Organisations can no longer rely on volunteering the more positive aspects of their sustainable compliance or on publicising specific actions or donations. Today, an increasing level of socially and environmentally responsible investment activity involves assessing performance metrics beyond just financial returns.

The increasing focus on environmental, social and governance (ESG) metrics among regulators and shareholders may be incentivising companies to focus on their business practices, but many are struggling to deliver meaningful reports. Executives battle to identify what data points are most important to them and their stakeholders, as lawmakers and government agencies continue to pass new regulations. Frameworks and models for assessing emissions, energy and other data can be inexact, in conflict with one another, or simply don’t exist for nuanced issues such as social factors.

In other words, data is a challenge for organisations looking to align their ESG goals with financial and operational performance. ESG data provides raw material that IT, sustainability and business leaders can use to benchmark their company’s practices and assess risks, while also forming the basis for strategic decisions and improvements.

Data collection

Data collection is the first challenge encountered by those responsible for their organisation’s ESG reporting efforts. The data for ESG metrics comes from diverse and often disconnected systems, including HR, supply chain, manufacturing, and external partners. In addition, ESG data frequently lacks standardisation, and some data is outside the direct control of a company, making it difficult to capture correct information.

Unlike financial reporting, which has been standardised over decades, ESG reporting is still evolving, and most companies do not have the same level of rigor for ESG data collection and quality controls. The complexity of ESG data collection has led many organisations to turn to technology to streamline the process, but piecemeal solutions often only compound the problem.

For ESG reporting to be fully effective, organisations must ensure that their capability for collecting quality data is the best available, and that they can ingest data from a multitude of sources and systems, helping ensure consistency across different units of measurement. Having a single, unified platform that enables the business to connect, standardise, and manage ESG data is therefore becoming imperative in transforming ESG reporting into a value-adding process.

Visibility and transparency

Many of the ESG reporting solutions on the market are focused on only a specific aspect of ESG, such as environmental, health and safety (EH&S) compliance. That means the solutions aren’t suited to the broader requirements of setting ESG goals and targets, tracking progress against targets, and modelling the impact of ESG initiatives on future financial results.

As ESG reporting continues to evolve, the same level of governance, control, accuracy and auditability needed for financial reporting will be required with ESG. Full visibility, from reports to data sources, is therefore essential. Full transparency allows auditors to see the connections between the source data and the final reported data – and this can’t be achieved without a unified solution. In other words, whatever process and system work for accurate financial reporting can and should also be applied to ESG reporting.

Finance and ESG

With growing ESG reporting requirements, making a CFO responsible for sustainability makes sense. CFOs and finance teams already fully understand how to drive control and accuracy in financial reporting, so many organisations are looking to them to oversee the collection, consolidation, and reporting of ESG data alongside financial results.

According to research done by Accenture, companies are much more likely to extensively embed ESG in core management processes when the CFO has accountability for ESG metrics, but only 26% of finance leaders say they have clear, reliable data to back up their ESG metrics. Finance leaders who have access to a fully unified EPM solution that covers ESG reporting alongside financial close, consolidation, reporting, planning, and so on, may be in the minority, but they are leading the way with accurate and trusted ESG results.