By Henrik Sandin, Director, Principal ESG Specialist, Workiva
It’s fair to say that 2022 has been a reality check for the environmental, societal and governance (ESG) industry. From the invasion of Ukraine spurring a faster transition to green energy to global leaders calling for more environmental proactivity at COP27 and regulatory changes to standardise ESG disclosure requirements, these events have certainly set the scene for what’s in store in 2023.
Organisations have navigated this uncertainty and been vocal about their commitments to wider ESG goals. But without action these could ring hollow. With company initiatives and policies under increased scrutiny from stakeholders, getting ESG right is a significant undertaking which requires individual company assessment and regulatory alignment. Collaboration will be key here, as accurate ESG reporting requires input from a wide range of departments within organisations, even when a specific ESG activity owner has been established. Research revealed that amongst ESG practitioners, reporting and strategy is a responsibility managed by finance (37%), followed by operations & facilities (35%), the ESG/sustainability function (32%) and human resources (28%).
With increased pressure to demonstrate a commitment to ESG goals and so much data being gathered across an organisation, coupled with the complex and changing nature of ESG, collaboration is critical to ensuring that all parties involved are aligned in achieving, and even surpassing objectives.
The ABCs of ESG Reporting
Businesses are under increasing pressure to provide clear, consistent, and comparable sustainability data—not just for their own benefit, but for that of the communities that they serve, the regulators that they answer to and the investors that they depend on for continued growth.
The upcoming International Sustainability Standards Board (ISSB) will help with providing this consistency and comparability. It will consolidate several diverse ESG reporting standards landscape, and mean businesses no longer have to navigate the complex mesh of measurement frameworks, guidance, protocols, rankings, indices, and standards. To maximise interoperability of their standards, it was confirmed that parts of the European Sustainability Reporting Standards (ESRS), of the Corporate Sustainability Reporting Directive (CSRD), are interoperable with the ISSB. But, while standard-setters need to step up and help with comparability, ultimately much of the onus falls on businesses to strengthen trust with investors.
Businesses need processes that foster harmonious collaboration between data-mature finance teams and ESG teams that have likely spent less time working with the same controls systems. They need a process that enables flexibility and control to future proof both their ESG and annual reporting processes against further inevitable change.
Implementing an “all-hands-on-deck” approach
The proposed ESG directives around incorporating financial and non-financial data into the annual report will involve a heavier workload, making what is already a complicated reporting process, more complex. No longer will it just be up to finance teams, the reporting will involve working with non-financial stakeholders.
Looking at the broader company, businesses may work with teams from facilities, fleet management, and engineering or procurement to source environmental metrics. When it comes to acquiring social data, human resources, IT, legal, and other departments must be enlisted. Addressing the governance metrics requires syncing with a cross-functional committee of leaders, management, and the board.
Involving a wider group of teams and departments throughout the business, demands collaboration and an understanding of each of their roles and responsibilities. Critically, everyone involved needs to understand their role—and be able to collaborate with ease.
Technology enables collaboration
Solutions that account for both financial and ESG reporting encourage collaboration between all teams. This is because technology can be used to unite teams, processes, workflows, and simplify the process of gathering data from across the organisation. In fact, according to research on ESG practitioners, three quarters (76%) believe that technology is important to compiling and collaborating on ESG data. Not only is technology helpful in order to pull together data and narratives cross functionally between departments and across the business, it is also important when validating data for accuracy (80%) and mapping disclosures to regulations and framework standards (85%).
Data needs to be consistently merged in real-time to produce fully transparent, trustworthy ESG sustainability reports which can easily be integrated with the financial data. It’s important to choose software which utilises automation and real-time collaboration to ensure that when a data point or narrative is updated in one place, it is updated in every relevant analysis and report.
This is most effective when combined with a platform that centralises all the related teams and integrates the full reporting process. By establishing a cross-functional ESG process, corporations can help improve collaboration, awareness and positive action across business lines and functions, thereby creating a ‘virtuous cycle’ of improved operational efficiency.
This collaborative report will foster greater trust with an organisation’s stakeholders – investors and employees – and strengthen its reputation, as the global community looks to improve ESG standards and regulations.
It’s time to commit to collaboration
As the commitment to ESG metrics moves up the priority list for investors and regulators – and with new standards on the horizon – organisations should take this opportunity to improve how they report and display this information; enabling would-be investors to have a clear understanding of their practices and intentions.
By communicating with rigor and transparency while they transform their operations, business leaders can continue to build company value while helping to lay the foundations for a more environmentally and socially sustainable future.
Businesses should look to leverage an ESG solution which can empower teammates to work together and deliver seamless and accurate reports. It’s important to set the tone, with the various teams, that collaboration will be essential. After all, ESG is everyone’s business.