ESG Data Management - How to tame a bureaucratic hurdle
Sustainability reporting has become an important issue for companies in recent years. The demands for transparency and accountability of companies on their environmental, social and governance (ESG) performance have increased, both from investors and customers and from regulators.
The European Union has created a new framework for ESG reporting with the European Sustainability Reporting Directive (ESRD), which is set to take effect in 2023. The ESRD requires all large companies and listed companies with more than 500 employees to produce a standardized sustainability report that includes a set of quantitative and qualitative indicators on their ESG impacts. But ESG data management can quickly become a bureaucratic hurdle that increases employee workload and slows down processes.
Creating such a report requires collecting and processing significant amounts of data from multiple sources and areas of the organization. This data must not only be collected, but also validated, aggregated, analyzed and communicated. This is a major challenge for companies, which often do not have the necessary resources or skills.
Responsibility for ESG reporting is often delegated to corporate legal departments, which have the expertise to meet regulatory requirements but are not alone in being able to collect the necessary data. Legal departments must therefore collaborate across disciplines with other departments such as finance, human resources or production to obtain the relevant information.
To accomplish this complex task, the creation of an overarching corporate ESG data management strategy becomes necessary. A comprehensive ESG data management strategy involves analyzing all the data points that need to be collected and matching them with information already collected in the company. Then, bundling this information, putting it into shape, and making sure it can be accessed by the right people. This sounds obvious at first, but it involves an enormous amount of work in complex corporate structures, especially since ESG reports are not a one-time effort, but must be prepared annually. Realistically, further political decisions will make the effort even more. Against this background, it becomes clear that any company that does its "homework" from the very beginning will sooner or later have an advantage over its competitors. So proactivity pays off!
But how do you arrive at such a comprehensive ESG data management strategy? Transparency, clear structures and processes for employees and responsible parties, and the use of digital solutions can facilitate and automate ESG data management. These digital helpers must be able to access existing databases with interfaces and query information stored there, consolidate it centrally and then output it in the right place. They can also help improve data quality and identify inconsistencies or errors. In addition, they can analyze and visualize the data to provide a comprehensive overview of the company's ESG performance. The more thoughtful and better these digital solutions are, the less reporting will be required in the long run.
The strategic capture and digitization of ESG data management is therefore not only a necessity, but also an opportunity for companies. It enables them not only to meet their regulatory obligations, but also to optimize their sustainability strategy, better engage their stakeholders, and strengthen their competitive advantage.
Martin Lanznaster 23/03/2023