As the value of high quality ESG information becomes clearer to investors and companies alike, the value of comparing ESG performance with competitors is on the rise. ESG peer benchmarking is emerging as a key data-gathering strategy for companies, helping clarify ESG strengths and weaknesses as well as potential actions to gain competitive advantage.
What is ESG peer benchmarking?
ESG peer benchmarking is the process of compiling and researching ESG information on a company’s competitors to compare ESG performance and strategies in a given market. Like other forms of competitive analysis, the key output is a gauge of a company’s relative ESG performance, along with greater awareness of competitive advantages and weaknesses. In essence, the benchmarking process provides competitive context, a kind of market roadmap, for a company’s ESG journey.
Here are the key steps involved in ESG peer benchmarking:
Identify the most material ESG data points for internal and external stakeholders within the company’s industry. The most material data points are those likely to have the most significant impact on a company’s financial performance and valuation over the long term.
Collect the most material ESG data on competitors from a variety of sources such as the competitor websites, sustainability reports, ESG data providers, customer feedback sources, and social media. It’s important to ensure that verifiable data are derived from a broad range of competitors.
Compare peer ESG data with the company’s own ESG data, and report key findings to the relevant stakeholders
Management can use the ESG peer benchmarking report to help inform their ESG strategies goals and actions going forward.
How does ESG peer benchmarking create value?
Management teams focus time and energy in devising strategies which maximize value creation. Here are some ways that ESG peer benchmarking creates value for companies:
By providing a market context to the company’s ESG journey and strategy. Many management teams find this context inspiring, as doing so highlights that ESG strategies shape their competitive position. In the transition to a Net Zero world, many competitors are embracing ESG-focused strategies for growth as well as risk mitigation. That knowledge helps management teams understand the full business potential of ESG leadership in their sector.
By revealing valuable cost-saving ESG strategies competitors are using, such as investing in energy efficiency, water conservation, and waste reduction projects.
By revealing compelling ESG-focused growth opportunities, companies can market their ESG success stories to enhance their brand and competitive standing in the minds of sustainability-seeking consumers.
By providing honest feedback on a company’s risk profile versus competitors, as well as on any areas of strategic weakness. This knowledge allows management to mitigate these risks, future-proofing their businesses.
By ensuring shareholders’ ESG expectations are being met. This is particularly relevant in an era when investors are increasingly demanding best-in-class ESG standards. This reflects growing awareness that strong ESG performance is increasingly linked with stock performance.
By helping management teams to make better decisions. The multi-dimensional context presented by an ESG peer benchmarking report is likely to prove beneficial in support of business decisions.
The benefits far outweigh the costs
The list of benefits of ESG peer benchmarking is compelling. The value of this research and reporting is higher than ever as the structural growth in ESG-focused assets continues. Best-in-class ESG performance is no longer a nice-to-have strategy—it has become a high priority strategy which leads increasingly to improved business outcomes. For most companies the benefits of ESG peer benchmarking are significant, far outweighing the costs of preparing the report.