Why invest in ESG software?

A brief outlook of ESG

ESG has become a topic of interest as businesses try to adopt sustainability practices. ESG - Environmental, Social and Governance, is a framework that refers to a collection of corporate performance evaluation criteria that assess the robustness of a company’s governance mechanisms and its ability to effectively manage its environmental and social impacts. (Gartner). The 2015 report ‘From the Stockholder to Stakeholder’ shows how sustainability measures like ESG impact the financial performance of an organisation. You can read our blog on ESG for more information.

Is ESG reporting mandatory?

ESG Reporting is the disclosure of environmental, social and governance data to the public. The reporting ensures transparency and provides insight into the organization’s progress in terms of responsibility and sustainability. ESG performance can be measured with the reported data, which can be used by stakeholders and investors for screening an organization for potential investment.

ESG reporting was for the most part voluntary as there were no regulations that mandated it. However, due to the increasing attention that ESG has received over the last few years, more and more countries are mandating the disclosure of ESG data. Big players have passed on regulations that would make ESG reporting mandatory. We have listed a few below:

• The EU - The Corporate Sustainability Reporting Directive, CSRD will be applicable to larger organizations from 2024 and will slowly make its way over to smaller organizations over the next four years.
• The UK – By April 2022, the UK regulated two mandatory ESG disclosure laws which were “The Companies (Strategic Report) Regulations 2022” and “The Limited Liability Partnerships Regulations 2022”. These regulations require climate-related financial disclosure for larger companies that fulfil specific criteria.
• Canada – The Canadian budget in April 2022 included mandatory reporting of climate-related financial risks for federally regulated financial institutions (FRFIs) from 2024. Though for the most part, ESG disclosure is voluntary in Canada.
• The US – The Securities and Exchange Commission SEC proposed rules for Climate-related disclosures by the first quarter of 2022 and amendments in the second quarter. If these regulations are adopted, they will come into effect in 2023.
• Asia Pacific regions – ESG disclosures are becoming the norm in the APAC regions with many adopting TCFD (Task Force on Climate-Related Financial Disclosures). In India SEBI, the Securities and Exchange Board of India has mandated BRSR, the Business Responsibility and Sustainability Reporting Format for 1000 listed companies (by market cap). The reporting was based on voluntary disclosure for these listed companies for the fiscal year 2021-2022 and will be mandated for FY 2022-2023.

With ESG disclosure being mandated globally, it is crucial to strategize and integrate ESG into businesses which can ease the reporting process. However, this is easier said than done as there are challenges that we can face as an organisation while we prepare to comply with ESG!

Difficulties we could face during reporting.

1. Evolving regulations: Sustainability policies and regulations are advancing globally. It is evident from the above section on ‘Is ESG reporting mandatory’ that many countries are introducing newer regulations and most of them are focused on climate-related financial disclosure as we all move towards Net Zero Emission. Workiva’s “2022 ESG Reporting Survey” survey showed that 2/3rd of Senior decision-makers feel that their organization is underprepared to meet ESG goals and comply with regulatory mandates. On the brighter side, the International Sustainability Standards Board (ISSB) formed in 2021, is working towards delivering a global baseline of disclosure standards that can help investors, and capital markets make better decisions.
2. Choosing from multiple frameworks: ESG frameworks provide guidelines for reporting ESG metrics. As there are no specific standards, organizations may have to research, strategize, and set ESG goals before choosing a framework or even multiple frameworks, that will align with their corporate vision until a global standard emerges. Any changes to the regulations or amendments can cause changes to the guidelines across frameworks.
3. Data Collection and management: Knowing from whom and what data to collect is still a constant battle for many organizations. Data is key. ESG measures impact across the environment, social and governance areas. This may require participation at a cross-functional level to provide accurate data. Even if data is gathered, the frequency of data collection also matters. Data gathering can be a time-consuming effort and its management can prove to be difficult if:

a. The data is de-centralized.
b. The appropriate data sources are not identified.
c. The data is irrelevant or incomplete.
d. There is uncertainty around how to measure or quantify the available data.

How ESG software can help businesses cope with challenges.

The objective of using ESG software is to provide a well-documented ESG data disclosure with minimal effort and time and eliminate any errors during the process.

1. Effective data management: Simplify data collection from multiple sources through cloud-based access. Automate workflow assignments and routine tasks which can be reviewed and monitored with ease achieving better data transparency while eliminating any data error.
2. Collaboration: Allows collaboration between internal teams and external teams like suppliers from whom data must be collected (this may be required during GHG scope 3 calculations etc.). This leads to data harmonization.
3. Adhere to multiple frameworks/standards: The software is designed to align with ESG standards and commonly used frameworks like GRI, TCFD, SASB, and CDP. Customizable frameworks can allow businesses to implement specific standards and scale with ease.
4. Dashboards: With real-time data insights businesses can enhance their ESG strategies and measure their progress toward their ESG goals. View all your ESG data in one place to make better and more informed decisions.
5. Integration with other tools: Provides API for integrating with organizations’ software which could act as an ESG data source.
6. Generate Reports: Consolidate data and generate custom reports based on business needs.

How can we help you?

• You can be well on your way to incorporating ESG successfully into your business with our ESG experts offering strategic consultation to help you align yourself to your Sustainability goals.
• With our Software tool ECOGEN, manage ESG data, collaborate effectively, and gain in-depth insights into your performance and areas of improvement.