Benchmarking is a crucial part of any ESG strategy. Here, we outline key benefits and best practices.
We’re often warned not to compare ourselves to our peers. Still, in the world of ESG (environmental, social and governance) strategy, peer comparison is a valuable exercise and one that can reveal far more than standard ESG data collection and reporting.
What is ESG Benchmarking?
In an ESG context, ‘benchmarking’ can have multiple meanings, including comparing your firm’s performance to industry frameworks and reporting standards. Benchmarking is an effective way to build your ESG and climate profile by understanding your competitors’ and vendors’ ESG strategy and general market movements.
Why Benchmarking is a Crucial Part of Your ESG Strategy
Benchmarking is an essential part of ESG strategy formation. Comprehensive benchmarking gives insight into your peers’ focus areas, thereby informing materiality assessments and ensuring ESG strategies are relevant, robust, and data-driven. Additionally, when done right, benchmarking can reveal market perception about your organization’s ESG performance and identify the potential impact of market trends and regulatory changes to help ESG teams, C-suite leaders, and other stakeholders make better business decisions.
“Benchmarking is a great way to identify material topics as part of your materiality assessment,” says Elizabeth Tutino, ESG Expert at FiscalNote ESG Solutions. “In turn, this feeds into delivering a strategy that is highly relevant to and meaningful for your particular organization,” Tutino explains.
Identifies Risks and Opportunities
“Benchmarking helps you understand where you are against others in your industry, what your peers are focusing on, and what you should focus on,” says Tutino. Whereas standard ESG data collection can help companies understand the performance of their operations and supply chains, benchmarking gives an external perspective on your organization’s performance, informed by industry context. This big-picture perspective can highlight gaps between your organization’s current performance and its potential, in turn helping to inform your ESG strategy.
Highlights the Business Case for ESG
Sustainability teams know that part of the job is selling the ESG agenda up the chain of command. Comprehensive benchmarking reports that highlight the gaps between your organization and its peers, and provide insights into the market perception of your organization, can be compelling tools for C-suite leaders and even investors. In turn, these reports can help to drive further investment into and alignment on ESG strategy and efforts.
Best Practices for Benchmarking
Approaching ESG benchmarking for the first time can feel daunting and may even seem too complex but there are ways to simplify the process and extract more value.
Identify Individual Targets
The first step is to identify the organizations you want to align with. In doing so, it’s important to think beyond ‘competitors’. Candice Bullard, Climate and ESG Strategy Expert at FiscalNote ESG Solutions, explains: “Including industry leaders in your benchmarking efforts helps you to understand what they’re doing, and to see how you could improve,” Bullard explains. Comparing against specific leaders and competitors yields valuable insights into industry standards and best practices, often more so than relying on references to industry ‘averages’.
Use Competitor Data to Strengthen Materiality Assessments
“Benchmarking provides insight into what ESG themes and topics are being identified as important by your competitors, which typically reflect what they’ve identified as ‘material’ priority topics,” says Bullard. Combine your benchmarking insights with internal and external stakeholders to form a highly relevant materiality assessment from which your ESG strategy can emerge.
Benchmark Specific Metrics
For more actionable insights, benchmark against specific metrics, not just total or aggregate performance scores. The metrics you select will depend on the results of your materiality assessments, but some key focus areas might include:
→ Carbon and other greenhouse gas emissions
→ Air quality
→ Water and wastewater management
→ Labor practices
→ Employee health and safety
→ Access and accessibility
→ Business ethics
→ Critical incident risk management
Consider Both Performance and Perception
In the world of ESG, performance does not always equal perception. Your company’s ESG scores may differ from how the market perceives your performance on ESG matters, so quantifying and monitoring your company’s external perception is a key part of sophisticated ESG benchmarking.
Says Bullard: “Insights into how the media and public perceive your organization can inform your ESG communication strategy,” an important piece of the ESG puzzle. Share benchmarking reports and insights with key stakeholders, including marketing and media departments, to keep your organization aligned and help drive business decisions from the top down.
Stay on Top of Policy Changes
Just as benchmarking helps organizations stay abreast of peer performance and activity, the right tools can also help you keep on top of ESG news, trends, and geopolitical and regulatory changes that could expose your firm to ESG risks. In the fast-moving ESG landscape, access to intelligent, real-time data can save your team hours and spot relevant information that might otherwise fly under the radar.
Don’t Forget Supply Chains
Just as benchmarking should extend beyond competitors to include industry leaders, so too should it extend the full length of your supply chain. It’s crucial to benchmark your suppliers against each other, and consistently monitor scores to spot potential outliers, risks, and opportunities. “Seeing which suppliers are performing the best across various ESG themes helps inform procurement decisions,” explains Bullard. With rising pressure to disclose supply chain or ‘scope 3’ impact, supply chain managers can benefit significantly from concrete supplier benchmarking scores.
Without easy-to-use software tools to simplify the process, ESG benchmarking can be a long and complicated process that is performed once and then forgotten about. But with the right tools, benchmarking can become an informative regular activity. “If you benchmark once and forget it,” says Bullard, “you could easily fall behind. Regular benchmarking gives continuous insight into emerging trends or themes that competitors are addressing, and that you may want to include in your ESG strategy.” The world of ESG is ever-changing, but frequent benchmarking can help organizations stay at the forefront.
Why Equilibrium Benchmarking and Risk Intelligence?
As your ESG goals and plans evolve, staying on top of risks and opportunities in your operations and supply chain is vital. Future-proof your organization’s ESG reporting with Equilibrium, a next-gen, end-to-end ESG management solution that helps companies move past static spreadsheets and legacy solutions.