A Little ESG Background
According to Gartner, an analyst firm, environmental sustainability will become a top-five strategic priority for at least 25% of CEOs by 2025, which is a lot higher than the less-than-five percent it has been over the past ten years.
While much of this is probably just a response to increasing sustainability-related disclosure requirements from regulators like the SEC and others, there is no doubt that climate change is a growing concern around the world. According to the Pew Research Center, in 2022 75% of the citizens of 19 countries (including most of Europe and the USA) considered climate change the top global threat. Companies need to be seen to be taking this threat seriously to satisfy the expectations of customers and employees alike. “Greenwashing”, the practice of making unsubstantiated claims about how environmentally friendly a company’s products and operations are, is fortunately becoming harder to get away with.
Meanwhile, some companies see sustainable business practices as an opportunity to differentiate themselves from their competitors early on and are engaging pro-actively with standard-setting organizations like the IFRS foundation which now includes SASB (Sustainability Standards Accounting Board) standards.
The bottom line is that a growing number of companies are investing in doing some form of ESG
(Environmental Social and Governance) or sustainability reporting, and the trend is increasing.
Comparing ESG Reporting with Financial Reporting
ESG Reporting has similarities with Financial Reporting in that different forms exist to serve different constituencies. Regulators are one important constituency, while investors are another. A third, more diverse, audience is the internal Management Reporting audience and comprises everyone within a company whose job it is to manage to ESG-related KPI (Key Performance Indicator) targets.
ESG Reporting and Financial Reporting differ in that the standards for what needs to be reported on are very much in flux on the ESG side, and standardization is still more of an aspiration than a reality.
When it comes to Management Reporting of ESG metrics there is a lot for companies to figure out, including:
- Materiality: which KPIs are most important for our business and industry?
- Strategy: which sustainability goals make sense for our business, and what programs need to be put in place to make progress towards achieving them?
- Data: do we have a system for collecting the data we need to produce these reports, and how do we ensure the data is trustworthy?
- Execution: how do KPIs get calculated, and how do reports get disseminated across the business in a way that is operationally useful?
It’s complicated, and you are unlikely to be able to find a single solution vendor that can answer all these questions. The reality is that much ESG Reporting in companies is done manually in spreadsheets, a practice that will not scale as regulatory and other requirements increase in volume and complexity.
The good news is that many companies have already invested in flexible and adaptable technology for financial planning and analysis such as IBM Planning Analytics, Workday Adaptive Planning, Pigment, Anaplan and others. Any of these technologies can also be deployed to address the Data and Execution aspects of ESG Reporting as we described in this blog post, and in this webinar (watch the recording). It’s a great way to leverage software licenses and internal expertise that you already have while freeing up time to be thoughtful about materiality and strategy.
Two Examples
Example 1: Simplifying ESG Data Consolidation
A global apparel and footwear company that owns several household-name brands has made ESG targets central to its strategy and corporate identity, both in total, and at the individual brand level. Their targets encompass all three pillars of ESG, including (picking some examples):
- Environmental: Eliminate all nonessential single-use plastics from in-scope direct operations and sponsored events by FY 2024
- Social: Aspire to achieve gender parity within their Director and above population by 2023 globally.
- Governance: Ensure directors and above will have a portion of their financial bonus tied to successful implementation of IDEA goals, while maintaining equal opportunity for all, as evaluated through a formal performance review process.
Their data and reports are publicly available on their website here, and while we do not know which tools (besides Excel) that this company used to create these reports, the formats will look familiar to anyone using a planning software platform like the ones listed above. For example, most QueBIT clients with a Workforce or Headcount Planning model will be able to produce these reports with the simple addition of demographic data. Since the individual brands owned by this entity were acquisitions, they each came into the fold with their own separate systems and initiatives, and so the process of creating these reports would have required data extraction, mapping, and aggregation, which is very similar to the process needed for delivering consolidated financial reporting of actual or plan data.
Incorporating ESG data into your existing financial planning and reporting framework would require relatively little investment, and free up time for high-value work like analysis and verification.
Example 2: Scope 3 Emissions Data Collection Made Easy
Greenhouse Gas (GHG) emissions are categorized into Scope 1 (emissions from sources controlled by your organization), Scope 2 (emissions associated with the purchase of electricity, steam, heat or cooling), and Scope 3 (emissions that are the result of activities not owned or controlled by the reporting organization).
While these all pose data collection challenges, Scope 3 is the hardest as it involves reaching into your value chain and collecting data from your suppliers, some of which may be very small companies who don’t even have systems to extract this data from. Many companies are doing this by sending out surveys to suppliers and other partners, and hoping that the survey data returned are timely, accurate, and fit for purpose.
An easier alternative approach is to use your existing planning software platform infrastructure as a direct data collection platform. The steps would be:
- Create secure web-based data collection templates linked to a central data repository.
- This would take at most a few days, with little IT or consulting assistance because planning software platforms are purpose-built for this kind of task.
- Send suppliers a secure log in so they can input their data directly into the system.
- The reporting organization has direct and immediate access to the data in detail, and in consolidated form, and can review dashboards and reports immediately.
- No one needs to do the work to extract data to build reports!
- The time savings can be used to check and validate the submissions and improve accuracy.
This precise use-case was described by a large IBM Planning Analytics customer in Episode 62 of the AskQueBIT podcast.
If there are concerns about security or the cost of acquiring software licenses for (potentially) hundreds of suppliers who would only be supplying a few numbers once a year, an option is to use ReportWORQ’s Input Forms capability to fully-automate the distribution and collection of data-input templates in Excel spreadsheet template format via email! Check out the Input Forms video on the “How it Works” section of ReportWORQ.com to learn more.
In Conclusion
ESG Reporting is a big topic, ranging from “how do we get these reports done?” to “how do we incorporate this into our strategy and business operations?”, and everything in between. For many companies, this is a new area, and they are rightfully taking their time to determine how best to participate while still keeping-up with regulator and investor reporting requirements.
There are a growing number of software solutions and consultants entering this space, but large-scale consulting and implementation engagements are costly, complicated, and time consuming.
If you are not yet ready for a big initiative or are simply looking for a quicker and easier way to do ESG reporting today, why not explore how the planning software platform that you are already own and are familiar with can be deployed for this use-case?
Contact QueBIT at info@quebit.com to learn more!
