Insight: The Vital Importance of Data in ESG
Purpose& believes that starting with ESG (environmental, social, and governance) reporting early is crucial in harnessing the advantages of continual enhancements and demonstrating to stakeholders a dedication to positive social and environmental change.
Some organisations contemplate delaying their full ESG involvement until they can present complete data coverage.
Yet, this approach delays the chance to gain valuable insights from the early evaluations, often resulting in companies losing critical, timely understanding of their performance that could drive substantial continuing improvements and value enhancement.
While a majority of companies utilise financial reporting software, a relatively small number currently employ ESG software for tracking, analysing, and reporting on metrics.
This trend is expected to shift in the near future, driven by increasing demands from government regulators and stakeholders for enhanced transparency and accountability in business operations.
The Thomson Reuters Institute recently published The 2023 State of Corporate ESG – at the crossroads of data, regulations, and digital solutions, and a key major finding from this was that “spend is now shifting towards tools and software, particularly as ESG standards become more established and reporting more commonplace.”
ESG Data Management & Reporting Software Market
Big name auditor PwC recently described the ESG software market as a ‘bonanza’ and highlighted 3 main drivers therein:
Demands for transparency
Research and advisory firm Verdantix has stated that it expects the ESG data management and reporting software market to grow from US$905 million in 2021 to over US$4.3 billion by 2027.
Against this expected massive market growth, major investments have been made in ESG software development by a number of solution providers - alongside mergers & acquisitions activities.
In a May 2023 Gartner study, the main sectors targeted for the ESG data management and reporting software are identified as energy industries, financial services, manufacturing, and IT / Technology.
In terms of the main business use cases, 3 areas are highlighted: data management; programme management; and ESG reporting.
Selecting Your Software
With the availability of ESG data management and reporting software having grown rapidly in recent years, there is a lot of choice, but also concern on how to select the correct tool(s).
Criteria for selection should go beyond the usual for software (functionality, usability, scaleability, customisability, technical and user support, costs, etc), and instead the focus should be on ESG directly.
There also needs to be the ability to collect a wide range of different data which are audit-ready, this is to provide reporting across different regulatory frameworks, to support decision-making with tools such as benchmarking, simulation, and materiality assessments, and to implement updates on a timely basis as the regulatory landscape evolves.
With many software applications, most organisations effectively only use a relatively small proportion of the functionality.
Given the differing maturities of organisations’ ESG journeys, some vendors of ESG data management and reporting software, such as Cority and UL Solutions, are offering ‘starter’ packages with limited basic functionality which can be broadened as an organisation’s requirements develop.
Other vendors, such as APLANET and VelocityEHS, reflect relatively limited usage in their pricing models.
In MENA, support for Microsoft Sustainability Manager is now available. This is a versatile and extensible platform that consolidates data, offering an all-encompassing, integrated, and automated approach to sustainability management for organisations, regardless of their progress in sustainability efforts.
The technology streamlines manual tasks thereby facilitating more effective recording and reporting while reducing emissions, water usage, and waste impact for organisations.
In terms of these 3Rs (recording, reporting, and reducing) there is enormous flexibility for customisation, configuring to reflect organisational structure and individual locations.
Depending on requirements, there is the possibility of near real-time reporting and visualisation of impacts. Also, monitoring against targets is automated.
In summary, for individual software, it is necessary to be standards-driven, yet for ESG reporting, it is important to understand the difference between ESG frameworks and standards.
Essentially, they serve distinct roles and functions. Sustainability frameworks offer guidance based on principles regarding the organisation of information, its preparation, and the general subjects to be addressed. In contrast, standards stipulate precise, detailed, and consistent criteria for reporting on each subject, encompassing metrics.
Many organisations are starting their ESG reporting with GRI and / or UN SDGs; other frameworks and standards that could merit consideration, for listed companies, include: CSRD and ESRS; TCFD and US SEC; SBTi; SASB; IFRS; CDSB; and WDI.
Once the ESG Data Management and Reporting software has been selected, with vendor assistance, the initial deployment must be supported, including implementation and onboarding and user training and documentation.
Purpose& believes that for larger organisations software providers should position their solutions as integrable into an organisation’s existing systems, and focus on ESG data and reporting management capabilities.