Last updated on April 12th, 2024
In 2024, demands for corporate ESG disclosures are higher than ever. Yet, key challenges in ESG reporting persist. For example, many companies are yet to implement the infrastructure, systems and data required to effectively manage their data and reporting.
Getting the right ESG data management platform in place helps companies first get a handle on their data processing, and provides them with a clear, holistic picture of their overall ESG strategy and progress. It also sets them on the path to creating real value from their efforts.
In this blog post, we’ll explore some of the key ESG reporting challenges companies face, why they matter, and how employing the right data management solution can help.
# 1 ESG Reporting Challenge – The Data Gap
The Problem
Collecting and organizing large volumes of high-quality, quantitative and qualitative data is still a struggle for most ESG teams. Typically, this data is decentralized, multi-dimensional, and wide-reaching. It comes from multiple departments and suppliers, in multiple formats, and often at multiple frequencies. It’s also frequently poor in quality and lacking in quality assurance.
Sustained ‘data gaps’ occur because companies frequently lack a solid data governance framework, especially if they’re at an earlier stage of ESG maturity. Data governance is all about strategy, shaping human behavior, and fostering a culture of accountability. It’s a foundational, precursive element to sound data management. For more insight into the benefits of robust data governance, explore our white paper.
Why It Matters
Without better quality assurance measures in place, it’s difficult to understand and communicate the true value of sustainability practices and investments—it’s also more challenging to conduct effective ESG risk management. A lack of standardization in ESG data also makes it difficult to compare and benchmark firms against each other.
Moreover, the risks of low-quality ESG data can lead to a host of other challenges—capital market inefficiencies and compromised reputational capital, to name a few.
How an ESG Data Management Solution Can Help
An ESG data management solution can act as a sustainability-focused enterprise planning resource, helping companies to manage their ESG-related data. As a centralized database for your company’s ESG information, your platform serves as a single source of truth for historical data, allowing for easy monitoring of company progress, and a much easier auditing process. When data collection is automated, ESG teams spend far less time manually chasing data, and data collected is traceable via contributors, reviewers, and approvers, making for an audit-friendly and secure system. Additionally, built-in quality assurance measures result in investment-grade ESG data.
#2 ESG Reporting Challenge – The Technology Gap
The Problem
Without proper software support, gathering and reporting on data is a costly, time-consuming, and manual-heavy process. ESG data is often divided in siloes across the business or manually logged into spreadsheets; consequently, obtaining a global, integrated picture of ESG performance against targets is challenging. Moreover, evolving disclosure requirements and regulations can also add to the complexity of data management, making the reporting landscape confusing to navigate.
Finally, ESG teams are often inundated with multiple information requests and questionnaires. Responding to these requests individually can result in a number of different ESG performance narratives being produced on behalf of a company.
Why It Matters
Failing to invest in adequate software support puts companies at risk, not just of overwhelming their ESG teams, but of compromising the integrity and completeness of their disclosures. In an increasingly regulated environment, such compromises represent a significant risk.
Indeed, the arrival of mandatory sustainability reporting initiatives such as the CSRD-mandated European Sustainability Reporting Standards (ESRS) and the SEC Climate-related Disclosure regulations will require companies to be especially vigilant. Ultimately, mitigating greenwashing and manipulation concerns requires companies to ensure that their ESG data is as accurate, reliable, and audit-ready as possible.
How an ESG Data Management Solution Can Help
ESG data management platforms solve the problem of time-consuming data gathering by streamlining data collection with source partners in a secure, centralized database. Combined with collaborative workflows and automated, AI-driven processes, ESG teams can spend less time gathering data, and more time mining their data for valuable insights and analyses.
To help teams stay on track of disclosure requirements, ESG data management platforms monitor leading sustainability frameworks and standards, and integrate regular updates into the platform. And to help manage numerous requests for information, ESG data management solutions allow data collection against one reference metric to be reused multiple times depending on the requested information, resulting in a consistent narrative across all outputs and disclosures.
#3 ESG Reporting Challenge – The Value Gap
The Problem
Externally, many companies struggle to communicate the value of their ESG performance to investors and stakeholders. Internally, ESG professionals often have difficulty conveying the value of the company’s ESG performance and getting buy-in from C-suite leaders to focus on material ESG issues.
According to a 2021 study by EY, 51% of investors believe sustainability disclosures often lack information on how the company creates long-term value, which compromises the usefulness of these disclosures.
Why It Matters
The failure to communicate and demonstrate tangible value and strategic relevance puts ESG teams and initiatives at risk of being sidelined or overlooked. But for ESG to create real value, it needs to be integrated company-wide. Companies that fail to communicate the value of their ESG programs risk missing out on potential investment, business, and collaboration opportunities.
How an ESG Data Management Platform Can Help
An ESG data management platform can help teams shift from a report-centric to a data-centric approach. Using data-driven analyses sets companies up for better decision-making and value creation, resulting in better management of financially and operationally material ESG issues.
Three Features of Sophisticated ESG Data Management Software
Implementing sophisticated ESG data management software is essential, but how do you know you’ve found a good one? ESG reporting is complex, so look for a platform that offers simplified and user-friendly modules that speak to your use cases. In particular, make sure your ESG data management solution offers:
1. Automated and Centralized Data Management
Cloud-based technology has made it easier to automate the collection and transformation of raw data from multiple databases such as ERPs and surveys. The information is stored in one secure repository to ensure data integrity and facilitate quality assurance.
2. An Efficient Reporting Process That Enables Compelling Narratives
By using a centralized repository, workflows can be automated to consistently respond to all kinds of sustainability reporting standards, frameworks and third-party questionnaires. Workflow automation includes role assigning and task monitoring to ensure that everything is on schedule.
Data is collected in alignment with major standards such as GRI and SASB, resulting in relevant, compliant ESG narratives.
3. Actionable Insights and Guidance For ESG Improvement
Extracting and presenting insights from ESG data is much easier when managed from an appropriate platform. Once information is entered into the system, data is transformed into customized and comprehensive business intelligence dashboards with visualization engines that include tables and benchmarking. Benchmarking allows for detailed comparison among related companies and the identification of disclosure or management gaps to be addressed. Comprehensive report builders make it easy to transform analytics into valuable insights and compelling narratives that connect ESG with financial performance.
In addition to technical capabilities, look for solutions that offer high-touch onboarding plans with dedicated customer success managers and ESG analysts to set your team up for success.
Looking For ESG Data Management Software?
Whether you’re just getting started on your ESG journey, or you’re working from spreadsheets and legacy tools and looking for more sophisticated ESG management, Novisto can help you improve data quality, clarify your ESG metrics, and conquer your reporting challenges. To learn more about what our ESG data management software can do for your organization, request a demo today.
