ESG FORUM

GUEST COLUMN

MEASURING WHAT MATTERS  

Maya Karunaratne offers guidance on transforming ESG commitments into results

In the growing conversation around environmental, social and governance (ESG) principles, more attention has been focussed on what companies are doing. However, while sustainability reports highlight commitments and initiatives, what has changed as a result?

This distinction matters if businesses are serious about creating meaningful ESG impacts. An organisation may demonstrate intent by conducting employee training, investing in community programmes, introducing recycling initiatives and so on but there’s no evidence of impact. The real value lies in learning whether these interventions are achieving their intended purpose.

That’s why monitoring and evaluation (M&E) is needed. 

M&E has traditionally been associated with development programmes and public policy but its principles are equally applicable for businesses. It provides a structured process to understand whether an intervention is working. 

Monitoring tracks progress over time while evaluation looks more critically at what has changed, why it has changed and whether an intervention is delivering the intended result.

Consider a company that introduces a staff wellbeing programme…

Reporting that 500 employees participated provides an output but tells little about its effectiveness. Did employee satisfaction improve? Was there a reduction in absenteeism or staff turnover, or did the programme address any issues that employees considered important?

The same principle applies to environmental initiatives. 

A company that invests in energy efficient equipment needs to track changes in electricity consumption, operating costs and emissions to understand whether the investment is delivering value.

However, data collection shouldn’t become the primary exercise simply because businesses are required to collect information – i.e. because a framework, investor or regulator asks for it.

The launch of the Colombo Stock Exchange’s ESG Index adds momentum to this conversation. By highlighting listed companies that demonstrate stronger ESG performance and disclosure, the index provides investors with clarity on assessing how businesses are responding to ESG considerations. 

It also creates an additional incentive for organisations to improve the quality, consistency and transparency of the information they submit.

Good ESG data should first and foremost support better decision making. It can help management comprehend where progress is being made, where resources are being used effectively and where risks or gaps are emerging. Consistent data also enables businesses to identify trends and make more informed decisions about where future investments should be directed.

The process doesn’t need to begin with sophisticated software or large budgets. Many companies collect relevant information through finance, human resources, operations, procurement, health and safety, and compliance functions. 

Therefore, the first step is to simply identify what data already exists and determine whether it can answer the questions that matter.

It’s necessary to identify a manageable number of key performance indicators (KPIs) linked to the issues that are material to the business. These indicators should reflect the realities of the business rather than simply replicate what other organisations report.

Data becomes considerably more useful when there is a baseline, a realistic objective and a time frame against which progress can be assessed. This allows ESG to move from a collection of good intentions to a management process with clearly defined expectations.

Credibility comes from evidence – reliable data, measurable progress and the ability to substantiate what’s being communicated 

Measurement also strengthens how businesses communicate their ESG performance. 

As investors, customers and international partners place greater scrutiny on environmental and social claims, it’s no longer sufficient to simply highlight initiatives or commitments. Companies must be able to demonstrate what’s been achieved.

This is important due to concerns about greenwashing and overstated sustainability claims. Credibility comes from evidence – reliable data, measurable progress and the ability to substantiate what’s being communicated. With strong evidence, the ESG story is also strengthened.

Perhaps the greatest value that M&E brings to ESG is the ability to learn and improve. 

Evidence helps businesses understand what’s working, identify gaps and adjust their approach accordingly. It also creates greater accountability by allowing progress to be tracked and resources directed towards initiatives that deliver results.

This is where ESG becomes a valuable management tool: data provides the evidence while M&E turns that evidence into insights that can strengthen decision making and improve performance. 

Ultimately, meaningful ESG should be judged by the changes it creates and value it delivers over time.