Navigating the ESG Reporting Technology Landscape
Today's business world is witnessing a transformative shift, driven by the escalating importance of Environmental, Social, and Governance (ESG) factors. Stakeholders not only demand transparent insights into an organization’s strategies for environmental risk mitigation, social responsibility, and governance practices, but they also keenly observe how businesses innovate and harness the opportunities presented by a shift towards a more sustainable economy. This growing stakeholder expectation, coupled with an increasingly complex and stringent regulatory landscape, has significantly fueled the surge in demand for ESG data management and reporting solutions. By effectively handling vast volumes of data, these solutions not only equip businesses with tools for informed decision-making but also pave the way for fresh avenues of growth and enhanced stakeholder engagement. Moreover, they guarantee audit-readiness and alignment with the applicable regulatory frameworks.
by Alberto Zampella
Regulatory Landscape Propelling the Need for ESG Reporting
The past decade has witnessed a remarkable surge in regulatory requirements across the Globe. For instance:
Swiss Code of Obligation 964 and Ordinance on Climate Disclosures: effective January 2023 and stemming from the Responsible Business Initiative's indirect counterproposal, this local mandate - which from January 2024 also embraces the TCFD's global principles - requires Swiss entities to provide machine-readable climate-related disclosures.
Task Force on Climate-related Financial Disclosures (TCFD): TCFD’s recommendations offer companies a blueprint for robust climate-related disclosures, aiming for informed decisions and a smooth shift to a sustainable economy.
Corporate Sustainability Reporting Directive (CSRD) and European Sustainability Reporting Standards (ESRS): Central to the European Union's sustainability vision, the CSRD requires detailed sustainability reports with a "double materiality" focus. The ESRS offers a framework defining expected reporting content and metrics.
International Sustainability Standards Board (ISSB): Under the IFRS Foundation, ISSB's release of IFRS Sustainability Disclosure Standards seeks a global baseline for investor-focused sustainability reporting, enabling consistent, comparable global information.
These regulations, among many others, clearly underscore the need for robust ESG data governance and reporting tools that can help businesses aggregate, analyze, and disclose ESG data in highly automated, hence efficient, and reliable manner.
ESG Reporting Technology Landscape
Today’s ESG reporting technology landscape is very crowded and fragmented, making the establishment of a clear taxonomy a challenging task. However, broadly speaking, solutions that companies can typically pursue are characterized by three primary archetypes:
Dedicated SaaS ESG Reporting Solutions: These are cloud-based tools focused mostly, if not exclusively, on ESG reporting. Their main advantage generally lies in their user-friendly interfaces, their regular updates in line with changing regulations, and ability to integrate with other enterprise systems.
ESG Data Management Platforms: Going beyond mere reporting, these platforms provide comprehensive solutions, typically built on top of existing ERPs or business systems, and include critical ESG data integration features, combined with analytics and optimization modelling that support ESG-driven business steering. They cater to organizations looking for deeper insights into their ESG data in order to drive effective decision-making across their value-chain, including sourcing, product and service design, circular economy, etc.
Bespoke Solutions: Tailored to the specific needs of an organization, bespoke solutions offer a high degree of customization. They are typically developed in-house and while they can be aligned with a company’s needs, more often than not require significant time, resources, and ongoing maintenance. Guaranteeing full auditability and end-to-end data lineage (the ability to track each data point from its point of entry, through any modifications it is subject too) can soon become very complex.
Key Considerations for ESG Technology Selection
Selecting the right ESG reporting tool is crucial. Among many others, these are some of the most critical considerations to guide this process:
Frame Ambition: Recognize whether the organization's aim is to merely fulfill reporting obligations or to embed ESG integrally into its core business strategy and operations. This discernment aids in selecting tools that cater not just to compliance but also enable effective business transformation and steering.
Emphasize Scalability and Adaptability: Organizations should opt for a solution designed with foresight, anticipating not just the current needs of the organization but also its future trajectory. As the enterprise grows in size or complexity and, most importantly, as the ESG landscape evolves, the chosen solution should seamlessly scale and adjust. The flexibility to integrate new features, handle increased data loads, and align with shifting ESG criteria is vital to ensure long-term viability and efficiency.
Data lineage and Auditability: In the face of tightening audit requirements, organizations must prioritize solutions that underscore impeccable data lineage and comprehensive auditability. This means selecting a tool that not only traces data from its inception to final reporting but also maintains a meticulous record of each data point's journey — modifications, validations, etc. As the audit landscape intensifies, and ESG data becomes increasingly scrutinized, ensuring a solution that offers both clarity of data provenance and end-to-end visibility is essential for upholding credibility, compliance, and confidence among stakeholders.
Conclusion
In an era where ESG considerations are at the forefront of business strategy, having the right technology to monitor and analyze ESG data is paramount. After all, at its core, ESG is a data problem. The landscape of ESG reporting technology is vast and complex, but by understanding the distinct offerings and weighing them against organizational needs and future goals, businesses can make informed decisions that enhance their ESG reporting capabilities. As the adage goes, "What gets measured, gets managed." In the realm of ESG, what gets reported transparently and efficiently not only strengthens stakeholder trust but also steers organizations toward a more sustainable future.
At our upcoming CCR Roundtable Alberto Zampella and Mark Veser from EY will provide a more detailed overview of the fragmented tool landscape in ESG reporting and experts from Sanofi and Barry Callebaut will share hands on experience in terms of “Do’s and Don’ts”. Register now!
Alberto Zampella is partner within EY’s Climate Change and Sustainability Services, responsible for Digital Sustainability Services. Alberto supports clients across industries in the selection and implementation of technology for ESG performance management and brings 20+ years of experience in technology-enabled business transformation mostly within Finance, Risk Management and Assurance.