The one thing missing from ESG RFPs

If you miss this, you'll be back at it again

I get it. There is a lot of pressure to disclose ESG metrics and hit those Net Zero goals. France has announced it will jail corporate directors who fail to adhere to CSRD! Frankly, I think that is a bit extreme for a regulation that declares:

The new rules will ensure that investors and other stakeholders have access to the information they need to assess the impact of companies on people and the environment and for investors to assess financial risks and opportunities arising from climate change and other sustainability issues

…but I get it. Stakeholders want comparable information, and companies have stated they are undertaking the work. Stakeholders, at least in the EU, want to know if companies are being responsible.

Yet, getting disclosures right isn’t the challenge of our lives. Changing the world is. Meanwhile, the challenge of our corporate work is ensuring companies last long enough to change the world if they choose. Approaching that through the lens of the business is a critical path, and to go there, we require an ESG mindset.

But before we change our companies and the world, management teams are faced with reality. Companies must comply with regulations and are compelled to report on voluntary standards across a range of stakeholders, which means one thing: Launching RFPs to solve this short-term challenge that fixes our mindset.

Yes, we’ve turned ESG, a long-term idea, into a short-term chase.

I’ve worked with many companies attempting to collect this information. RFPs related seem to be leading the charge, and unfortunately, I’m on the receiving end.

The sheer volume has led me to one conclusion:
ESG and sustainability RFPs are missing the point.

Vladimir Kroa, Associate Vice President of IDC, sums it up well in a new report:

Sustainability regulations are not just rules to follow; they are pathways to innovation, efficiency, and long-term prosperity for businesses.

Companies aren’t connecting the regulations to value, which is shown in RFPs.

But again, I emphasize. Sustainability teams are small guerilla forces attempting to shift a company as the world transitions. As they gaze into the future, it seems like the work will only evolve into simply growing accuracy on the metrics that will result in the complete digitization of the world, not impact or material change. And so, rather than being empowered to strategize and take bold action, these elite teams are relegated to cold, dark offices with a single, flickering fluorescent light (not even LED) to count beans…and their supply chain’s beans.

An RFP sounds like a solution to accelerate progress by applying structure around the problem we are trying to solve, but what is that problem? In many cases, the goal is to gather the company’s disclosure requirements and leave it to the experts to organize around it. I’d write ‘unique’ requirements, but that isn’t what I see across RFPs.

And so, the RFP process begins, born out of disclosure of pain and misery, but ultimately hopeful that it will yield a salvation like no other.

Let’s have some fun with this one!

An account of an ESG accounting RFP

A scrappy virtual Sustainability, Procurement, and Compliance team and an RFP consulting firm have assembled. Donuts and fresh coffee line the conference room credenza. It smells like a bakery and feels like a holiday. People are filled with purpose, shaking hands and getting to know each other.

A laugh emerges from the project manager as someone tells a joke.

Little does she realize this will be the last sign of joy for months.

She takes her seat and encourages others to settle down; thus, the marathon begins. After the first hour is consumed with introductions, a templatized spreadsheet appears on the screen, and the participants jump in.

First, what standards does the company need to align with? The room turns to the Compliance team, fresh from the latest management team controversy.

They report an abysmal landscape of disconnected standards and the need for interoperability, which is a word the PM isn’t sure she can pronounce again if asked. Standards continue to consolidate, and regulations emerge. While CSRD has been in the market, CSDDD is relatively new and focuses on (checks notes) double materiality. Wait, what is single materiality?

“Table that!” someone shouts.

Another cry from across the table: “I thought we were reporting emissions only!”

“Well,” continues the Compliance team, “if you want to do that, friend, welcome to the SEC’s paused climate rule and the ISSB. Both also contain climate risk that we have to contend with.”

Another person looks at their screen in disbelief. “Hang on. Each jurisdiction can adopt its own flavor of ISSB?”

A voice in the PM’s head shouts, “WHO LET THESE VOLUNTARY STANDARDS IN HERE?!?”

Second, we need a data platform. I mean, this is ultimately data, right? Hushed tones around the room murmur, “Can we implement this ourselves?”

Uncomfortable glances are exchanged around the room.

“Someone call IT in here!”

An IT engineer comes in and reports that they have no idea what this meeting is about, but they, too, have been getting pressure to report, at least on emissions. Upon hearing that data is critical, the IT engineer calls in a data specialist to discuss.

After the conversation, it is clear that IT is mired in data siloes and doesn’t have an understanding of what data is needed but knows where the data is (including possibly the bodies that are buried, what was that comment about?)

The PM adds, “It looks like we need to add a services component to this RFP.” Another tab appears on the spreadsheet.

Someone in Procurement asks, “Wait, did IT leave the room? Since I wired that Nigerian Prince money, I realized we should probably think about cybersecurity, especially if we’re implementing something new.”

Someone else adds, “What about digital privacy and PII?”

She facepalms and says, “Hm…well, we’re a factory, so do we have PII? What is that Scope 3, Category 6 for business travel?”

The spreadsheet fills up as the RFP consultant pulls from their multiple templates.

Third, what about ease of use? We surely don’t want to rely on others forever and must manage this thing ourselves, right?

Another tab populates about hand-offs and training.

“Alright, we’re just about done, right?” The PM looks around with hope in her eyes.

Someone in Procurement raises their hand. “Well, hang on a second. Many of these regulations require us to understand our Scope 3 emissions. We already gather forced labor statements, but the solution should have a portal for suppliers to upload their data so we can examine it.”

OK, so that’s at least the fourth tab. Wait, why are there so many more tabs? We should only be on four! The PM asks the consultant what those extra tabs around calculations are.

“We need to be sure that the solution supports the Emissions and Estimation Factors that you’ve used in the past for backtesting and the ones we’re recommending going forward. In addition, we’ve added some boilerplate technology requirements about disaster recovery, uptime, development cadence, release notifications, and more. It’s all standard.”

Hm…that’s only two more tabs, but it seems this is quickly spiraling out of control. “What are baselining and legal entities about?” the PM wonders.

Suddenly, someone from Compliance bursts into the room, waving a piece of paper. “Hang on! Someone found our materiality matrix from the last time we did it.” They blow off dust from the paper and hand it to the PM.

The PM looks at the materiality matrix in horror. “This materiality matrix doesn’t line up with the standards or regulations. What are these things? Look, I’ll grant you that this chart is colorful, but what am I looking at?”

Suddenly, the ESG Angel of Enlightenment appears above the conference room table. A glittery yellow glow surrounds them as they cradle a copy of “ESG Mindset” in their arm. The angel explains materiality and the business value of ESG data to the stunned conference room. As the angel speaks, the PM swears she can hear harps and light bells. As softly as it arrived, it fades away.

As the angel departs, an empty tab labeled' materiality' appears on the RFP spreadsheet. The PM’s mind fills with the possibilities of this new tab, but before the PM can question the importance of the angel’s message, the consultant states, “Well, that appears to be it!”

A wave of relief washes over the PM, and the critical questions quickly dissipate.

As the team leaves the conference room for the last time, the PM realizes that creating this RFP has taken weeks, and people look bleary-eyed. She remains at the conference table as the virtual team disbands, not looking forward to the next stage—more meetings. On Monday morning, Procurement will send it to suppliers for a response.

Nothing good ever happens on a Monday morning.

Looking ahead, she thinks about sitting on virtual calls and keeping those calls as serious as possible to avoid revealing the company's hands. She wonders, “What have we wrought?” as she falls asleep in the conference room, dreaming of when she will laugh again.

Little does she know that in 18 months, the team will be at it again. Somewhere, an angel sighs.

What is lost with an RFP

Sustainability-related RFPs attempt to do what ESG regulations support: making reported information comparable. Are companies truly comparable, though? I’ll leave that to another article.

In the meantime, as I write in Chapter 2 of ESG Mindset:

ESG data can deliver renewable value.

RFPs only scratch the surface of what is possible.

The angel’s message and the materiality perspective lead to business value. These ideas are often overlooked in RFPs. Even when materiality creeps in, it stops at material disclosures, not strategically using the material data. In other words, companies rarely look past the short-term pain of disclosures to what’s next. Even in the EU, where regulators want proof companies are doing the work through double materiality, meaningful actions require a material perspective. It is through materiality that a company finds out how it alone can manage risks and opportunities and drive change.

For example, after you understand your emissions enough to know that you need to replace lights with LEDs and look at renewable energy contracts for your biggest facilities, the work becomes more complicated and intersects directly with your core business. Are you a steel manufacturer or a digital company? Do you make clothing or deliver food that needs to stay cold? The transitions needed in these industries are materially different.

ESG data isn’t universally comparable because every company is different. Still, once stakeholders ask questions about actions, companies must match the collected data with other business data to move forward meaningfully and materially.

Today, companies seek solutions that match the static short-term disclosure requirements or goals that can inform a net-zero path, only to find out that when it comes to material decarbonization strategies or making an informed decision with a holistic picture of the company, they need integrated data to make quality decisions. Integrating ESG into the business to uncover its value isn’t the norm yet, but the early movers in this space are coming to this realization.

If you are in the influence circle around these efforts, you should not miss the business value of ESG data.

ESG data, when combined with operational and financial data, gives business leaders the context they need to make informed decisions.

This idea is critical. Note that it doesn’t say, ‘Emissions data, when combined…’ Examining data through the lens of carbon only will quickly get you into trouble. If you start shifting high-emitting suppliers without considering the Social impacts or the financials, you will likely have made a myopic decision with long-term consequences. Always consider the interconnected nature of the issue at hand, look at its nuance and the interconnected context, and then make an informed decision.

Start at the business value

Turning back to Kroa’s quote, companies are finding additional value in the regulations to inform activities toward commitments and goals they’ve made. They’ve not yet taken the step into the bigger world of business value.

A quick rewiring of the mindset here can help.

Before launching the next RFP into the market, ask yourself about your company’s goals:

• Are you leading with Compliance or a Net-Zero Goal?

• Are you looking to create and publish a stellar CSR report?

• Are you starting with business value by understanding your ESG issues?

Many companies approach this sequentially from the first question to the last and do not make much progress beyond collecting the data in a silo. All of these questions matter, but so does the order in which they are asked. Starting with the last question instead of the first leads to the North Star in these efforts because it is the most likely to impact the company's long-term planning and resilience and must, therefore, not be overlooked.

If you don’t start with the business value, you will repeatedly launch a series of RFPs into the ether as you flail to keep up with the changing world around you.

Here’s hoping an angel is looking out for you.