By Daf Llewellyn, General Manager EMEA, insightsoftware
“Following the pandemic and the COP26 summit, leaders of large organisations have made substantial commitments towards the environmental, social, and governance (ESG) agenda. As a result, quality ESG reporting methods are now central to the debate. If companies are going to deliver on their promises, they need more robust ESG reporting processes in place and a better way to collect and understand the data in front of them,” writes Daf Llewellyn, General Manager, EMEA, insightsoftware.
The climate agenda is changing the world of business in a seismic way. In the last year, more CEOs took a stand on ESG issues than ever before, with a Deutsche Bank study concluding that corporate ESG priorities have changed greatly in response to the pandemic. This reaction is unsurprising. Some companies took significant actions to prove their commitments to the ESG agenda in 2021. For example, 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.
At the same time, there is greater ESG buy-side pressure from investors. In 2020, ESG funds received $51 billion from investors, 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. This shift reflects a growing view that ESG issues impact long-term returns.
ESG reporting takes centre stage
Inevitably, ESG reporting is now critically important in holding companies accountable to their promises. Consequently, multiple agencies are trying to standardise ESG reporting frameworks. This year, the UK Treasury set up 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.
As commitments change, companies now require more up-to-date information on environmental issues. This information includes energy use, CO2 emissions, water recycling, management of toxic emissions, and compliance with government environmental regulations Historically, the search for information extends to data about social community investment, commitment to promoting diversity, better working conditions, and verifying the reputation of suppliers.
The challenges with collecting and interpreting ESG data
All of this adds to greater demand for more rigorous and verifiable ESG reporting, but that is challenging for two major reasons:
1) The next generation of ESG reporting requires the collection of up-to-date information from various sources that can be difficult to manage.
2) The requirements for ESG-related information evolve quickly, which makes it difficult to ensure corporate reporting methods continuously adhere to the new standards.
Without an integrated digital platform to support reporting and disclosure, companies will struggle with increased ESG reporting requirements and may lose investment opportunities 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 eliminate errors
In the world of ESG reporting, it is not “if”, but “when” change will happen. As global governments enact legislation to combat the impacts of climate change, ESG reporting moves into the spotlight as a way of measuring individual accountability.
Both regulatory and investor demands will increase in complexity in the coming years, making it even more imperative that companies establish a routine and robust ESG reporting approach. To avoid suffering consequences down the road, the key to long-term success is an integrated digital platform which collects and analyses ESG data in real-time, transforming the disclosure management process.