Preparing for next-level ESG reporting

Business leaders and government officials are increasingly sensitive to the long-term impact of environmental, social, and governance (ESG) issues, leading to an increased emphasis on the quality of ESG reporting in a bid to eliminate greenwashing. On the buy-side, investors acknowledge the impact of ESG issues on long-term returns. In 2020, investors put $51 billion (£38 billion) into ESG funds, and a Natixis study found that 77% of professional fund selectors and 75% of institutional investors now consider ESG factors as an integral part of sound investing. As companies make significant commitments to the ESG agenda, the business community requires adequate tools to report progress. Recently, a Deutsche Bank study concluded that the COVID-19 crisis caused a change in corporate ESG priorities, and the implications are long-lasting. For example, because of the pandemic, numerous CEOs announced new policies to address ESG-related issues. Easyjet plans to reduce its CO2 emissions through carbon offsetting at an estimated cost of £25 million annually, while Google announced the elimination of its carbon legacy. The challenges with current reporting methods Investors and government regulators alike turn to reporting methods to hold companies accountable to their commitments. Recent developments show national and international agencies pushing to standardise reporting frameworks. The UK Treasury established a new panel to define the requirements for financial investments and the framework for rating these investments as environmentally stable. Similarly, the IFRS foundation announced a new board at the COP26 summit to push for an ESG reporting international standard. This drive towards ESG reporting standardisation reflects a greater need for more rigorous and verifiable ESG reporting. As demands change over time, it will be a challenge for finance teams who do not adequately prepare. First, the next generation of ESG reporting requires the collection of up-to-date information from various sources that can be difficult to manage. Companies must report information on environmental issues, such as water recycling, management of toxic emissions, and CO2 emissions, as well as data on compliance with government environmental regulations. Additional data related to social community investment, commitment to promoting diversity, better working conditions, and verifying the reputation of suppliers may be more difficult to track. Second, developments in environmental regulations and standards for tracking ESG-related information is evolving fast. This evolution makes it difficult to ensure corporate reporting methods adhere to the new standards. An integrated digital platform Without an integrated digital platform to support reporting and disclosure, companies will struggle with these increased ESG reporting requirements and may lose investment dollars if the data they provide fails to meet them. Such an integrated digital platform needs these core characteristics: Automated data collection to perform repetitive and previously manual tasks Data collection connected directly to the source Integrated, end-to-end disclosure management process to facilitate multi-author reporting In practice this means: Accelerating the production and formatting of regulatory, internal, and external reports by working with software that teams already know Connecting reports to their source data to keep those reports up to date Having built-in version control, workflow, and an audit trail to streamline and expedite the report production cycle Automating as much as possible to remove residual manual processes and thereby cut out errors Staying ahead of the curve It is no longer a question of ‘if’ but of ‘when’ this change will take place, as corporate accountability becomes central to combating climate change. Finance teams need to adapt to prepare for the future of ESG reporting. As more legislation comes into play, more robust strategies are even more imperative. The key to success is an integrated digital platform that collects and analyses ESG data in real-time to transform the disclosure management process. By Dafydd Llewellyn, EMEA general manager of insightsoftware