Environmental, Social and Governance (ESG) practices have increasingly become a touchpoint in every element of the business lexicon. Much like digital transformation, sustainability transformation is a necessary business initiative to remain relevant and competitive. Corporate social responsibility efforts, once keenly focused on business ethics, community support, and positive economic growth, now turn toward environmentalism and building a sustainable and resilient future. This article examines ESG and how Salesforce’s Net Zero Cloud can benefit organizations.
What is ESG?
ESG is a bundling of risks and opportunities from environmental, social and governance factors that can affect a business. As ESG continues to advance, it will increasingly become a framework that financial institutions and investors report on, and the high ESG performers will notably drive ranking financial results. Progressively more, investors are looking at a company’s ESG practices alongside more traditional financial measures to determine an organization’s impact. Establishing a strong ESG strategy and understanding future regulations and ESG reporting needs will provide organizations with a competitive advantage and minimize any disruption as they continue to evolve and expand.
What Does Environmental Mean in ESG?
Nearly two centuries of observations, research, and debate definitively prove that human activity is the direct link to global warming. As such, global efforts are underway across political agencies and major corporations to advocate for systemic change. In 2015, The Paris Agreement was established to limit the rise of global temperatures to 1.5 degrees Celsius—with a goal to reach net zero by 2050.1 Net Zero refers to the balance between the amount of greenhouse gas that’s produced and the amount that’s removed from the atmosphere and can be achieved through a combination of emission reduction and emission removal.2 Regulatory demands now span the globe, with Sweden and Germany requiring net zero targets by 2045 and the U.S., U.K., Japan and Canada by 2050.
For the United States, California signed two new climate bills into law on October 7, 2023—Senate Bill 253, the Climate Corporate Data Accountability Act, and Senate Bill 261, the Climate-Related Financial Risk Act. The bills require U.S.-based companies and U.S. subsidiaries of a non-U.S.-based company doing business in California to begin reporting their emissions based on the Greenhouse Gases (GHG) protocol.
SB 253 affects companies with $1 billion USD in (global gross) revenues to report emissions based on the GHG protocol. SB 261 affects companies with $500 million USD in global revenues to report climate-related financial risks and the measures a company has adopted to reduce and adapt to such risks in accordance with the task force on Climate-related Financial Disclosures (TCFD) on or before January 1, 2026, and biennially thereafter.
The bills will require those impacted companies to apply resources and build infrastructure necessary to support the new disclosure requirements, making it more crucial for organizations to prepare and implement their ESG strategies now.
What Does Social Mean in ESG?
It would be remiss not to identify the COVID-19 pandemic as pivotal to the social implications of ESG. The pandemic left many organizations exposed, highlighting financial disparities across gender and demographics, a lack of infrastructure, and a lack of resources to address a rise in mental illnesses as a direct consequence. With the social dimension of ESG referring to human rights and equity, in a business context, social addresses how companies manage interactions with their workforce, financial stakeholders, the greater community and the broader political environment. Several social factors, such as product safety, community relations, and supply chain transparency, to name a few, can impact a company’s performance. It is suggested that organizations with strong social ESG practices tend to have better financial performance and lower risk over the long term.
What Does Governance Mean in ESG?
While climate risk and societal implications are major factors in ESG, the governance factor cannot be overlooked. In the context of business, the governance dimension factors how a company polices itself, monitoring internal controls and practices to maintain industry practices, corporate policies, and compliance and the distribution of rights and responsibilities amongst the board of directors, managers, shareholders, and stakeholders. S&P Global research on governance factors has shown that companies that rank well below average on good governance characteristics are particularly prone to mismanagement and risk their ability to capitalize on business opportunities over time.3
Benefits of Establishing Sustainability Strategy and Reporting
Perhaps the most defining factor to contemplate is the positive impact a sustainability strategy and, subsequently, ESG reporting has on the bottom line of an organization. There are also many benefits:
- Appeal to Investors: Stocks with high ESG performance are more resilient in a volatile market, giving sustainable organizations a competitive edge.
- Attract Global Connections: With the United States lagging in climate regulation, organizations pursuing global expansion with strong sustainability measures will be more attractive to global investors.
- Enhance Brand and Boost Employee Satisfaction: Strong sustainability standards where values are held in high regard and consistently maintained can attract top talent and help retain environmentally focused consumers.
- Reduce Wasted Energy and Operational Costs: Tracking emissions and application of energy management solutions can optimize energy efficiency and lower utility costs and carbon emissions.
- Mitigate Long-Term Risks and Expenses: As organizations and countries prioritize lowering global temperatures, the cost of property damage and constant adaptation will slowly diminish.
Disruptors of Establishing Sustainability Strategy and Reporting
With new regulations being established and the lack of standardization in reporting, navigating the sustainability landscape can be a daunting task and a sizeable challenge for organizations. We’ve identified some defining disruptors:
- Lack of Governance for Sustainability Initiatives: Organizations must navigate the friction between short-term financial gains and long-term sustainability and prioritize initiatives. This includes balancing trade-offs and engaging and empowering employees to prioritize sustainable initiatives.
- Lack of Internal Skills and Expertise to Build Sustainability Goals: Achieving sustainability goals demands a diverse portfolio of skills spanning technical expertise, cross-departmental collaboration, strategic vision and change management proficiency. Lack of sustainability skills hampers progress, promotes bad decisions, undermines confidence and stifles innovation.
- Improper Access to Data and Definition of Metrics: Sustainability data that is trapped in silos, marred by inaccuracies and external dependencies, hinders impactful decision-making.
- Lack of Reporting Standards: Different organizations and industries often use varying metrics and methodologies for ESG reporting. This lack of consistency makes it difficult for companies to comply with reporting requirements.
The Importance of ESG Reporting
While applying ESG principles was once considered an added benefit, it is now an essential requirement for organizations to experience less volatility and the resilience needed to outperform competitors. Notably, ESG reporting can be overwhelming with different regulations, reporting frameworks, and variables by country, region and sector.
In the future, organizations will experience exponential growth in ESG data generated by reporting companies and making it available to investors. Likewise, pressures from stakeholders to extend disclosures and be independently audited will become mainstream. Hiring an ESG consultant to navigate the complexity, risks, and opportunities around sustainability and global regulations can help organizations understand business impact while ensuring compliance.
Getting Started with ESG Reporting
Ideally, organizations should begin by defining an ESG reporting strategy for their company, which includes factoring in the appropriate regulations, selecting a framework, and identifying metrics around a timed emissions target.
Like any major corporate initiative, executive ownership will be critical, and roles and controls will need to be established regarding ESG data ownership. Additionally, processes, policies and risk controls will need to be defined to ensure clean data. Perhaps one of the greatest assets an organization can invest in is a tech-enabling platform geared specifically toward ESG management and reporting.
Net Zero Cloud: A Carbon Account Sustainability Platform
As organizations establish carbon neutrality targets, analyze carbon data, and reduce greenhouse emissions, a robust reporting solution with ready-to-use ESG apps, dashboards and accelerators will assist organizations in managing data in real time. Organizations are looking for details on what emissions are generated by their operations. What can they do to achieve climate neutrality? What changes do they need to make to reach net zero? What risks need to be mitigated, and what opportunities can they further pursue to drive revenue? The answers lie within data, and Salesforce’s Net Zero Cloud is a solution to help organizations achieve their growth objectives with net zero emissions.
Salesforce, Inc., an American cloud-based software company, is on a quest to “energize the ecopreneur revolution.” With a sustainability vision “to accelerate the world’s largest businesses to net zero,” Salesforce introduced Sustainability Cloud in 2019, a product created to track corporate net zero goals. In 2022, Salesforce broadened the product into a full ESG solution, rebranding it as Net Zero Cloud, a complete sustainability management platform and carbon accounting solution to assist organizations in tracking and analyzing their carbon emissions and environmental footprint.
Essentially, the platform is a set of objects collected into an app and enabled by permission-set licenses. The platform includes a data integration component leveraging analysis, forecasting and executive dashboard capabilities.
To help you understand how the platform helps organizations achieve net zero, we’ve outlined the critical features and capabilities of the platform:
- Centralized Source for Carbon Accounting and Environmental Data: An organization’s carbon footprint, energy use and waste management are effectively quantified in one central area by identifying the scope of emissions used in an organization’s operations and wider value chain—Scope 1: emissions owned by the company, and Scope 2 and 3: indirect emissions as a direct consequence of the company but occurs indirectly from another source—the organization can begin to develop a climate plan.
- Dashboards and ESG Reporting: Executive dashboards provide insights into emission trends and energy patterns, identifying energy intensities and a company’s direct carbon footprint impact. Net Zero Cloud also provides automated report builders for the different reporting requirements.
- Forecasting: Through emissions forecasting, organizations can pursue the most efficient approach to achieving their net zero goals.
- Forecasted What-If Analysis: Forecast scenarios in real-time, applying sustainability activities to determine the fastest approach to net zero.
- Setting Science-Based Targets: Based on the Science-Based Target Initiative, a collaboration between the CDP, the United Nations Global Compact, World Resources Institute, and the Worldwide Fund for Nature enables organizations to set science-based emissions reduction targets.
- Supplier Management: Provides visualizations by each supplier in the value chain on Scope 3 emissions and their impact on net zero.
- Waste and Water Data Management: Utilizing different hazard impacts, organizations can record data related to their organization’s waste and water management, providing insights into progress toward net zero goals.
- Data Gap Filling Log: Leveraging AI, Net Zero Cloud flags inconsistencies in data and suggests corrections or estimates for incorrect or missing data, identifying which data is actual and which is estimated.
Is Your Organization Ready for ESG?
Global ESG regulation is constantly evolving, and having a technological sustainability resource like Salesforce’s Net Zero Cloud for disclosure, reporting, and analysis can be an organization’s greatest asset for regulatory checks and building a value-based business rooted in sustainable growth.
How We Can Help
Cherry Bekaert helps companies meet their carbon accounting and reporting needs. We are a one-stop shop for your carbon reduction efforts. We offer carbon accounting and reporting within our audit group, a carbon digital dashboard set up by our digital teams using Net Zero Cloud, and we will also file for tax incentives and credits to reward your renewable energy efforts.
About Cherry Bekaert
Cherry Bekaert’s Digital Advisory team is comprised of strategists who have broad industry experience and keen business acumen in ESG strategy. Utilizing an agile and flexible approach, we help examine what you want to achieve with a focus on people, process, technology and culture. We are here to help organizations manage risks, enable growth and support sustainable operations. Leveraging our strategic process, we help digitally enabled organizations, especially middle-market companies, do more with less. Cherry Bekaert stays on top of the latest technology trends, but we know that technology is not a one-size-fits-all solution. Cherry Bekaert is here to guide you on what technology makes sense to adopt as it pertains to delivering the highest value to your organization.
Sources
- https://unfccc.int/most-requested/key-aspects-of-the-paris-agreement. Accessed 1 Dec. 2024.
- What Is Net Zero? | National Grid Group.”nationalgrid.com. www.nationalgrid.com/stories/energy-explained/what-is-net-zero. Accessed 10 Jan. 2024.
- Exploring the G in ESG: The Relationship Between Good Corporate Governance and Stock Performance – Part 2. https://www.spglobal.com/en/research-insights/articles/exploring-the-g-in-esg-the-relationship-between-good-corporate-governance-and-stock-performance-part-2.
Additional Resources
Webinar: California’s Climate Disclosure Laws Are Coming: What it Means for Your Company and How it Can Be a Competitive Advantage
Webinar: Sustainable Manufacturing: Harnessing Energy Tax Credits
Article: Carbon Accounting Frequently Asked Questions (FAQs)
Article: California Adopts New Rule on Climate Disclosures for Corporations
