How do you gauge a business’s performance? Increasingly, businesspeople and investors are broadening their assessments by combining traditional financial measures, such as profits and revenues, with newer, non-financial measures that factor in environmental and social criteria.
Recent years have seen the rapid growth of ESG (environmental, social and corporate governance) considerations as businesses and investors factor in a company’s impact upon the planet, its treatment of people and communities, and its adherence to good governance practices.
Most notably, the climate crisis has now become a key consideration for investors – both in terms of a business’s greenhouse gas emissions and also the material impact that climate change may have on a company. For example, the long-term value and viability of assets such as land and factories can be affected by extreme weather such as flooding, droughts or hurricanes. The same goes for the public infrastructure that businesses depend upon, such as transport links, power and water supplies. Other climate-related considerations could include the impact of tighter emissions regulations in the future and the reputational damage of any shortcomings.
“Investors want evidence that investments are being made in the right location to create positive and sustainable outcomes,” says David Henderson, chief geospatial officer at Ordnance Survey (OS), Britain’s national mapping service. “There is an increasing amount of attention among fund managers on authoritative data that helps them better understand the environmental impact of their investments.”
Meanwhile, social factors (the S bit of the acronym) might include the impact of a business’s operations on local communities, and the welfare of employees – both those who work for the business in question and those employed or contracted by other companies within its supply chain. Mistreatment of workers can cause reputational damage as well as landing businesses in legal and regulatory trouble.
ESG factors therefore help investors and businesses to more fully understand the size and potential impact of any risks so that they can make more informed decisions. In a sense, it’s simply about having fuller visibility – which is why a key element of ESG is data.
Banks and other institutions that have traditionally placed a high premium on reliable and comprehensive financial data are now hungry for environmental and social data to better assess a company’s performance and resilience. These new metrics might encompass waste management, employee diversity and inclusion, water stress, gender and ethnicity pay gaps, as well as greenhouse gas emissions.
Location, location, location
Geospatial data – sometimes called location data – is a potentially rich source of ESG information and insight. As defined by the UK’s Geospatial Commission, which is part of the Department for Science, Innovation and Technology: “Location data, or geospatial data, is the record of what we do, and where we do it. It tells us where people and objects are in relation to a particular geographic location, whether in the air, on the ground, at sea or under our feet.”
This type of information allows people to monitor changes to landscapes and properties, and has long been used by the insurance industry to model the potential risks of flood damage and other environmental hazards.
Incorporating geospatial data into mainstream business decision-making and ESG reporting can help people more accurately assess the impact of environmental factors such as deforestation, land degradation, changing coastlines, biodiversity loss, or unsustainable agricultural practices. Likewise it can help people track the positive restoration of habitats that have been previously degraded. At its most cutting edge, it can include sophisticated satellite imagery, along with machine learning techniques and artificial intelligence that can help make sense of the data.
“The world of ESG and sustainability reporting is huge now and authoritative and detailed location data is a real leveller,” says Henderson. “[Companies and investors] are recognising the value in trustworthy and credible location data and insights.”
Last year, a report published by the WWF, World Bank and Global Canopy entitled Geospatial ESG, explored the emerging application of geospatial data for gaining environmental insights. It noted that: “The world of geospatial ESG is at an exciting point in time, with its potential only just beginning to be recognised and explored in the mainstream.”
Chain of evidence
Robust and comprehensive ESG data is particularly important given that businesses increasingly have to disclose not just greenhouse gas emissions from their own operations, but also those of their suppliers. Indeed, supply chains often account for the majority of a company’s overall emissions. However, complex and sprawling supply chains can make these so-called scope 3 emissions difficult to measure.
The same applies when trying to gauge other environmental impacts of supply chains, such as water pollution and ecological damage.
Last year, OS helped launch the Supply Chain Data Partnership, whose founding members also include Unilever, the consumer goods company, Esri UK, the mapping and spatial analytics software company, the Earth imaging satellite company Planet Labs, and Deloitte, the accounting firm and consultancy. The partnership seeks to provide a global register for environmentally important products, including palm oil, soy and wood-based packaging. The hope is that access to this information on global supply chains will help companies understand their impact and make informed and sustainable decisions − for example, in reducing deforestation and land degradation.
“Supply chains are of huge interest to companies for ESG reporting,” says Henderson, adding that geospatial data helps to “provide transparency and trust into supply chain reporting”.
The right data
The plethora of relevant data, and the interdependence of businesses when it comes to their environmental impact, can make ESG reporting incredibly complex. As the WWF/World Bank report on geospatial data and ESG notes: “Generating robust insights – across diverse commercial operations each with a differing impact; across vastly different natural habitats with differing sensitivities; and combining complex global supply chains each with differing impacts and dependencies – has proven problematic.”
The difficulties involved in properly assessing and reporting ESG factors can lead to some companies making inaccurate or misleading statements about their sustainability efforts – which can compound wider issues around corporate greenwashing.
Henderson says that much location data is “too vague and does not reveal sufficient insight” – making it all the more important that companies use robust data to avoid potential pitfalls. And when the data sources and insights are authoritative, trustworthy and granular enough, it can lead to better decisions and more reliable reporting.
Meaningful means comparable
As well as giving investors a fuller view of a company’s exposure to potential risks, high quality, authoritative geospatial data can also help people make more meaningful comparisons between companies. Comparisons on ESG measures are likely to become more and more significant as regulatory frameworks and ESG reporting requirements around the world grow increasingly standardised.
And, of course, reliable and robust ESG data can help companies ensure that they are truly compliant with these regulations – especially as many environmental reporting frameworks evolve from voluntary to mandatory.
For example, in December last year, the European Union passed a law to counter global deforestation and forest degradation. Businesses selling goods including cocoa, coffee, palm-oil and wood must verify that they have not led to deforestation. Companies failing to do this will be fined at least 4% of their total annual turnover in the EU. Regulations and disclosure requirements such as this will likely make geospatial data an even more crucial component of ESG reporting.
Futureproofing
In addition to comparisons and regulatory compliance, better ESG data can allow for better predictive analysis, which is key to obtaining the fullest possible picture of future risks – for investors, businesses and public authorities alike.
Predictive analysis is especially important given that the climate crisis entails many different potential scenarios depending on the levels to which humanity manages to limit global heating, and complex interplay of the Earth’s different natural systems.
Geospatial data can be a powerful input for predictive analysis when combining satellite imagery with AI technology and machine learning to generate projections of future impacts. Such models can also be updated more frequently than would otherwise be possible, allowing for more dynamic monitoring and mapping.
For instance, S&P Global, a provider of financial data and research, has used satellite data and machine learning to assess whether there was any link between the locations of public water utilities in the US and their financial performance.
Institutions, investors and businesses might combine geospatial data with information generated by drones and billions of internet-connected devices – using AI technology to spot patterns, anomalies and risks.
Today, as a leading provider of national mapping services, OS is working with a broad range of tech companies, satellite data providers and leading sustainability clients to capture and process reams of environmental data, analyse it and reveal valuable data insights to investors.
Other new technologies and techniques that OS is involved with include quantum gravity sensing, which aims to map buried assets such as sewers, and re-using 3D building construction models as inputs for geospatial information.
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