What is the best way to effectively measure and manage ESG metrics and ultimately make them a feature of your company’s financial disclosures? To answer these questions, Deloitte Germany and energy giant E.ON collaborated on a pioneering project.
Environmental, social and corporate sustainability are increasingly in the spotlight – and that is why reliable criteria for tracking environmental, social and governance (ESG) metrics are so important for both companies and investors. New regulations (e.g., the EU Taxonomy Regulation or the Corporate Sustainability Reporting Directive) are not the only reason for this – above all, it is consumers and the capital markets that are calling for more sustainability. Investors are starting to pay more attention to the ESG profile of the companies they invest in, whether it is equity or debt capital, as we can see by the increasing number of green bonds issued on the market today.
Energy company E.ON was quick to realize how vital it is to communicate its strong ESG position alongside its financial performance. With a strategic focus on sustainable customer solutions and energy networks, E.ON plays a key role in Europe’s energy transition and has already calibrated its business model for sustainability. The Group then decided to give its sustainability performance an even more prominent role in its communications and financial disclosures while implementing ESG steering and monitoring tools. This combination is what made the project with E.ON so pioneering.
“Sustainability is at the core of E.ON’s corporate strategy. That’s why integrating sustainability targets into our core management and steering processes was one of the fundamental objectives of the project from day one. Working with Deloitte, we succeeded in fully realizing our goals and thereby put ESG on a new foundation."
Dr. Marc Spieker, Member of the Management Board and CFO at E.ON
Investors are paying more and more attention to the ESG profile of their equity and debt investments, which can be seen not least from the increased volume of green bond issues.
In addition to official disclosures and external communications, a particular focus was placed on making ESG criteria part of steering processes: this marks a new approach in the currently prevailing ESG debates.
Many other companies focus solely on the regulatory requirements for ESG reporting – e.g., through the EU Taxonomy Regulation. E.ON decided to take a more holistic approach to managing and communicating its ESG performance. This requires a big-picture view that extends from developing strategy and implementing the right management and steering tools to complying with regulations and modifying existing processes or even entire systems. On top of this, E.ON launched a change management strategy with internal communications and staff training to increase buy-in within the organization as well as a targeted communications campaign for the capital markets.
“We believe our innovative cross-functional approach is decisive for the successful implementation of a robust sustainability strategy and reporting process. Bringing in experts from a vast array of disciplines really sets us apart from the competition – a critical success factor for our expert implementation approach.”
Dr. Thomas Schlaak, Partner and Global Power, Utilities & Renewables Leader at Deloitte
To accomplish all of these goals, E.ON brought together a wide range of specialist functions: Strategy, Finance, Accounting, Risk Management, IT, Investor Relations, HR and the Sustainability team. The Finance team in particular played a key role during the implementation. Deloitte Germany also relied on experts from various teams to make sure all of these processes work together seamlessly: Audit & Assurance, Financial Advisory to model alternative management tools, Risk Advisory to include sustainability metrics in the risk management strategy, and Management Consulting for issues relating to strategy, workflows, systems, and management.
Given the complexity of the project, a series of challenges had to be mastered.. E.ON was already tracking more than 400 indicators relating to the environment (e.g., CO2 emissions, water consumption, waste management), social issues (e.g., diversity and inclusion, compliance, occupational safety), and governance (management structure, executive board compensation, shareholder rights). It was therefore of utmost importance to focus on those factors that were equally relevant to investors and corporate management. Deloitte Germany worked with E.ON to cut back the number of indicators to 28 key ones and integrate them quality-assured into the Group’s capital market communications.
“Today, sustainability is about more than just external disclosures. Companies need to be more proactive about integrating ESG issues into their management strategy. We expect the financial and non-financial world to continue to converge as a result.”
Lydia Neuhuber, Director, Sustainability & Climate Lead Consulting at Deloitte Germany
The project started with an in-depth analysis of the following questions: What is most relevant for customers? What are investors looking for? What are the competitors doing? At the same time, additional strategic and regulatory elements were factored into the analysis. The plan was to go beyond the regulatory minimum requirements and include additional metrics that were central to E.ON’s corporate strategy, and subsequently combining all of these different elements in the assurance process and capital market communications.
Another decisive part of the process was identifying an ESG steering model that actually adds value for the Group instead of simply providing a set of figures. In the end, E.ON succeeded in developing a pragmatic approach to ensure the right data is available at the right frequency and the right level of detail, while integrating the data into the existing risk framework.
In the past, E.ON tracked ESG metrics in a separate process. Today, this data is a core component of official financial reporting. This approach deliberately builds on existing performance management techniques that have been adapted for these non-financial indicators. Therefore, this project lays the groundwork for connecting these two worlds. When sustainability reporting and sustainability indicators are seen as two halves of a whole, it takes the quality of these disclosures to a new level and elevates ESG reporting even further.
Our project went through three distinct phases – a draft concept, a detailed strategy and coaching for the implementation process - which we completed in just six months on budget. With the successful completion of the project, E.ON is now a true pioneer for ESG reporting and management in Germany.
Real connections. Real impact.
Dr. Thomas Schlaak
Global Power, Utilities &
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