Giles Nelson, Chief Operating Officer at IsoMetrix.
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Calls for enhanced transparency around environmental, social and governance factors have reached an unprecedented volume in the last few years. And it’s no longer just a few activist investors demanding environmental, social and governance reports from large corporations—investors of all types are demanding ESG reporting from a wide range of companies. According to a recent investor survey from PwC, 79% of respondents said ESG reporting was an important factor in their investment decision-making, while 49% of respondents said they were willing to divest from companies not taking significant ESG action.
In addition to the watchful eye of investors, financial regulators at the SEC may soon institute ESG reporting requirements for corporations. Sufficiently addressing ESG is no longer solely an environmental and social problem—it is now an issue with repercussions for many companies’ bottom lines.
ESG reporting has its challenges.
Many times, it's not the case that a corporation doesn't want to do ESG reporting—it's that such reporting can be an onerous task.
For many companies, ESG reports include tens—if not hundreds—of requests that must be addressed before the report is complete. Further, if the company does not employ an ESG specialist, it may be difficult to understand the criteria needed to meet these standards.
When it comes to gathering relevant data, proper ESG reporting requires pulling this data from multiple departments—departments that are often working with siloed technologies. In order to gather the needed information, many companies will issue a questionnaire or data query to department managers and project leads. This creates a dependency on those people to return the information in a timely manner.
Then, once companies gather ESG-relevant information, they usually turn to spreadsheets to organize and analyze it. All this method promises is error-filled data, a lack of tracking and no auditability.
Silos, multiple dependencies, lack of expertise and the use of spreadsheets can make ESG reporting a truly challenging, labor-intensive process. Combined with the perception that these reports are relevant only to activists, it’s no surprise many corporate leaders consider ESG an onerous chore.
However, it doesn’t need to be. ESG in fact represents an opportunity for the companies that approach it the right way.
Succeeding at ESG requires a savvy digital approach.
To make ESG reporting painless, companies should approach it as a digital transformation opportunity. The right solution should remove friction in ESG data gathering, as well as in analyzing and sharing that data. This begins with building a cloud-based platform that can really drive ESG data gathering, organizing and reporting.
This platform should include a central data warehouse to which all relevant ESG data can be submitted—and where anyone can find relevant data when assembling the required reports. The platform should also integrate with the wider enterprise environment and beyond while supporting standards such as those from the Global Reporting Initiative and the Sustainability Accounting Standards Board.
Companies should standardize the data collection process. Ensure department heads and key stakeholders know when and how data collection will happen each year. For data queries, ensure each department head understands exactly which type of data and how much data is required. The right digital solution will be able to help define these data categories and specify data measurements for non-ESG specialists.
Collaboration in gathering ESG data is also important. Real-time communication mitigates confusion and prevents incorrect information from making its way into reports. This may take the form of a messaging tool within the ESG solution itself or integration with other tools that already exist within the company.
During the compilation and analysis process, it may help to leverage existing enterprise resource planning platforms, which have information about daily processes and procedures directly related to ESG competency.
Succeeding in ESG reporting requires more than just the right digital solution. It also means setting parameters that make leveraging that solution possible. Be clear with all employees about the company's desire to meet ESG standards. Making ESG a part of core values and goals can remove the temptation to view ESG as an annual or quarterly requirement and instead solidify ESG as a 24/7 commitment.
There are benefits to a rationalized, digitally transformed ESG process. Companies can see an immediate impact on both their bottom line and day-to-day procedures when pairing a commitment to ESG with a more systematic, digital approach to implementing it. Reports will no longer be onerous but instead be streamlined. Installing successful data collection frameworks will also help the organization operate with greater safety, lower environmental impact and respond to social issues with greater sensitivity and skill. It’s time for companies to associate ESG not only with reporting but also with opportunity—an opportunity to differentiate the organization in front of investors and customers.
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