Activity-based vs. Spend-based Methodologies

Getting quality and robust data is essential for ESG reporting. There are two main approaches to ESG reporting: spend-based and activity-based. Traditionally, the spend-based approach has been used, but there are many limitations to it. neoeco uses an activity-based approach to ensure that your measurements are robust and accurate.

Read on to find out more about the differences between an activity-based and spend-based approach and why activity-based is superior in terms of data quality.

Spend-based:

The spend-based approach uses financial transactions to report on and measure ESG impacts. While the spend-based method offers a straightforward way to track impacts, it has several limitations:

• It does not provide a comprehensive picture of the ESG impacts.
• Expenditure does not necessarily translate into effective or meaningful ESG performance.
• Companies may allocate funds for sustainability purposes or to enhance their public image without genuinely addressing ESG concerns.

Activity-based:

The activity-based method concentrates on the specific actions and initiatives undertaken by the company to address ESG issues. This approach involves reporting on tangible activities, such as greenhouse gas emission reductions, waste management practices, diversity and inclusion programs, community engagement initiatives, and governance policies. This means that the gathered data and measurements are comprehensive and address all of your ESG impacts.

The activity-based method is considered superior for several reasons:

• By reporting on actual activities, companies provide stakeholders with a clear view of their ESG impacts. This promotes transparency and accountability, as companies must demonstrate tangible results rather than relying solely on financial metrics.
• The activity-based method allows companies to quantify and measure the impact of their ESG initiatives. For example, they can report on the percentage reduction in carbon emissions.
• The activity-based method provides a more holistic view of a company's ESG performance, as it considers various dimensions of sustainability, social responsibility, and governance practices.
• The activity-based approach encourages companies to engage with stakeholders to identify and address relevant ESG issues effectively.
• By reporting on specific activities, companies can benchmark their performance against industry peers, best practices, and international standards, enabling meaningful comparisons and driving continuous improvement.

The activity-based method offers a more comprehensive and transparent representation of a company's ESG performance. This approach aligns with stakeholders' increasing demand for credible data regarding a company's sustainability efforts.

neoeco uses the activity-based method to ensure that your ESG measurements are as accurate as possible, representing your company’s environmental, social, and governance impacts.