As investors focus on environmental, social and governance (ESG) issues, they are increasingly asking companies
to provide information about their performance in these areas. ESG reporting is becoming an expectation of investors and will soon be an SEC regulatory requirement. Many companies have started tracking their ESG performance, but it can be a challenge to do so effectively. In this blog post, we will discuss the data aspect of ESG reporting, along with a solution!
ESG reporting helps companies to take additional external factors (such as climate change) into account in their long-range plans, accounting for the true cost, and enabling them to start mitigation efforts sooner. ESG data can also be used to identify trends and opportunities, and to set goals and track progress.
Like financial and management reporting, ESG reporting is a performance management tool, which means that in addition to collecting actual data and using these to calculate KPIs (which can get complicated), the targets against which these metrics will be measured also need to be collected.
Vestas, a wind turbine manufacturer provides an excellent example of ESG reporting and its environmental and sustainability reports from the year 2000 onwards are freely available on its website (https://vestas.com). According to the Vestas 2022 Sustainability Report, its major ESG targets for 2025 include reductions in carbon emissions and injury rates, and an increase in the share of women in leadership positions. Each major target is supported by strategic initiatives, many of which - for example waste reduction and cutting "lost time to injury" - will also improve competitiveness and the bottom line.
One challenge is that the data collection and management exercise is more complicated than it is for traditional financial reporting, where most of the data can typically be found in the ERP system. Data for ESG reporting comes from many different systems, and what the systems are will vary greatly between companies, and industries. Invariably, many companies will fall back on the flexibility of spreadsheets as their de facto ESG reporting platforms, since industry-specific ESG reporting requirements are still evolving.
The dangers of relying solely on spreadsheets are familiar to most companies: they are easy to update, but difficult to maintain and share; they can be subject to error; and they do not offer the same level of security or auditability as a true analytics platform. In addition, it can be very difficult to get timely and accurate data from different departments within a company, particularly when there is no mechanism to support coordination and collaboration.
This is where an analytics software platform purpose-built for planning, analysis and reporting can help. Even though these planning software platforms are typically deployed for financial and operational planning use cases, they all come with data integration, modeling and reporting features that are tailor-made for ESG measurement and reporting use cases. Furthermore, because any software for financial and operational planning must be flexible, adaptable, and business user-friendly, these platforms can easily support the evolving nature of ESG requirements while also serving as a secure central data source, possibly in conjunction with a data hub, with high levels of automation and integrity.
There are also economies of scale to be had by extending your existing planning software platform to serve your ESG reporting needs. If you are already on a journey to integrating your planning processes across finance and operational functions, some of the data and expertise needed for ESG reporting may already be in place. ESG reporting is just another piece in the xP&A (eXtended Planning & Analysis) puzzle!
QueBIT offers Software Selection Advisory Services for all xP&A use cases, including ESG reporting. Contact us today at info@quebit.com for a free consultation!
