The Corporate Sustainability Reporting Directive (CSRD) and the impending European Sustainability Reporting Standards (ESRS) are currently in the spotlight for large corporations. This new sustainability regulation, which encompasses environmental, social responsibility, and governance (ESG) aspects, mandates that large companies must adopt a range of new quantitative and qualitative metrics and measures from the next year onwards. These requirements encompass the assessment of double materiality (financial and impact materiality), Scope 1, 2, and 3 calculations, the establishment of an ESG risk matrix, and the setting of future KPI goals. These measures are essential for companies to showcase their current business model and their alignment with the European sustainability agenda.
Assessing Internal Company Data
Companies are grappling with the challenge of analyzing the new norms of European sustainability regulation, either independently or with the assistance of consultants. After this analysis, the next crucial step is to assess the quality, transparency, and traceability of the company’s existing ESG data in light of the CSRD regulatory requirements. To achieve this, companies must:
- Evaluate the readiness of existing data.
- Identify related data flows.
- Verify individuals responsible for the data.
- Assess the frequency of data updates.
- Examine the existing governance structure based on the four-eyes principle.
Challenges in ESG Data Assessment
Many companies encounter significant hurdles during the initial assessment of their ESG data. Common challenges include:
- Data fragmentation across different systems and departments.
- Manual data collection using Excel.
- Difficulty in tracking data history and changes.
- Inconsistent application of the four-eyes principle.
Once these internal challenges are identified, progress toward producing a high-quality sustainability report becomes daunting. This leads to a growing question: ”What IT solutions are available for ESG data management?” While there is no one-size-fits-all answer, responsible managers should conduct thorough market research before selecting an appropriate tool. The chosen ESG data management tool should primarily enhance:
- Data transparency.
- Data traceability.
- Efficiency of data-flow processes.
These criteria should guide the selection process.
Selecting the Right ESG Data Management Tool
When exploring the market for ESG data management tools, it’s crucial to involve team members responsible for daily data processing and control in the company. This typically includes the Chief Accountant/CFO, Chief Legal Officer, HR Director, Chief Risk Officer, and Head of Sustainability. Involving all stakeholders ensures that the chosen tool effectively and efficiently manages the company’s ESG data without complicating the user experience.
As sustainability reporting requirements increase the workload of certain departments, maximum digitalization of ESG data processes is essential for efficiency. Therefore, selecting the right tool today can save time and money in the future.
External Partners and Auditors
Consideration must also be given to external partners who will request and provide ESG data, as mandated by the CSRD. To avoid manual and time-consuming data transfers, it is advisable for the tool to integrate seamlessly with external partners’ systems, ensuring data security.
For auditing purposes, an ESG data management tool should be capable of generating historical retrospective reports to facilitate the verification of sustainability reports by external auditors.
Types of ESG Data Management Tools
ESG data management tools are evolving rapidly, and they can be categorized into three broad groups:
- ERP Systems with ESG Blocks: Large ERP system providers are developing ESG modules alongside their existing systems. This option suits those already using a specific ERP system. However, these systems can be complex, expensive, and may not easily integrate with other company systems or external partners.
- New ESG Solutions: Smaller IT developers and start-ups are offering more affordable and user-friendly tools focused on specific ESG modules. These solutions may be ideal for companies looking to automate specific ESG calculations or processes.
- ESG Data Management Systems Based on XBRL: Some developers are adopting XBRL and artificial intelligence to offer innovative data processing solutions. These tools can facilitate data conversion for sustainability reports as required by the CSRD, offering security, ease of integration, and cost-effectiveness.
In conclusion, we are entering an era where reliable and high-quality data is as valuable as gold. The corporate data landscape is on the brink of a revolution, and making a smart investment in the right ESG data management tool is crucial. This investment not only ensures compliance with new sustainability regulations but also drives positive changes in business, ultimately enhancing financial results and competitiveness in the market.