A robust ESG due diligence process is critical to the credibility of your investment strategy or supply chain optimization system. This doesn’t merely involve accepting data from portfolio companies and suppliers at face value, but meticulously collecting, verifying, and analyzing it.
The following checklist outlines the best practices to ensure accurate ESG data management.
Develop a comprehensive guide that explicitly details the ESG information you require from your portfolio companies. This includes what data is required, what methodology needs to be used in collecting and formatting the data, and when and how often it needs to be submitted.
Many fund managers and buyers assess their portfolio companies or suppliers based on their internal Theory of Change or sustainability KPIs. While there is nothing wrong with developing an internal methodology and impact thesis, it is best to ensure your approach is aligned with one or more globally recognized sustainability or ESG reporting frameworks, such as GRI (Global Reporting Initiative), SASB (Sustainability Accounting Standards Board), or TCFD (Task Force on Climate-related Financial Disclosures). This promotes comparability, consistency, and ease of understanding.
Compare the reported ESG data with the company’s public statements, policies, and previous reports. Look for inconsistencies, such as claims that contradict established facts or sharp changes with respect to data and metrics reported in the past, which may require a deeper exploration. News articles can provide additional insights on a company's reputation and sustainability track record. Make sure to always rely on accredited sources.
Regular dialogue with portfolio company management can offer deeper insights into their ESG practices, strategies, and challenges. It also helps in understanding how ingrained ESG is within the company’s culture and operations. In some cases, in-person meetings and site visits can also help get a well-rounded understanding of the business day-to-day operations, and give you a deeper understanding of its culture compared to what you would sense during a conversation online of via email.
Verify that the portfolio companies comply with all applicable ESG-related laws and regulations in their jurisdictions. Any legal or regulatory breaches can indicate significant ESG risks.
Once the data has been collected, asset managers can use AI and machine learning tools like Briink ESG Policy Screener, ESG Doc chat and ESG Reporting platform to collect, analyze, and verify ESG data stored in unstructured data sources at scale. AI tools can significantly streamline the process of sourcing and extracting ESG data, identify discrepancies, and enhance the accuracy and speed of ESG data verification.
If you don't know how to get started with Briink's ESG Policy Screener, you can find a quick guide on how to get started here.
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