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ESG reporting requires the right people and processes

In March, the SEC proposed new climate disclosure requirements, which will mandate companies to report more environmental, social and governance data than ever before. Disclosing everything from Scope 1, 2 and 3 greenhouse gas emissions to DEI-related efforts, including workforce metrics and forward-looking climate risk, these changes will require significant time, investment and board oversight. The bright side? The disclosure of this financial and non-financial ESG data adds undeniable business value to the bottom line, when tracked accurately and efficiently. 

To truly reap the benefits of ESG, it’s critical for companies to enact secure data standards, making metrics consistent, accurate and trackable. However, this is easier said than done — a global survey released in June shows only 28% of companies are fully confident in their reported metrics. As policies are implemented and calls for accurate data increase, organizations must ensure reporting processes are flexible to not only fulfill current regulations, but are built to meet evolving demands. 

Incomplete data yields little confidence

The demand for clarity around an ESG reporting standard is being driven not just by regulators, but employees and investors as well. As a result, corporations are seeking further guidance on the proposed climate disclosures, primarily around:

  • The scope of the SEC’s oversight;
  • Perceived greenwashing in ESG index funds, investing and the S&P;
  • Inconsistencies in ESG ratings systems; and
  • The proposed pace of change.

With these mandates looming, CEOs and CFOs must ask themselves a key question: Do I have the right people and processes in place to be ready for these mandated disclosures in the next 18 months?
If the answer is no, reporting teams needn’t worry. It’s taken over 100 years to evolve financial reporting regulations and corporate procedures to their current state, and the process for disclosing ESG data is no different. ESG reporting is still in its infancy and a majority of organizations have only been formally tracking and reporting ESG data for one to three years. 

However, the SEC will continue to establish a wider scope with a more standardized global reporting infrastructure by collaborating with the International Sustainability Standards Board. As such, businesses shouldn’t wait until policy implementation before shifting focus toward investing in tools with more accuracy and efficiency to meet these evolving demands. 

Transforming the office of the CFO

Unlocking the needed level of transparency to meet these impending mandates requires companies to automate the reporting process with the right technology. Most organizations complete their ESG disclosures manually and have reported that it takes them over 1,300 people hours per year to complete their requirements. This is not sustainable and the process is fraught with errors.

Deploying technology is the only way to bring costs down to a minimal level while also achieving minimum compliance, and this isn’t lost on leaders. The same survey found that three out of four ESG practitioners believe that technology is important for compiling, collaborating, validating data for accuracy, and mapping disclosures to regulations and framework standards, as well as having carbon level accounting data and calculating greenhouse gas protocols. Findings also showed that cost wasn’t the biggest inhibitor; it was integrating legacy systems or understanding what new solutions are available or needed.

Out of all the obstacles to ESG, data collection is the most difficult to tackle. Comprehensive and accurate reporting requires teams to ingest, capture, manage and report metrics from many disparate sources and demands the collaboration of multiple internal stakeholders. The best technology should enable you to do the following:

  • Consolidate and connect information across sustainability reports, surveys, statutory disclosures, annual reports, SEC filings, earnings call scripts and more to ensure accurate, consistent data;
  • Improve the accuracy of board and executive-level reporting;
  • Compare data across any and all ESG frameworks — either globally recognized or proprietary; 
  • Provide audit-ready data that ensures ESG disclosures stand up to the highest level of scrutiny; and
  • Enable XBRL tagging to deliver greater accountability and accuracy.

Benefits in improving ESG reporting

Those who have started reporting their ESG data are seeing the business value of their efforts, both financially and nonfinancially. They’ve had better recruitment and increased retention of customers and employees, with drops in long-term risk. More than two-thirds of respondents also say their organizations’ ESG reporting generated cost savings and insurance/credit agency engagement. Employees at these organizations also noted an increase in positive media and brand awareness.

By establishing common company goals, as well as an impact mission, the reporting process creates a sense of purpose and team feeling at all levels. This effect demonstrates that increased transparency in one area of ESG benefits another, all contributing to lifting morale and retention. 

Outside of bettering the bottom line, whether financially or otherwise, reporting as accurately as possible is simply the right thing to do. Investing in better ESG reporting solutions and the future of climate puts a business on the right side of history. More transparency equates to increased board and stakeholder accountability, as well as confidence in future information/metrics and long-term visibility.

Transparency is possible

As we approach this new era of ESG, the companies that will ultimately be successful will be the ones who invested in the tools that enable their business to take advantage of the information at their fingertips, allowing them to grow both financially and non-financially. CFOs need to drive this adoption by taking incremental steps to implement technology capable of producing transparent reporting that is investor-grade, audit and board-ready, as well as ensuring they have the right talent in place. By equipping the right people with the right tools, better ESG data reporting can improve both the bottom line and future of the workplace.

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Technology ESG Accounting software SEC CSR reporting
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