Dr. Kemaledin Dilbaz, General Manager of Trasta ESG ve Dan. A.Ş. on ESG scoring, Dr. Kemaledin Dilbaz’s article titled “Why did ESG criteria become a performance indicator for CFOs?” published in Ekonomim newspaper is given below.

https://www.ekonomim.com/kose-yazisi/esg-kriterleri-neden-cfolarin-performans-gostergesi-oldu/718664

Dr. Kemaleddin Dilbaz

Trasta ESG General Manager

In today’s world, there are still few companies that take ESG seriously, and there is almost no awareness in our country yet. However, this is increasing day by day. This issue has been put on the agenda of CFOs for the reason of obtaining ESG score notes, which are especially important in accessing cheap financing.

Especially among the top 5 performance indicators (KPIs) of global companies, both at the CEO and CFO level, there is definitely getting or improving ESG score. For this reason, determining critical ESG performance indicators (KPIs) is being discussed as a new agenda item these days. Especially nowadays, as we are close to entering 2024, one of the KPIs of the new year will be to get an ESG score grade. Of course, integrating this ESG score with financial values is a separate topic.

How should KPIs for ESG be selected?

You should first determine ESG criteria by taking into account the sector your company is in. The starting point in determining this is to collect data. Your company’s ERP system will help you while collecting data. If there is a good ERP management, it will be much faster and easier to access the data. Because qualitative measurements are the main sources of ESG score.

There are very few companies in the world that conduct ESG scoring. When we look at the question set of these companies, it is seen that it consists of 200-800 questions. Since it is not possible to know the data set in advance, the first ESG score reports are generally advisory and inventory in nature. Initial scoring, which includes due diligence and shows the maturity stage, will be guiding in terms of creating a data infrastructure and categorizing this data. As they reach these data and questions, CFOs will begin the process of managing the company’s ESG performance.

Which values should CFOs start with for ESG?

In order to determine the right KPIs, it is necessary to clarify the E, S and G headings, that is, the values in the areas of environment, social and governance. We have tried to list the internationally accepted general values for you below.

As can be seen from the table above, it is necessary not to move on to performance criteria without identifying the core values. Of course, it is possible to multiply and increase these value and criteria headings with their sub-divisions. But for now, it will be important for CFOs to go a little beyond mathematical calculations such as their current targets. Here are our recommendations for this;

1- Determine how you will measure by choosing your metrics

2- Create a performance range for each metric

3- Recalculate your metrics in the 1-10 range

This way you have a comparable scoring system. Of course, it is not yet possible to reach your ESG score with this data, but a lot will be done in the field of data management.

There is not yet a globally accepted set of standards for ESG scoring, but grades are generally given on a scale of 1-100. However, we believe that data management with these metrics will guide you in your comparisons with your average and highest scores.

Alignment of ESG data with financials

In fact, we can say that the most important task for CFOs is to bring this data set together. Linking the identified data to accessible financials will gain importance on the competency side of the business. Some data can be obtained internally through ERP or other systems, for example;

– Energy consumption can be determined directly from cost accounts and invoices. It is possible to monitor and compare with M3 calculation.

– Water consumption can similarly be measured and tracked.

– However, carbon footprint measurement should generally be outsourced. This also increases reliable measurement.

– Employee engagement can be reported by HR departments and can be included in the KPI list.

– If your company is fined for data security, this can be added to the KPI list.

So, how will the CFO choose the right ESG KPI?

Of course, this question does not have a simple and quick answer for every company and CFOs, who are senior finance managers. There are many departments reporting to CFOs. In some companies, there are fewer departments. In general, CFOs with broad authority, to which departments such as accounting, finance, budget, human resources, IT, procurement and administrative affairs are connected, have to carry out a joint work by collecting data from these multiple environments. Data on outsourced services will be added to these and the CFO will finalize his/her work.

For this reason, it is not possible to give a uniform KPI table as the process to be managed by broad or narrowly authorized CFOs in companies will be different. Especially in a process where ESG scoring is mandatory as a green financing instrument, CFOs should take responsibility for ESG reporting and scoring. We see benefit for CFOs to determine their KPIs by paying attention to the management of the company, sector and risks.