscientious
way. Climate change is perhaps the greatest environmental concern of our times and is one of the
biggest issues that companies are dealing with, but there are additional environmental issues that
companies are required to think about.

For example:

 water-related issues
 impacts on air pollution
 impacts on biodiversity.

Let's review the environmental Sustainable Development Goals:

 SDG 6: Clean water and sanitation

 SDG 7: Affordable and clean energy
 SDG 12: Responsible consumption and production
 SDG 13: Climate action
 SDG 14: Life below water
  SDG 15: Life on land

Greenhouse gas (GHG) emissions data

One of the most recognisable and standardised metrics associated with ESG data is GHG
emissions. As the primary driver of climate change, the emissions of GHGs have increasingly
become a key focus for regulators as they work to achieve international climate goals.

Companies can demonstrate their contribution towards climate change by disclosing their annual
GHG emissions. In this respect, GHG emissions is an impact metric, as it demonstrates the
impact companies have on the climate. However, it can also be seen as a risk metric. As society
moves towards a low-carbon economy, companies that have high emissions are likely to face
increasing risks.

The GHG metric that is generally used across the market is metric tonnes of carbon dioxide
equivalent (tCO2e). Companies can also provide intensity or normalised metrics (CO 2e/a given
unit), such as revenue, production or employees, to support comparability in performance over
time and between peers. The intensity metric should be relevant to the company, and comparable
to peer companies within its sector.

Categorising GHG emissions

The GHG Protocol is the global body that provides standards to measure and manage GHG
emissions for the private and public sectors. The Protocol's Corporate Reporting Standard,
originally published in 2001 by the World Resources Institute (WRI) and the World Business
Council for Sustainable Development (WBCSD), includes guidance on how to develop a GHG
inventory, accounting principles, and setting appropriate boundaries.

The GHG Protocol distinguishes between “direct” and “indirect” GHG emissions, which are
known as “scopes”. These scopes are used to help companies categorise the activities that are
sources of emissions, but also to prevent multiple companies from accounting for the same
emissions, therefore preventing double counting.

The scopes of the emission sources as defined by the GHG Protocol are outlined below.

Select each heading to learn more.

Scope 1: Direct Emissions

Direct emissions occur from sources that are owned or controlled by the company.

For example:

 company facilities

 vehicles owned and used by the company

 combustion equipment within a company’s factory.

Scope 2: Energy indirect emissions

Energy indirect emissions account for the generation of purchased electricity that is consumed by
the company.

For example:

 purchased electricity consumed by the company

 steam

 heating and cooling for own use.

Scope 3: Other indirect emissions

Other indirect emissions from an organisation's value chain which include those not included in
Scope 2 and are a consequence of activities that occur outside the ownership or control of the
company (upstream and downstream).
For example:

 production of materials in the supply chain

 leased assets (real estate)

 transportation and distribution of goods

 employee commuting and business travel

 capital goods

 purchased goods and services

 waste generated in operations

 fuel and energy-related activities.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 GHG protocol

 Corporate reporting standard

 Corporate Value Chain (Scope 3) Accounting and Reporting Standard.

Calculating GHG emissions

Once the company’s activities have been identified, the emissions should be calculated using a
standardised approach.
The most common approach is to record or estimate activity data and use emissions factors,
which are calculated ratios that connect the emissions to a proxy measure of activity.

For example, fuel used in vehicles owned by the company (activity data) can be used to measure
Scope 1 emissions by applying an understanding of the default carbon content of the fuel
(emissions factor). As Scope 2 focuses on purchased electricity, the meter readings of electricity
consumed by the company can be used as the activity data.

Activity data x emissions factor = GHG emissions

1. Scope 1 and 2 are regarded as being fairly straightforward to calculate, as activity data is
easier to capture and emissions factors are readily available
2. Scope 3 is somewhat more complex, as the source data might not always be available. In
these cases, third-party data might be used as a proxy.

Whichever approach is used, it is important to be clear and transparent by disclosing the details
of the calculation methodology, to give the data user insight into how the final figures were
derived and any limitations or data gaps. This means that greater comparisons can be made
between companies.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 Calculation tools and methodologies on the GHG Protocol website.

Disclosing GHG Emissions –

Example

It has become common practice for organisations to disclose their GHG emissions in Annual
Reports and Sustainability Reports.

Organisations are also increasingly using CDP which provides a global disclosure system,
scoring, and reporting platform on GHG emissions for companies, and investors across various
sectors to enhance transparency in measuring and managing environmental impacts.

For an example of GHG emissions disclosures, we have adapted Landsec’s 2020 Annual Report
– page 182, to share key highlights. The Landsec example illustrates:

 GHG emissions over three years and categorised by Scope 1, 2 and 3 emissions
 alignment of the methodology approach with the GHG Protocol
 disaggregation of Scope 3 data to provide more granular detail.

Select each heading to view the data of each period.

2017/2018

Emissions
% of the total value
GHG Scope Category (tCO2e)
chain

Scope 1
Scope 1 14,755 3.6%

Scope 2 Scope 2
36,620 9.1%

Scope 3 Scope 3
353,099 87.3%

Total emissions 404, 473

2018/2019

Emissions % of the total value

GHG Scope Category
(tCO2e) chain

Scope 1 Scope 1
11,490 3.6%

Scope 2 Scope 2
30,518 9.7%

Scope 3
Scope 3 272,938 86.7%

Total emissions
314,945
2019/2020

Emissions % of the total value

GHG Scope Category
(tCO2e) chain

Scope 1 Scope 1
9,158 3.4%

Scope 2 Scope 2
25,382 9.4%

Scope 3
Scope 3 235,031 87.2%

Total emissions
269,571

Scope 3 GHG emissions 2019/20

Scope 3 Categories % of Emissions

Downstream leased assets 46%

Capital goods 29%

Purchased goods and services (PG&S) 21%

Fuel- and energy-related activities 3%

Others 1%
Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 CDP

 Landsec 2020 Annual Report

Water

As an essential natural resource to maintain life on the planet, the management of water
resources by companies is crucial. Effective management mitigates reputational risks, reduces
costs through efficiency measures, and builds relationships with local communities to maintain
the company’s social licence to operate. Water-related metrics should demonstrate and describe
the company’s relationship with water, for example, water consumption or withdrawal.

For the purpose of this topic, we are focusing on freshwater sources, but your organisation may
wish to explore further water sources. The specificities of water, and the site-specific nature of
water-related impacts and dependencies, often require a unique approach. For example, regional
water availability and locations of operations are two issues that need to be considered when
identifying sources of water-related issues.

Take note

Megalitres (ML) of water withdrawn and consumed are the most common metrics currently
disclosed by companies.

By itself, this data provides an indication of the impact and disruption the company has on the
water system. However, an additional element to consider is the percentage of withdrawal and
consumption in water-stressed areas. This provides a further indication of the negative impact the
company has and provides a quantitative indicator of risk in terms of the percentage of water-
reliant facilities that may face operational disruption during a water stress event.
To calculate water withdrawal and consumption metrics companies need to take a number of
steps:

1. set the boundaries and reporting period for which source data will be collected
2. identify direct operations in water-stressed areas
3. identify water supply (water supplier or direct abstraction)
4. identify where water has been reused, recycled or returned
5. report the total water withdrawn and consumed into the boundaries of the entity for the
period.

Example - Water disclosure

This example is adapted from page 61 of BHP's 2020 Annual Report. This is an example of
freshwater withdrawal metrics, which are presented alongside the company’s 2022 target.
Historical data is provided in absolute terms, and BHP clearly notes the reporting boundary.

Performance data against the freshwater withdrawal reduction target is presented in this report
from operated assets during FY2020. Our global freshwater withdrawals from FY2017 to
FY2020 are shown in the following figure.
Accessible image description

Freshwater withdrawal is shown on this bar chart in megalitres for each financial year from 2017
to 2020. FY2017 is just over 150,000 megalitres, FY2018 is just under 150,000 megalitres,
FY2019 is just over 150,000 megalitres, and FY2020 is around 125,000 megalitres. The FY2022
15% reduction target is represented by a horizontal line about two-thirds of the way between
100,000 and 150,000 megalitres. This line extends from FY2017 to FY2022.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 BHP's 2020 Annual Report

Waste and pollution

The impact of companies on the environment is most obvious when it comes to waste and direct
pollution. This could be air pollution or water pollution, and should reflect the waste produced
due to industrial activities. In metropolitan areas, air pollution, such as nitrogen oxides (NOx),
sulphur oxides (SOx), and particulate matter, are having an increasing impact on the health of the
population, and are therefore becoming an increasing concern for governments.

Water pollution (for example, nitrogen, phosphorus and potassium) can have a critical impact on
the ecosystem, on freshwater availability, and on public health. In particular, companies within
the agricultural and forestry sector are likely to find this metric material.

In many jurisdictions, emissions of this nature are closely regulated and therefore present a
potential compliance risk for companies. Managing waste outputs is a key part of a company’s
license to operate and, if non-compliant, could lead to operational disruptions or significant
financial impacts via fines. The metrics that are often used for pollution are:

1. total weight of waste generated in metric tonnes

2. emissions of nitrogen oxides (NOx), sulphur oxides (SOx), particulate matter and other
significant air emissions
3. metric tonnes of nitrogen, phosphorous and potassium in fertilizer consumed.
Land-use and biodiversity

Increasing focus has been given to the impacts of companies on land use and biodiversity. The
increasing demand for land, especially for agricultural, forestry and mining operations, is the
primary driver of land conversion. By providing data on the land used in its operations and
supply chains, companies are able to demonstrate how they are contributing (positively or
negatively) to the global demand for land and therefore their direct impact on biodiversity. By
ensuring this information is provided year-on-year, companies can demonstrate their increasing
or decreasing contribution.

Companies may also provide information about the key biodiversity areas and protected sites
that their operations occupy or are adjacent to. These sites may be scientific and internationally
designated areas that are considered ecologically important due to the density of biodiversity or
the location of unique species.

By demonstrating the direct effects operations have inside or close to these areas, companies are
able to identify their impact but also minimise future risks of litigation or reputational damage.
The common metrics used by companies include number and area of sites, as well as area of land
usage.

Select each heading to learn more.

Number and area of sites

Report the number and area (in hectares) of sites owned, leased or managed in or adjacent to
protected areas and or key biodiversity areas.

Area of land usage

Area of land used for the production of basic plant, animal or mineral commodities.

For example, the area of land used for forestry, agriculture or mining activities.

Example – Disclosure of biodiversity metrics

Vale's 2022 Integrated Report provides a good example of an organisation reporting biodiversity
metrics by area of protected land, the number of species impacted by operations, and contextual
information about their conservation efforts.

As of 2022, Vale’s global operations occupy a total area of approximately 88,000 hectares, about
85% of which is in Brazil and Indonesia, in tropical forests of high biodiversity value (Vale,
2022).
Units/operations located in or adjacent1 to areas of high biodiversity value (GRI 304-1 l 304-3)

2022 Hectares

Total impacted area 87,731

In the wilderness 43,487

In hotspots 35,699

In protected areas2 30,054

Adjacent to protected areas 39,722

Priorities for conservation outside protected

9,623
areas

Adjacent to conservation priorities outside

9,595
protected areas

1. Adjacent are considered those protected areas located within a 10km buffer from the
operations.
2. It is important to highlight that the areas impacted in Protected Areas refer to
conservation units of sustainable use, whose creation decrees allow our activities.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 Vale's 2022 Integrated Report

Social metrics

In an increasingly globalised and connected world, there is growing emphasis on how the
behaviour and actions of companies impact their employees and society as a whole. Social
metrics are both used to demonstrate social responsibility, and also to identify and manage
potential risks. Topics that might be included under “S” include human rights, diversity and
inclusion (including equal pay), and occupational health and safety.

People are crucial for the success of companies as they represent for example employees,
customers, and suppliers. Therefore the growth and success of society are inextricably linked to
the successful performance of companies.

Let's review the social Sustainable Development Goals:

 SDG 1: No poverty
 SDG 2: Zero hunger
 SDG 3: Good health and well-being
 SDG 4: Quality education
 SDG 5: Gender equality
 SDG 8: Decent work and economic growth
 SDG 10: Reduced inequalities

Diversity and inclusion

Within society as a whole, there is increasing recognition and pressure on authorities to address
the issues around diversity disparities, especially concerning debates on gender and
ethnic/cultural equality. Providing metrics on diversity and inclusion demonstrates how a
company is responding to these societal demands, as well as how it views and empowers its
employees. In many cases this data highlights disparities.

By being transparent about the figures (even when negative), companies can demonstrate their
active role in acknowledging and willingness in working towards great diversity and inclusion
within their operations. It also provides opportunities for organisations in employee retention and
talent attraction by improving their reputation as good and active employers.

Greater emphasis has been placed on gender and ethnic/cultural data, but companies may wish to
also consider age, disability, and religion as additional metrics. It is important for the company to
recognise the potential sensitivity of the data, and must be mindful of this, and any associated
regulatory requirements when collecting and reporting this type of information.

Data can be collected and disclosed across an entire organisation, which provides a holistic view
of the company's diversity and inclusiveness. Companies may also wish to specifically focus on
diversity and pay equity in senior leadership, which demonstrates how this topic is viewed from
the top and can be used as a proxy for the company as a whole.

There are a number of metrics that can be used including:

 percentage of employees by age group, gender, ethnic/cultural diversity

 the ratio of basic salary and remuneration for employees, particularly focusing on gender
and ethnic/cultural groups.

Equal pay

Information on equal pay is a common metric used as part of diversity and inclusion matters. It
demonstrates the difference between the remuneration of employees in similar roles and often
focuses on gender and ethical/cultural disparities which makes it a good indicator for diversity
and inclusion.
By demonstrating the company's awareness of pay disparities, companies are able to prove a
willingness to tackle social disadvantages and discrimination within their operations. It also
promotes the company's culture which can have positive reputational consequences, benefiting
the company in the long term.

There are various steps that need to be taken in order to establish pay-related metrics.

Pay-related metrics
Decide data collection point

Decide on the date on which a snapshot of the data is collected. Given the potential of
complexities of different employee contracts, a snapshot of a particular day might be a preferred
approach.
Decide scope

Set the scope and determine the relevant employees.

Gather data

Gather payroll data for relevant employees.

Analyse data for disparities

Calculate the disparities based on standardised approach.

Report disparities

Report the final figures including additional narrative about why the disparities exist and the
actions take/planned to address it.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 Making your calculations

Example – Gender pay gap requirements

In many countries, large companies are required to disclose gender pay gap information. For
example, in the UK, companies with over 250 employees are required to disclose metrics
including the average and median gender pay gap for hourly pay and for bonus pay.

In 2022, Aviva reported improvements in their mean gender pay gap (the biggest since they
began reporting), median pay gap, mean bonus gap, and gender balance in senior and entry-level
positions. The proportion of women in senior management increased from 33.7% in December
2021 to 37.3% in December 2022. While these numbers indicate that the company is moving in
the right direction, it is not moving as fast as Aviva would like.

What is driving the gap?

From Aviva's 2022 Gender Pay Gap Report

According to Aviva, their gender pay gap is related to a higher proportion of men in leadership
positions, and a lower proportion in entry-level roles. They attribute their bonus gap to the high
variability in pay at senior levels, as well as the fact that the calculation does not include part-
time workers' bonuses, which are pro-rated. Though it negatively impacts bonus gap numbers,
Aviva maintains its commitment to support flexible working.

Select each heading to learn more.

Reminder of legislation requirements

As an organisation based in the United Kingdom with 250 or more employees, Aviva must
publish gender gap data based on figures collected on the 5th of April every year. This
information includes:

 the mean and median gender pay gap (based on the April 5th hourly pay rate)

 the mean and median bonus gender pay gap (includes bonus pay received in the 12
months prior to the 5th of April)

 the number of men and women getting bonuses

 the percentage of the company's quartile pay bands that are occupied by men and women

 women's earnings are stated as a percentage of men's pay (for example, 'women earn x%
less than men').

Gender pay gap vs equal pay

The gender pay gap is an indicator of the difference in average earnings between men and
women, regardless of their positions or seniority.

Aviva has a gender-neutral approach to pay throughout the organisation and states that their
gender pay gap is not a result of equal pay issues. They regularly monitor this to ensure they
meet their legal and moral obligation to provide men and women equal pay for equal work.

Aviva (2022)

Review the table below to learn more about the 2022 Aviva gender pay gap stats.

April 22 April 21 April 20 April 19 April 18

Gender pay gap

Mean 24.3% 25.9% 26.0% 26.7% 27.2%

Median 25.1% 25.8% 26.7% 27.3% 27.8%

 Bonus pay gap

Mean 50.9% 51.1% 51.2% 51.4% 54.8%

Median 33.7% 33.4% 36.5% 39.0% 39.1%

% employees receiving a bonus

Male 95.2% 98.2% 96.3% 95.2% 91.4%

Female 96.2% 98.4% 96.5% 94.9% 92.1%

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 Aviva’s 2022 Gender Pay Gap Report

Employee training

Demonstrating the training and educational opportunities available to employees provides insight
into policies for improving the skills and competencies of the workforce, which in turn
demonstrates actions taken by the company to improve retention, productivity and performance.

A skilled workforce is an essential ingredient for a company’s success, and providing educational
opportunities results in a more productive and engaged workforce. The type of training offered or
made available by companies may vary, but should include any formalised internal or external
training or education that is available to employees.

Common metrics include:

 average hours of training per person during the reporting period

 average training expenditure per full time employee.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.
  International Labour Organization’s (ILO) standard on Human Resource Development
Recommendation (R195)

Health and safety

Perhaps one of the most well know social topics is health and safety. For the purpose of this
course, we will focus on occupational health and safety of employees, specifically relating to
work-related injuries, rather than health and safety for customers.

Ensuring the safety and well-being of employees is the primary focus for many health and safety
policies. However, strong policies can also improve the productivity and efficiency of operations.
Health and safety violations may result in legal implications for the company, as well as potential
damage to their reputation. Therefore collecting this data will allow companies the opportunity to
identify and monitor possible areas of high risk that need to managed.

The common metrics that can be used include:

 the number and rate of fatalities as a result of work-related injury

 the number and rate of recordable work-related injuries.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 ILO’s 40+ standards on health and safety

Human rights

Human rights encompasses a number of topics, including modern slavery and child or forced
labour. Companies may have a positive or negative impact on human rights through direct
activities or in the supply chain, and should collect and disclose metrics to demonstrate due
diligence, awareness and performance on these issues. Monitoring this data also provides an
opportunity for companies to identify and address any potential legal or reputational risks due to
infringements.

Collecting and reporting on human rights issues might be difficult in some cases, as impacts or
infringements can occur throughout the value chain. A different approach to boundary setting
may be required for this metric where impacts might take place outside of a company’s
operational control. It might be practical for companies to prioritise the collection of data from
industries and geographies that are known to be higher risk.

The metrics that are often used for human rights include:

 total number and percentage of operations that have been subject to human rights reviews
or human rights impact assessments, by country
 number and percentage of operations and suppliers considered to have significant risk for
incidents of child labour, forced or compulsory labour.

The Adidas 2022 Annual Report (page 91) recognises the company's responsibilities on
delivering positive social impacts, including Human Rights. This is demonstrated by the launch
of a new Human Rights policy in 2022.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 Shift Project takes a look at the current state of human rights disclosures

 The Adidas 2022 Annual Report

Example – Social metrics disclosure

This example comes from pages 98, 102, and 146 of Repsol's 2022 Integrated Report. This is an
example of an approach to presenting and summarising a number of social metrics including
respect for human rights and community relations, Repsol's commitment to human rights, and
security and human rights.

Select each heading to learn more.

Respect for human rights and community relations

Repsol believes that companies can play a crucial role in promoting human rights. This idea is
very important for how the company operates. There are two main things that are essential for
respecting human rights: strong leadership and commitment from the top, along with consistently
good social performance in everyday activities.
Repsol’s commitment to human rights

"Repsol is committed to complying with the most demanding international standards on respect
for human rights throughout its value chain." (Repsol, 2022, p. 96)

Since its approval in 2008, the Human Rights and Community Relations Policy has been
adjusted to meet the top global standards. This policy shows that the company's leaders are
officially committed to guiding the company's actions in this area. This commitment covers
everything from the early stages of projects like design and construction to their operation and
closure. Repsol also encourages its employees, contractors, suppliers, and partners to follow the
highest global standards.

To achieve this, the company actively joins efforts with other businesses in the industry. For
instance, it collaborates with Repsol in various working groups through an association called
IPIECA. This includes groups focused on Social Responsibility and SDG (Sustainable
Development Goals).

Security and human rights

Since 2013, Repsol has followed the United Nations Voluntary Principles on Security and
Human Rights. This commitment ensures that operations in sensitive or conflict-prone areas are
carried out with procedures that respect human rights.

Repsol requires private security companies to ensure that all employees working at its facilities
have received human rights training. The company supervises this training and also arranges
courses for its own security staff. Moreover, in certain countries, law enforcement agencies and
public security forces also receive specialized human rights training.

Human rights 2022 2021

Number of employees trained in human rights 921 714

Number of training hours in human rights 952 714

Contracts with security firms that include human rights clauses (%) 100 100

Security providers evaluated according to human rights criteria (%) 99 100

The average remuneration of directors, by gender, is shown below:

 Average Director remuneration by gender (€)

2022 2021

Women Men Women Men

Director average 297 451 336 133 290 118 332 273

Chairman N/A 2 500 000 N/A 2 500 000

For more information, please see the Annual Report on Director Remuneration.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 Repsol’s 2022 Integrated Report

Governance metrics

The focus on governance is not a new concept. In the 1980s, governance codes were developed
and mandated in a number of jurisdictions to encourage accountability and transparency on how
companies are managed. These governance codes, many of which were influenced by the
G20/OECD Principles of Corporate Governance, set the standard for the mechanisms and
processes that determine good and effective stewardship practices.

The role of effective governance within an organisation is essential. As public sentiment towards
trust in corporations increases, companies are required to demonstrate good governance
practices. It is also an important criterion used by investors and lenders when making financial
decisions. Providing clear information on how the highest governing body oversees the strategy,
risk and performance of the company, builds trust and legitimacy which is the foundation for
long-term successful value creation.

Take note

One of the best-established governance codes is the King Code of South Africa. If you are not
aware of the code in your country, we recommend you have a look at it.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 G20/OECD Principles of Corporate Governance

 King Code

Board composition

To secure trust in the board's ability to make reliable decisions, companies should provide
information about the composition of the board including competencies, the number of
executives and non-executives, tenure, diversity and stakeholder representation. Where there is
no board of directors, companies should provide information on the highest governing body and
its committees.

Additional information could also include the competencies and experiences of the board
members to indicate the knowledge and capacity of the board to make strong decisions.

Example – Sasol disclosure

This example comes from page 60 of Sasol’s 2022 Integrated Report. These extracts provide
information about the board composition, policy on board diversity, boards skills and experience.

Select each heading to learn more about Sasol's disclosure.

Board composition

Sasol prioritises diversity on its Board of Directors. They are selected for their skills in corporate
leadership, as well as business knowledge and proficiency. By ensuring a mix of diverse
backgrounds (covering business, geography, academia, as well as a range of ages, genders and
races) Sasol seeks to foster more meaningful discussions and facilitate better-informed decision-
making. This approach supports the long-term development of the business.

Review the statistics below on the composition of the Board.

 2022 statistics

Women 46%

Historically disadvantaged individuals 67%

Age

40-50 years 2

51-60 years 5

61-70 years 6

Independence

Non-executive directors 10

Executive directors 3

Policy on diversity

The Board is committed to enhancing broader diversity within its ranks. When forming the
Board, they take all forms of diversity into account to create the best possible mix. Whenever
feasible, they strive to achieve a balanced representation. Every appointment to the Board is
based on merit, while also recognising the positive impact that diversity brings to the overall
effectiveness of the Board.
 Tenure 13 Directors

0-3 years 6

4-8 years 6

9+ years 1

For the skills and experience of each Director refer to Form 20-F.

Board skills and experience

Creating an ethical culture and collective perspective is essential.

Sasol's Directors must:

 encourage commitment to the organisation as well as unity by demonstrating strong

values that reflect ethics and integrity

 identify and consider risks in decision making

 facilitate transparent and open communication with management while encouraging

equal participation by all parties

 participate in meaningful discussions while asking critical questions.

Skills and experience of Sasol's Board

The Board has the following skills and expertise:

Board members % of Directors

Social, SHE and sustainability 46%

Chemicals 38%
 Engineering 38%

Capital projects 69%

Sales and manufacturing 38%

Global oil and gas 23%

Finance 38%

Mergers and acquisitions 69%

Public policy and regulatory 38%

Legal and compliance 46%

Human resources and remuneration 46%

Strategy and risk 92%

Global experience 85%

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 Sasol’s 2022 Integrated Report

Anti-corruption

Corruption relates to the unethical and illegal activities within a company. Anti-corruption
metrics are an essential and often mandatory reporting requirement in many jurisdictions. To
further build trust in the company and its activities, anti-corruption metrics indicate that the
company is actively participating in the removal of unethical and illegal activities from its
operations. The types of data that are useful include information on both the number of incidents
of corruption and the company's proactive response and policies to minimise these incidents.

The metrics that could be used to indicate anti-corruption policies include:

 total number of incidents of corruption confirmed

 total percentage of employees (including board members) who received training on anti-
corruption policies and procedures.
Example – Coca-cola disclosure

This example comes from page 123 of Coca-Cola Hellenic Bottling Company’s 2022 Integrated
Report. This extract provides information on the policies and training provided to employees, in
addition to the number of allegations of violations that were received and investigated.

This section presents a brief overview of Coca-Cola Hellenic's disclosure and whistleblowing
measures.

Business ethics and anti-corruption

Coca-Cola HBC aims to expand its operations through customer and consumer service while
upholding integrity and respect in all business endeavors. The Board bears the responsibility of
establishing suitable protocols and systems that empower the workforce to express any
apprehensions.
The Board upholds a strict stance against violations of the Code of Business Conduct and anti-
bribery policies, along with any endeavors to retaliate against individuals who report potential
infractions.

Business code of conduct

Compulsory training is provided to all employees, including the executive leadership team, to
ensure a comprehensive grasp of our Code of Business Conduct. Furthermore, specialised anti-
bribery training is offered to employees operating in regions identified as high-risk.

By the conclusion of the most recent training phase in 2021, 26,319 employees successfully
completed the course, accounting for 97.7% of the overall active workforce. Coca-Cola HBC
continues to offer training to every new employee who joins the company.

Investigations

In 2022, a total of 589 claims were looked into (compared to 344 in 2021), out of which 324
(compared to 210 in 2021) were reported through the 'Speak Up Hotline'.

Every allegation related to possible breaches of the Code of Business Conduct was probed in
accordance with the Group Code of Business Conduct Handling Guidelines. Among the cases
investigated, 219 (compared to 105 in 2021) were substantiated as violations of the code, with 20
cases (compared to 15 in 2021) involving either a managerial employee or a loss exceeding
€10,000.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 Coca-Cola Hellenic Bottling Company’s 2022 Integrated Report

Remuneration

Increasing societal sentiment and concern towards excessive executive pay is a key driver in why
companies are asked to provide insight into the remuneration of senior leadership.

The remuneration policies and incentives offered to senior leadership may either support or
obstruct the company’s ability to create value over a long-term. It is common for companies to
provide remuneration details in annual reports and financial filings, but there are growing calls
for remuneration policies for senior leadership to also align with the commitments made by the
company towards sustainable development. This alignment is achieved by including ESG
metrics into variable incentives, therefore tying the company’s ESG performance to leadership
rewards.

In some cases, this will require companies to assess current remuneration and incentive
mechanisms and make changes to ensure they encourage the long-term viability of the company.

Common metrics for remuneration include:

 clear performance criteria in the remuneration policies for the board and senior leadership
in relation to ESG objectives and performance
  ratio of total compensation of executives to the median total compensation of all
employees
 outline of the remuneration policies for the board and senior leadership, including fixed
and variable pay, equity-based pay, bonuses, termination payments, clawbacks, and any
additional benefits.

Example – BP's disclosure

This example comes from page 33 of BP’s 2022 Annual Report and is part of a chapter on
remuneration which provides information about how the remuneration policy incorporates the
company’s climate strategy.

Incentivising employees

BP's goal is to motivate their worldwide staff to achieve their objectives and encourage them to
actively support the net-zero initiative. This involves persisting in assigning a portion of
compensation that's tied to lowering emissions for both leadership and approximately 32,000
employees.

To enable their employees to contribute to the accomplishment of their strategy and sustainability
objectives, BP is educating them about the importance of achieving net zero. They are also
providing incentives to encourage employees to become advocates for this cause and offering the
required support. In the year 2022, significant progress was made in terms of incentivisation,
education, and advocacy support.

Incentivisation

From BP, 2022, p. 31

BP's yearly bonus program, applicable to all eligible employees, including the leadership team,
has been tied to a sustainability metric since 2019.

The criteria used to evaluate eligible employees for bonuses were revised in 2021 to encourage
them in three main areas: safety and sustainability (30%), wherein sustainable emissions
reduction contributes 15%, operational performance (20%), and financial performance (50%).

The scope of sustainability measures in the long-term incentive plan scorecard for group leaders
was broadened for the period 2022–24. This enhancement involved explicitly connecting
performance with the progress made toward the net-zero operations objective (aim 1).
Additionally, two social indicators were added – employee engagement and increased
representation of ethnic minorities among senior-level leaders. These modifications also extend
to the 2023–25 scorecard. Taken together, these revisions indicate that over 30% of the long-term
incentive plan is tied to sustainability benchmarks.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 BP’s 2022 Sustainability Report

Financial and forward-looking metrics

You will first look at connecting ESG data to financial metrics. The ESG metrics that we have
considered have so far focused on the impacts and dependencies on the organisation. Although
some of them can be used as indicators of risk, they very much focused on the "inward-
out" approach – focusing on the impact of corporate activity on ESG matters. However, it is
becoming increasingly important for ESG metrics to connect with financial information, this
should enable companies to demonstrate how they are performing on their financial and
sustainability commitments to deliver on the triple bottom line of people, planet and profit.

Currently, this is a growing element of ESG and therefore methodologies and tools are still
evolving. However, some companies are starting to explore these metrics, which might include:

 revenues/savings from ESG-related investments

 carbon pricing
 OpEx expenditure on mitigation or adaption activities
 proportion of capital allocation to long-lived assets versus short-term assets
 assets committed in regions with high, or extremely high, baseline water stress
 CapEx in low carbon alternatives.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 Accounting for Climate 2020 guidance

Forward-looking metrics
So far, the metrics that we have looked at are primarily focused on backwards-looking data and
demonstrating the company's performance. However, investors are increasingly asking for
forward-looking information to demonstrate the company's plans and understanding of future
risks. This might include how ESG issues may affect future capital expenditure or future
forecasts on returns, future capabilities, and R&D investments. In particular, this information
addresses how companies are adapting to emerging ESG risks, including whether companies
consider future scenarios, assumptions and parameters for financial planning.

The Task Force on Climate-related Financial Disclosures (TCFD) and its recommendations have
driven increased demand for forward-looking disclosures and have provided additional guidance
on what these metrics might include.

Many companies are still at a nascent stage in their consideration and disclosure of forward-
looking ESG metrics. As sustainability and climate-related disclosures such as TCFD start to
shift from voluntary to mandatory regulatory requirements, companies will need to be better
prepared to establish, manage, analyse and report forward-looking ESG information.

In this interview, you will learn more about process and information management, and taxation.

 Process and Information management – to help your organisations enable effective

processes for sourcing, validating, analysing and disclosing ESG-related information in
company reports
 Taxation – support your organisations to better understand sources of carbon emissions,
disclosure requirements and related carbon taxes.

Further resources

For more information, access the following material through the document titled 'Further
Resources' in the module folder.

 Forward-Looking Financial Sector Metrics

Module summary

In this module, we introduced the concepts of ESG metrics including forward-looking metrics.
The module content should help you to better understand the relevance of ESG issues in the
business context, with a focus on clearly defining relevant ESG metrics and prioritised targets for
your organisations. Coupled with consideration of measuring, managing and reporting ESG
performance to drive sustainable practices and outcomes.

We have explored how to identify core ESG issues and familiarised ourselves with common
metrics used to assess ESG performance for organisations across different sectors, and discussed
the importance of linking ESG metrics to financial information. We also highlighted the value of
forward-looking ESG metrics that consider future risks and opportunities. Through engaging
with these topics, you should have expanded your knowledge on how to leverage ESG metrics to
make better-informed decisions, promote responsible practices, and drive positive impact to help
your organisations to deliver on sustainable development commitments.

By completing this module, you can now:

 investigate a diverse range of common environmental metrics and potential strategies for
mitigating environmental risks

 examine a wide array of common social metrics to enhance social responsibility

 explore ways to strengthen corporate governance frameworks and promote responsible

leadership through the examination of governance metrics

 analyse common financial and forward-looking ESG metrics to promote sustainable

investing.