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Tips to Overcome ESG Data Selection Challenges

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Gediminas Rickevičius, VP of Global Partnerships at Oxylabs

 

Environmental, Social, and Governance (ESG) guidelines promise better investment outcomes with multiple benefits to citizens, the environment, and the economy. Despite the perceived benefits, challenges continue to emerge with establishing ESG ratings and data collection.

Developing industry-wide standards are part of the solution, however firms can also take measures to establish a framework when analyzing data sets and company rankings. Web scraping is an additional solution that empowers firms with actionable data when checking ESG scores.

What is ESG Criteria?

ESG guidelines attempt to assess investment outcomes with a focus on environmental, social, and corporate governance goals. Environmental criteria are primarily concerned with reductions in waste and greenhouse gas emissions, and management of water supplies. Social guidelines assess businesses on their activities concerned with consumer protection, employee welfare and wellbeing, financial activities (such as lending), human rights, and community impact.

The third component of ESG guidelines includes the promotion of Diversity, Equity, and Inclusion (DEI). These programs and policies aim to promote equal participation of individuals based on group identity factors that include gender, skin tone, culture, age, sexual preference, and religion.

Gediminas Rickevičius

ESG Investing is Growing

According to Bloomberg, ESG investing will reach $53 trillion by 2025. Individual shareholders are also voicing support for social and environmental proposals, with an increase from 21% to 32% between 2017 and 2021.

Currently, global assets under ESG management amount to $35.3 trillion in the United States, Canada, Japan, and Australasia. European firms lead the way with over 50% of investment assets under management following the EU’s 2016 ESG global mandate.

How ESG Ratings are Calculated

ESG scores or ratings are based upon a company’s success in addressing its environmental, social, and governance responsibilities. While some of these responsibilities have material consequences, most are important to stakeholders for non-financial reasons.

ESG ratings are not established by a standard system. Instead, there are several ESG rating agencies that provide investment assessments based on a business’s ESG performance. Most of these agencies have varying methodologies when assigning ESG scores, making it challenging for investors to understand a company’s performance in real terms. In addition, these calculations are typically based on a company’s “perceived” activities, and may not account for all positive practices put into place.

ESG Scoring Factors

ESG scoring factors vary significantly from one agency to another. Factors that contribute to the overall rating typically include:

Environmental Scoring Factors

Environmental scoring factors can include commitments to renewable energy, climate change, water pollution, soil contamination, and waste production.

Social Scoring Factors

Social scoring ratings are primarily based on relationships with employees, shareholders, suppliers, and partners. Factors that determine this rating include employee compensation, workplace safety, health benefits, and workplace conditions of operations located in other parts of the world.

Corporate Governance Scoring Factors

Corporate governance scoring depends onboard activities, regulatory compliance, and legal operations. Factors that influence this rating include compliance with federal, provincial, state, and municipal laws, executive compensation, and if the board of directors comprises individuals from different identity groups.

ESG Data Challenges

The ESG space faces numerous challenges that specifically concern score calculation and regulations. Some of the most frequent criticisms underlying this framework include:

Inconsistent Grading Methodologies and Data Standards

In the absence of a regulatory framework, rating agencies typically use different methodologies, resulting in varying scores for the same company. In addition, there is a challenge in quantifying facts such as biodiversity investment, carbon footprint, and what constitutes a “diverse” management team. Besides the lack of a consistent framework, firms do not use normalized data sets across varying time periods, resulting in inconsistent conclusions about a company’s adherence to ESG standards.

Corporate Greenwashing

Greenwashing is a deceptive marketing practice that attempts to convince investors that an organization is committed to sustainable environmental goals. The overall purpose is to include the company in sustainability indices for inclusion in investment portfolios, and to promote a positive public image.

How to Choose ESG Data

Despite the challenges facing ESG investing, firms can take action to obtain relevant data when assessing sustainable investments. Some tips when formulating a strategy include:

Set firm-specific ESG goals

Ethical investing is more than just a passing trend. Digital innovation enables investors from all demographics to see the effects of corporate activities across the world.

Creating firm-specific ESG goals can be profitable from a retail perspective – particularly with younger “millennial” investors. According to a recent report, millennials drove sustainable investment from $5 billion in 2015 to $51.1 billion in 2020. Investors today are more concerned with the power of their money than ever before – and investment firms are responding by creating funds that align with current global issues.

Evaluate data quality

Firms should vet data for completeness and transparency. Reporting on a limited data set may not provide a complete picture that considers the source and methodology. In addition, some data sets have gaps that make the data inaccurate and unreliable. Choose a provider that continuously tracks indicators to produce timely data that is relevant.

Gather data with ethical web scraping

In the absence of consistent data sets, many investment firms choose to obtain their own data with web scraping – a process that extracts public information from websites.

Web scraping can be used to collect publicly available ESG data from multiple sources, including company websites, online directories, and other sources. Areas of interest to ESG investors can include:

  • Investment in sustainable energy
  • Air quality
  • Health and safety procedures
  • Waste removal
  • Employee compensation and benefits
  • Shareholders’ rights
  • Diversity, equity, and inclusion
  • Board structure and tenure

Businesses opting to gather public data can employ an in-house team or use a web scraping tool customized to extract data from any public source.

Learn more about scraping critical ESG data

Finance firms increasingly use web scraping to extract ESG and alternative data critical to successful investment decisions. Download “Alternative Data Unlocks Key Decisions in the UK & US Finance Industries” – our complimentary white paper that explains:

  • The dominance of alternative data across the global finance industry
  • Regional differences in the UK and US finance sectors
  • Most valuable data extraction methods
  • Data extraction challenges
  • Emerging data collection strategies

ESG investing has grown substantially in recent years and is forecasted to increase. Download our whitepaper to learn about data extraction solutions that drive precision investment strategies and comply with ESG guidelines.

Business

Hidden channel costs: how to find and tackle them

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By Mark Wass, Strategic Sales Director, UK and North EMEA at CloudBlue 

 

Growth for businesses will always be a key objective. However, in this digital age, if it occurs too rapidly, it can often unearth cracks that harbor hidden costs and pre-existing efficiencies.

 When it comes to channel distribution, for the majority of partners, hidden costs are widespread. A lot of partners work with multiple channels and systems, and this can become complicated. It can also affect their ability to track information.  On average, 30%-40% of IT spending  in large enterprises is accountable to inefficiencies caused by shadow IT.

 There is no single root cause of hidden costs. An array of issues such as wasted resources, labour, time constraints, poor implementation oversights and maintenance issues are all contributors, and the cuts only get deeper as partners scale. Here are the ways service providers can eliminate hidden costs.

 

Where to look for hidden costs 

 In general, unaccounted, or unattributed costs originate from four areas, with the first being shadow IT.

 Shadow IT is the use of systems, devices, software, applications, or services without explicit IT department approval. The phenomenon has grown in recent years due to the adoption of cloud-based applications and services, with the average company using 30% more unique SaaS (Software-as-a-Service) apps than they were in 2018. Thanks to the ease of adding new software, departments are going it alone and buying platforms that can be niche, or duplicate processes, and even in some cases using multiple versions of chat apps to communicate internally. 

Mark Wass

The next hidden cost stems from implementation and integration. Channel partners need to work within different systems, and almost always underestimate the budget needed to work with new software solutions. A consistent blind spot across the industry is the inconsistency of implementation and integration at budget.   

In terms of maintenance, it is especially difficult when partners create homegrown software to handle provisioning, relationship management, or data management. While such proprietary software might perform well for initial purposes, maintenance and upgrades can be a nightmare. Likewise, internal knowledge transfer in this situation is crucial.  

And finally, the scalability of expanding from one market to the next is not linear and neither is the cost. Partners that have already launched in one part of the world often think that it will cost around the same to expand into another region, like between the US and Europe. However, this thinking does not consider the additional effort to contend with the new currency, language, audience, and regulation, as well as local operations within the region.  

 

Tackling hidden costs  

The good news is that there are multiple remedies to hidden costs. Integrations, for example, successfully bring together disparate systems and improve efficiency. Partners that have manual processes and pull information from one system before typing it into another are wasting time and resources by dedicating an entire person to this process. Clearly, this should be automated to cut down on human errors and save in the long run. 

Along with integrations, partners should purchase software with scalability and unification at heart. There is no magic platform that does everything entirely so companies should opt for the best of breed, even if the initial investment is a bit more. This will help to offset the concerns of scalability, maintenance, lack of expertise, and potential unforeseen overheads. Moreover, best-in-class platforms help to paint a consistent long-term picture of the health of channel operations. 

For channel health, it is also integral to integrate outside experts to perform an overall business diagnostic. These can be consultants, solution architects, and those alike that know channel software and best industry practices to help architect a scalable and efficient platform. Working in conjunction with the team, these objective outsiders work to find the gaps and tighten any software screws. 

 

Helping the channel by combating inefficiencies

Hidden costs can become widespread, and this can lead to channel partners paying up to twice the price for half the output.

 More than the financial downside, though, hidden costs should be thought of as hidden inefficiencies. Especially in today’s accelerated digital transformation, inefficiencies can make or break fast-growing channel operations. Therefore, weeding out hidden costs with improved efficiencies can work wonders by saving budget and running a tighter ship. 

 Integrated software and platforms can then be used for change. By unifying and standardising existing systems, managers receive a single view of contracts, reporting, sales, marketing, and day-to-day operations. This  provides them with the right tools to achieve sustainable growth. Rather than overwhelming teams with several types of platforms and software, this single operational view allows for the much-needed oversight that is necessary to set a business up for success. 

 It is essential for channel partners to seize the moment and eliminate the perils of hidden costs, especially given the rapid growth of businesses in the digital and cloud spaces.

 

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Automation nation: Liberating workers from desks, data entry and the doldrums

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By

Gert-Jan Wijman, VP of EMEA at Celigo.

 

Just when businesses thought the tough times were over, even more challenges ensued. While still recovering from the financial effects of the pandemic, companies were hit with an economic downturn that’s now resulted in a recession in the UK.

In this economic context, teams are being forced to do more with less. This means onboarding with reduced manpower, delivering ground-breaking marketing campaigns with less budget and mitigating outlay in the middle of a cost-of-living crisis. Being nimble and streamlining operations has never been more imperative.

That’s where automation comes in. While automating before the recession would’ve been the ideal scenario, it’s never too late to get ahead of competitors. It’s only a matter of when – not if – automation becomes standardised, as businesses insistent on using legacy tech and manual processes will be outpaced by those savvy enough to embrace smarter alternatives. In fact, it’s predicted that in just two short years, 70% of large global enterprises will have over 70 hyperautomation initiatives.

For finance teams and the tech-strapped CFO in particular, automation can be a saving grace. Tech stacks are more complex than ever due to the proliferation of specialised finance SaaS applications for quote to cash, Accounts Receivable & Accounts Payable (AR / AP), cash management, tax, accounting close and corporate performance management. Having the tools to automate these processes enables modern CFOs to adapt to changing tech needs, scale quickly and future-proof their organisations.

Automating today to prepare for tomorrow

Too often, automation is viewed as a job killer. We’ve all heard the apocalyptic narratives about ‘robots taking over,’ but that’s an outdated notion. Instead, automation is a job enhancer. Not only does it minimise errors, speed up processes and help businesses cut down on admin, it liberates employees to dedicate their time to be more creative or perform complex tasks.

Take a company like WeTransfer, for example. Bogged down by manual processes, the team struggled with closing financial books and completing billing cycles on time. After integrating its tech stack, quote-to-cash automation worked immediately and the time to close reduced dramatically, significantly reducing the hours dedicated to manual data entry.

Its revenue accountant was then able to work on core tasks in the finance department and alongside sales operations on the process improvements, no longer worrying about completeness issues associated with the sales and financial systems integrations.

Not only that, it liberated employees physically and unlocked access to more valuable talents. Beneath all the technical and monetary benefits, these are the core principles behind why automation will soon become impossible for firms to ignore.

Physical Liberation

Hybrid work has been one of the biggest positive developments driven by the pandemic. However, while employees surely won’t miss long commute times or the constraints of office life, a disparate workforce comes with challenges. It’s vital that organisations can trust their data and business processes in order for effective collaboration to be possible.

Automation can enable this, as it allows cloud-based systems to share data across a business through integration, ensuring all workers have access to the resources they need to work together effectively wherever they are.

This makes businesses nimble, able to operate across multiple locations when needed and well equipped to decouple entirely from headquarters if needed. Workers can then be as effective from home as from the office, ensuring they can maintain a better work-life balance without compromising productivity.

It’s no wonder then that 78% of organisations worldwide think remote working will increase the proportion of their workforce using automation, while over two-thirds (71%) that have already implemented automation are beginning to feel the benefits.

Liberating Talent

Automation also ensures talent is no longer wasted on manual tasks. 3 in 5 (60%) occupations could technically automate more than 30% of their tasks, highlighting the bevy of possibilities and offering a glimpse at the future of work.

When workers spend their time crunching numbers and organising spreadsheets, it’s easy for them to feel like a cog in a machine. With automation, however, they have more room to share their ideas and feel connected to the operations of the business.

With menial tasks taken out of their hands, employees are freed up to perform more complicated and creative jobs, the sorts of work that could never be automated. And by filling workers’ days with more of these engaging responsibilities, they’re able to feel like they have a real stake in the company’s success.

There is also research to suggest that workers can get as many as 100 hours a year back as a result of their manual tasks being automated, meaning everyone could get an extra two weeks of paid leave without productivity taking a hit.

Automating into the future

Already, over 80% of organisations self-report increased or continued investment into hyperautomation initiatives. So the appetite is there, now comes making it a reality.

Automation at scale is the dream, but the transition won’t happen overnight. In a perfect world, organisations will be able to assign all manual and tedious tasks to the machines, with employees only needing to provide oversight when necessary, but there’s a journey to get there.

That’s why it’s critical that CFOs collaborate closely with their CIOs. Only then can we realise a scenario where manual processes are eliminated entirely, and data across systems can be accessed and updated in real-time. But this will require leaders to understand each other’s needs and challenges so they can align their visions.

As organisations become more disparate, this partnership will only grow in importance. CIOs can empower the CFO and their teams to implement the automation initiatives best for them, with IT maintaining oversight to ensure compliance.

With the right structure and mindset, CFOs and the entire C-Suite can be encouraged to pursue digital transformation in a way that’s most effective for them and the entire organization.

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