This article is sponsored by PwC.
Selecting the right technology should be top of mind for companies developing an ESG reporting strategy. This includes software platforms, cloud-based analytics, plug-ins or add-ons to existing enterprise resource planning tools, and data lakes. In making this decision, companies have a strategic opportunity to transform their ESG decision-making process by grounding it in data that can be analyzed throughout the year.
The implications of this decision extend well beyond publishing an annual report or complying with mandatory regulatory requirements, such as the SEC’s forthcoming climate disclosure rule or the European Union’s Corporate Sustainability Reporting Directive (CSRD). Companies can use this technology to gain insights into their supply chains, to spot methods for reducing a product’s carbon footprint or to track progress on net zero targets. Over time, these efforts can potentially have a positive impact on financial performance.
We know that ESG data management and reporting is metrics-intensive, and thereby data-intensive. Data accuracy and reliability requires defined processes, procedures and controls. Adding to the complexity of ESG reporting is the fact that stakeholders across your value chain require metrics and data. (In a previous report, we outlined how companies can overcome these issues.)
But we realize that making the right investment can still feel daunting. Below, we have boiled the decision down to several considerations to contemplate as your company looks to digitally enable its ESG reporting strategy.
Determine the data needs of your company’s long-term ESG reporting strategy
As your company develops an ESG data reporting strategy, it will first need to assess its current reporting capabilities and then agree on a vision for where it would like to be in five, 10 or 15 years. The technology solution you chose should support both your short- and long-term plans.
As part of that assessment, your company needs to ask itself important questions, such as:
- Beyond complying with global regulations, what are your company’s aspirations for its long-term ESG data management strategy?
- Have you reported ESG data in the past? To whom?
- Do you have confidence in your data — that it is accurate and complete — and in your ability to report when needed?
- Do you have the proper procedures, controls and ESG tools in place for collecting, measuring and managing greenhouse gas (GHG) emissions data?
- Are there gaps in your reporting that require additional investments and resources?
- Do you need analytics for scenario planning or to drive decision-making on decarbonization?
How you answer these questions will help point your company toward a path it can take to leverage technology as part of its long-term ESG transformation.
It’s critical your company develops this long-term perspective. While many global regulations focus on GHG emissions, they are subject to change as market expectations evolve. Over time, your company may need to disclose information on human capital management, cyber risk or biodiversity issues. As regulations change so, too, will your ESG reporting strategy.
Assess whether you can leverage your existing strategic technology landscape for ESG reporting
Every initiative that involves technology, whether it’s focused on sustainability reporting or some other function, should be a collaborative effort from the start. Your company’s IT organization will play an integral role in picking a technology solution. An important first step in considering technology as part of your ESG strategy is to work with that team to understand what platforms and products your company has already invested in and those that it may be retiring, replacing or upgrading.
Understanding the technology vendors you use today could inform what you may invest in tomorrow. For example, your company may have already devoted resources to cloud computing or enterprise resource planning tools that can be leveraged in ESG reporting. Existing relationships aren’t the only consideration, but this could help you reduce costs, improve the timeliness of reporting and alleviate compatibility issues.
Companies should also consider phasing in technology over time. Those in the process of initiating ESG reporting may focus on just a few key metrics at the outset while thinking through a more thorough approach. Technology can also be phased in over time as your strategy evolves. By developing a roadmap, your company can prioritize initiatives and align the investments needed to successfully execute on the milestones of its long-term reporting strategy. (Organizations should also look at “low-code” options that allow for faster, cost-effective implementation.)
It’s important to realize that no single software solution will solve the intricacies of ESG reporting. The solution you pick will likely be an integration of several technology platforms. To fulfill the need to gather data and report on metrics from across the organization, at a minimum, your company will likely need:
- Transactional systems (for example, a carbon calculator or a human capital management solution)
- A data lake for consolidating and harmonizing the data
- Last mile reporting solution to generate the ESG report or regulatory submission
Over time, though, your company will likely want to build out a more sophisticated ESG data management and reporting strategy that has “high maturity” — meaning it has broad functionality, adheres to industry leading practices and can adapt to changes in your strategy. Such technology has the following features:
- Strategic: Aligns with your company’s broader IT strategic vision and technology decisions. Even the leading technology won’t be compatible with every system across your enterprise. With the right support and the right technology, digital connectors can be easily built to help your systems talk to each other.
- Functionality: Facilitates the data collection and calculations for direct and indirect greenhouse gas (GHG) emissions. Companies with significant Scope 3 emissions should pay special attention to this consideration because some technologies don’t account for all types of these emissions. Also, companies should assess whether the solution they are considering has the capacity to report on more than just climate-related data (including cyber and human capital data).
- Data management and validation: Supports efficient and secure collection, storage and maintenance of data — potentially from many sources — and includes rules for validating the information entered into the system. The solution should also provide tools to generate the final reports and to facilitate quality assurance and quality control of the data, including automated checks.
- Configurability: Provides users with the ability to tailor the solution to meet their company’s culture and nuances, including the ability to manage their own calculations and factors.
- Integration and automation: Allows for importing bulk data from real-time continuous data feeds via an API from approved external sources.
- Reporting and dashboards: Accommodates multiple disclosure frameworks and provides customizable reporting features with connections to data visualization tools. Should also consider the ability for the solution to have self-service analytics.
- User experience: Has an intuitive, well-designed platform that’s easy for users to navigate via the web or a range of devices.
- Auditability: The technology should have the right controls and processes to confirm that information can be retained and managed and eventually help generate robust, auditable ESG data.
Consider the benefits of ESG technology and digital solutions
Companies can no longer view ESG reporting as optional. The evolving regulatory landscape is making disclosing this information a prerequisite for doing business in a low-carbon economy. A commitment to ESG reporting can build brand health, attract new customers, build confidence with investors and potentially help you win business with partners are on a similar journey. There’s a lot at stake.
Companies should consider the benefits. Those that operationalize ESG technology can drive decision-making on decarbonization. If you have set net-zero targets, technology can help you assess in real time where you are on the journey. This infrastructure can help your company move towards investor-grade reporting that is business-driven, credible and well-supported. Your company’s management and its board can also gain greater confidence in the processes used to collect, measure and manage the information and that the data being reported is accurate.
Technology will also allow companies to quickly react to greater regulatory and stakeholder pressure to provide expanded sustainability data — a trend we believe isn’t likely to go away any time soon.