Flex : Best practices for ESG data collection

Best practices for ESG data collection

03/16/2022 - by Kyra Whitten

Data has always been the fuel of sustainability programs, enabling us to track performance, report to stakeholders and drive improvement. Today, ESG metrics are having their big moment as investors, customers, and employees increasingly use them as a yardstick for measuring brand value. With ESG funds drawing a record $120 billion last year, more than double 2020's $51 billion, a lot is clearly riding on the sustainability data we have been gathering for years.¹²

The next question is, how do you measure your organization's progress against its sustainability goals and how will you gather these metrics? What will you measure and what is your approach to collecting this data?

In this post, we'll review some best practices on data collection, the linchpin of a credible, transparent and actionable sustainability program.

Identify the data

Before you go about finding the data, know what you want to measure.

Given the vast data troves that live inside organizations today and the wide-ranging sustainability areas your company is likely to touch through the course of doing business, it's easy to get sidetracked by the data you could be collecting. To maintain focus, align your data collection efforts to your strategy. This is where the materiality assessment discussed in an earlier post comes into play. The data you collect should connect to your goals, which in turn reflect the issues most material to your business.

As your materiality analysis and goals drive which metrics to track, you will want to consult well-established reporting frameworks to inform your data collection approach (see table).

The data you source will fall into one these categories:

• Environmental metrics are the most straightforward because they are established and well-understood. For instance, CDP's environmental disclosure platform which collects standardized information from businesses on climate change and other environmental risks have been in use for many years. Likewise, the Global Reporting Initiative (GRI) developed the widely adopted Sustainability Reporting Standards for ESG disclosures.
• The practice of gathering social metrics is less mature partly due to privacy regulations and other challenges related to capturing personal data. Social data is also less defined and span a wide gamut from employment by gender and ethnicity to instances of safety incidents. Notably, efforts are underway to align disclosure, methodologies and standards to communicate impact on issues like human rights and labor practices.
• Governance data is also becoming more well-defined amid more standard disclosures for ethics, governance and anticorruption.

In addition to ESG metrics (see GRI's universal benchmarks), there are also sector-specific metrics you may want to consider; of note, the GRI is set to develop standard metrics for 40 industries. At Flex, some of the metrics we collect are based on industry practices include scope 1, 2 and 3 emissions, water withdrawn, discharged and consumption, waste, percentage of women in management positions, and global training hours. Among governance metrics, we review the percentage of employees complying with Responsible Business Alliance's (RBA) rest day requirements and percentage of sites completing social and environmental audits.

Finally, if you're just starting out, don't try to boil the ocean. Create a roadmap, prioritize the data you need to acquire and grow this list over time. When our sustainability reporting efforts took shape about 10 years ago, the first step was identifying all the Flex facilities in the world we needed to track. The focus in those days was on collecting baseline environmental data such as electricity consumption and volumes of waste generated at each site. Today, we track some 70 environmental impact metrics.

Operationalize data collection

Since the data underpinning your sustainability program is scattered throughout the business, it is imperative to work with your partners in HR, finance, facilities, legal and other functions to operationalize data collection. Each Flex facility also appoints a sustainability lead who shares site data and works closely with our program office.

To reduce workflow friction and answer the data needs of a robust sustainability program, it is vital to build a foundational structure for collecting, managing and reporting data. Given the rising demand for sustainability disclosure, centralized data platforms are indispensable for streamlining data collection and today, there are many off-the-shelf solutions that support sustainability reporting.

Our sustainability team has come a long way since 2011 when they collected data with email and spreadsheets. As the team gained depth, they designed an in-house centralized database complemented by underlying processes and procedures that enforced consistency and uniform workflows for capturing data across Flex's global footprint. This multi-year effort involved deep collaboration with IT and other internal partners.

When it comes to collecting external ESG data from suppliers, Flex's supply chain sustainability team engages the vendors on our preferred suppliers list (PSL), following RBA's methodology. This process begins with suppliers completing the Supplier Self-Assessment Questionnaire. Their responses will yield an overall score and a risk score; if these scores hit a threshold, an audit will be necessary at the supplier's site with prescribed actions to follow.

We continue to explore ways to gain visibility into how well our supply base is hewing to sustainability standards. For instance, we are evaluating systems that can provide holistic snapshots of how well our supply chain is performing across many ESG dimensions.

While there is still progress to be made, I am proud of our team's leadership in developing deep collaboration with our suppliers to advance our shared sustainability goals. Last year, we worked with CDP to invite our PSL suppliers to report on their carbon emissions. As a result of our proactive effort, Flex was named a 2021 CDP Supplier Engagement Leader.

Standardize your data

For your stakeholders to analyze and utilize the information in your disclosures, bring your data into standardized formats. If your operations are globally distributed, this task can be cumbersome. Given that Flex operates in 30 countries, you can imagine the scope of standardization. For example, if our facilities throughout the world record their philanthropic donations in their national currency, they all need to be converted into a currency that is considered standard by frameworks that define global reporting standards. Similarly, imperial units of measurement need to be translated into metric and so forth. To fully automate data standardization, build calculators and other tools into your local or central database to convert the native units of measurement to standardized metrics.

Consult resources like Global Reporting Initiative, the United Nations Global Compact and SASB for guidance in the alignment with standards.

Consult these frameworks for standards compliance and sector-specific metrics:

• CDP
• Global Reporting Initiative (GRI)
• Sustainability Accounting Standards Board (SASB)
• UN Sustainable Development Goals (SDGs)

Set cadence for data collection

Your data collection cadence should follow the size and complexity of your business. For an organization such as Flex with operations in 30 countries, we have to keep pace with the incoming data or lose command of the program. On the other hand, a smaller business that develops software in a single location could likely get away with quarterly data collection.

At Flex, our more than 100 facilities will populate their site's data into our central database each month. The data collected includes resource consumption, employee trainings and community service hours and other data that tend to fluctuate month to month. We gather data with lesser variability once a year, and these include the percentage of electricity purchased from third-party renewable and non-renewable sources and the percentage of water withdrawn by source, among others.

We put our data to work every month by way of an internal scorecard that is calculated for each site based on the most recent inputs. During these monthly meetings held with multiple, small groups of site sustainability leads across regions and countries, we review their latest ESG performance and share ideas on making improvements. By actionizing on fresh data, each site is empowered by knowing the opportunities for improvement and determining a course for improvement.

When it comes to ESG efforts, the adage "you can't manage what you can't measure" applies 100 percent. Data gathering is vital to gaining an understanding of how our operations impact the world. Only then can it uncover the environmental and social challenges it can help mitigate.

Ensure data integrity

Now that you have the data, are you confident of their integrity? If data is the currency for building trust and informing the progress of any sustainability program, then we are only as good as our data.

This means you need robust data management practices to ensure your data is complete, reliable, trustworthy, and secure. Luckily, the rise of big data and automation has made this job easier. Work with your IT department to develop solutions that can foster data integrity. This means the system has good data hygiene with functions to detect anomalies and minimize human error by automatically retrieving data when they're published. We will discuss audits and other data validation mechanisms in greater detail in my next post.

As sustainability has gone mainstream, so has the need for more specific information, presenting an opportunity for us to fine-tune our data collection practices. Even the most mature sustainability programs can find areas to improve, whether it's streamlining processes, boosting data accuracy or improving collaboration. Make sure you set your strategy and goals in line with your materiality assessment to establish what is most critical, and design your data undertakings around this. Digest the data to understand performance and how to update your roadmap to engage your partners to improve over the near and long-term.

To be sure, this is hard work. But by diligently measuring and understanding how our operations impact the planet, we can take the actions required to build a more healthy and inclusive world that can be sustained for generations to come.

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Written by Kyra Whitten

Vice President, Sustainability, and President, Flex Foundation