The High Stakes of ESG: Why Consistent Data and Automation are Key to ESG Transparency
September 13, 2021
Corporate purpose has been redefined. Today, broad sets of stakeholders–not just shareholders– hold companies accountable for their progress against ESG factors. Cost of capital, employee retention, shareholder trust, and customer loyalty all hang in the balance of ESG performance metrics – with stakeholders ready to question ESG disclosures if they are not backed up with robust evidence and reporting.
To implement transparent ESG reporting which not only meets regulation but builds trust with stakeholders, finance and ESG departments will need to work hand-in-hand. While finance teams are familiar with handling structured and unstructured data to value and protect intangible assets, ESG standards are new territory. ESG leaders accustomed to these standards will need to work closely with finance to navigate gathering and validating ESG data from across the business.
This partnership between finance and ESG departments is crucial if organisations are to achieve the transparent reporting required to foster trust with their stakeholders. Unfortunately, widespread “greenwashing” has resulted in scepticism and general distrust around how companies display their ESG credentials. According to a recent Workiva survey, 52% of UK investors find it difficult to trust a company’s actions and what they say, when it comes to the environment and society.
Against this backdrop of mistrust, transparent and authentic ESG has become a business imperative. As a result, organisations are looking for ways to overcome challenges around the quality of data, particularly issues with version control, to ensure robust reporting. To achieve consistent and auditable data, they must focus on centralisation, collaboration, and automation. The digitisation of new online filing is secure and automated, revolutionising the reporting of ESG data. Companies can bid farewell to data that is scattered across multiple departments and siloes creating complicated reporting structures, by moving to a clearer, centralised ecosystem for online collaboration.
An ESG materiality assessment defines the most important social, environmental, and corporate governance topics to a company’s business and significant stakeholders. For most organisations, creating a transparent ESG ecosystem begins with meeting the basic standards laid out by the Sustainability Accounting Standards Board (SASB), in addition to following guidance from the Task Force on Climate-related Financial Disclosures (TCFD).
Each business will need to tailor existing guidelines to their organizational goals. Management must decide what constitutes a material disclosure that informs decision-making. A key consideration is pinpointing what stakeholders – from investors to employees – see as the material issues relevant to the organisation.
Once this has been determined, the next step is mapping out the process for gathering the information required, including finding where it all resides so it can be migrated into a collaborative ecosystem. Many organisations fail at this first hurdle as business units and their information can often be siloed. Teams must search across a multitude of unaligned systems to dig out the data required and send it manually to those creating the report. This is not only inefficient but introduces risk through non-standardized and version control issues that do not leave an audit trail.
Centralising the reporting process at the information gathering stage enables organisations to connect disparate teams and systems via one central platform. The relevant data can then be collated more efficiently quickly establishing a single source of truth for all financial and non-financial information.
Establish control and structure over ESG data
Once it has been decided what to report, a robust control structure will make all the difference. Software from numerous providers may already be in use with the organisation. Expanding to incorporate ESG with the same provider delivers a strong control component to capture data in a system that is auditable and lives within a business’ other financials.
One such solution is to create a taxonomy to enable unstructured data and disclosures to be tagged, captured, and managed centrally. Terms related to ESG can be made machine-readable, stored, analysed, and reported. This unifies ESG data with existing financial and non-financial reporting. By having it all in one place, companies will reduce margin for error and improve transparency. It allows a company to use multiple frameworks—or build their own—and match the data and outputs needed to tell their story.
The goal is to tag ESG component inputs in a way that allows an organisation to adjust their analysis and reporting later, since standards will certainly evolve over time. For example, SEC has repeatedly expressed a heightened focus on climate change disclosures, signalling a likely shift toward more standardised disclosures for public companies. The EU creates the golden standard here, as seen by the Corporate Sustainability Reporting Directive (CSRD). This sets the tone for other markets to follow suit.
Develop a centralised ESG reporting strategy
Cloud-based reporting is efficient because it unifies information from different sources. Data is constantly being produced, while standards and regulations are not static. Cloud-based systems can adapt to change. By leveraging cloud technology, organizations will keep pace with the demand from stakeholders and global customers, while enabling remote and hybrid teams to achieve greater transparency and accountability.
The centralised platform unites teams, processes, and workflows which ensures trust in the data collected. All work takes place within that one central platform, and all data within the platform can be linked. When it is updated in one place, it automatically updates everywhere. Real-time collaboration creates a single source of truth for all data. Reporting teams can be confident in the consistency of the data. With automation eliminating the risks associated with manual processes for complex tasks, individuals can free up the time that would otherwise be spent checking for (and amending) errors. Instead, teams can spend more energy on analysis of findings, rather than coordinating the data in the first place.
Reap the rewards from transparent ESG reporting
Flexibility is fundamental. Businesses must be able to adapt as new regulations come into effect.
Increasingly disconnected and fragmented regulatory environments make compliance overly cumbersome for many companies while also inhibiting investors and other stakeholders from obtaining useful information. The need for a solution that unifies disparate teams and simplifies consolidating financial and non-financial data is a crucial component of streamlined and integrated ESG reporting.
More than ever, the ability to manage torrents of ESG data and ensure transparent ESG reporting is key to a company’s success. A transparent ESG ecosystem can win over and retain customers, attract, and retain talent, and build a positive reputation in a market more concerned than ever with the ethics of business. Innovation will drive meaningful solutions for companies to enact change, demand commitments to ESG transparency, enforce accountability, and ultimately build a better world for tomorrow.