Many organizations produce environmental, social and governance (ESG) reports using tools and processes developed at a time when there was less reliance and scrutiny on their sustainability information.
Sustainability teams often spend untold hours emailing out spreadsheets and chasing down hundreds of ESG data requests across their organization.
Even when the right information is returned on time, the sustainability team must still consolidate the data, produce quantifiable metrics and continuously recalculate their findings. They also face challenges demonstrating their organization has the controls and processes in place to make sure its data is accurate.
It’s a labour-intensive annual exercise that’s prone to errors and leaves sustainability teams with little time to derive insights from their organization’s data before it becomes dated. These processes persisted in part because ESG reporting was, until recently, largely voluntary in Canada. But that’s changing.
Investors, customers, employees and other stakeholders expect companies to publicly disclose complete, accurate and reliable sustainability information as well as quantify and report their ESG performance internally. And new regulations in Canada, the US, Europe and elsewhere require companies to disclose—and obtain assurance of—ESG information in line with global standards.
That’s pushing finance and compliance teams to take a closer look at their companies’ ESG data governance, controls and processes. And they often don’t trust what they see.
Technology-enabled ESG reporting is a journey, typically divided into three important steps:
The ESG data challenges facing Canadian companies
As finance teams play a larger role in their organization’s ESG reporting, they often see that their sustainability disclosures aren’t passing internal assessments and are unready for the third-party assurance that investors and regulators desire. In some cases, they’re even concerned their ESG reporting leaves their company vulnerable to financial, regulatory and reputational risks.
But efficient and accurate external ESG reporting is only part of the challenge. The underlying premise of ESG is that companies with a strong sustainability performance are more resilient and achieve better financial results. The old adage applies: what gets measured gets managed. ESG data must be collected, structured and stored in a way that lets functional leaders access timely and meaningful internal information that helps them improve their own sustainability performance.
At the same time, sustainability teams are often overwhelmed with pitches from technology vendors proposing to solve these and other challenges.
But simply adding a new platform on top of unorganized data and ineffective processes only solves part of the problem.
Tech-enabled ESG reporting requires looking at the full data-to-reporting picture, pinpointing opportunities to better use existing technology investments and filling in gaps with point solutions to create an ecosystem of technologies working together.
Effectively transforming your ESG reporting requires a combination of sound processes and advanced technologies. Simply adding new technology to outdated or ineffective processes is like renovating your kitchen without fixing the leaky pipes behind your walls. Instead, it’s critical to first evaluate and improve the underlying processes before implementing new technologies. This helps you make sure you’re truly realizing the benefits of the new technology and avoid costly reworks or retrofits.
Reimagine your ESG data collection approach
Focus on your ESG strategy and desired reporting outcomes. Think about what ESG factors are material to your organization. What do you need to report to meet emerging regulations and the information needs of your internal and external stakeholders?
Take a long-term view. Many reporting regulations are focused on greenhouse gas emissions disclosures. But evolving market expectations may require your company to report on workplace diversity, cyber risks and biodiversity issues in time. Similarly, regulations like Canada’s new modern slavery act may require you to report on ESG factors in your supply chain.
Look at the sources of your ESG data. Who owns it? Where does it come from and for what purpose is it collected? What source systems are queried? Is there data that’s not systematically collected? And how is the information organized and shared with the person responsible for summarizing it alongside other ESG data in your disclosures? Your data flow typically involves multiple steps. That means multiple opportunities for errors—as well as multiple opportunities to automate and introduce controls that make your processes more effective and efficient.
Integrate ESG with existing business processes. The owners of your organization’s ESG data typically receive multiple requests to share the information they hold. For example, an environmental health and safety manager may need to produce quarterly management reports on top of sharing information for ESG reporting purposes. This means it’s often impractical for sustainability teams to impose their own processes on functions across the organization. Instead, there’s an opportunity to avoid duplication by integrating the collection of ESG data with existing business processes. This can lead to high-quality data that also satisfies the information needs of other users.
Questions to consider
- What do you need to report? What’s material to your organization based on the reporting frameworks to which you’re aligning?
- Where does the data needed to produce those metrics reside within your organization?
- What are the steps to collect that information? Is it also collected for another purpose?
- Which of those steps can be automated?
- Are there better ways to aggregate and structure the information?
Respond to stakeholders’ ESG questions with confidence
Can you answer the following ESG questions? They require a solid grasp of where your data resides. Click on each to explore where to start—and see the challenges you may encounter.
Data source: Finance
Where it resides: Expense reports, third-party data sources and financial systems
Why it matters: Scope 3 GHG emissions reporting requirement
Extraction challenges: Requires manual intervention and data collection from expense reports and receipts. And manual scope 3 emission estimates can be inaccurate.
Data source: Operations/infrastructure
Where it resides: Utility bills, third-party data sources and procurement systems
Why it matters: Scope 2 GHG emissions reporting requirement
Extraction challenges: Requires manual extraction of data from invoices.
Data source: Human capital
Where it resides: Employee surveys and human capital systems
Why it matters: Talent acquisition, retention, performance and reputational risk
Extraction challenges: Misalignment of data to metrics that are material to the organization.
Data source: Procurement/spend
Where it resides: Vendor surveys and procurement systems
Why it matters: Modern slavery regulatory reporting requirements
Extraction challenges: Requires supply chain mapping, manual collection and aggregation of data, which is prone to inaccuracies.
Data source: Information technology
Where it resides: Network, cloud, endpoint, application, mobile and IoT security monitoring tools
Why it matters: Good governance, lower cyber risks and improved supply chain resiliency
Extraction challenges: Misalignment of data to metrics that are material to the organization.
Design your ESG data-to-reporting architecture
Pinpoint your technology gaps. You’ll likely spot opportunities for improvement as you look at your data-to-reporting processes. Perhaps your annual energy usage is manually calculated by an employee sifting through a stack of utility bills. Or you may query data from an ERP system, but aren’t aware the data can be transferred directly into your reporting system.
Look to fill gaps with existing platforms. As you draft your ESG data-to-reporting architecture, it’s helpful to look at the technology you already have in place and explore opportunities to build on these existing investments. This can reduce costs and alleviate compatibility issues. Then consider purpose-built cloud-based applications to fill the gaps. Avoiding customized builds where possible lets you take advantage of continuous enhancements from your technology provider.
Democratize your data. Evaluating how you’re ingesting and structuring your data is an important part of your data-to-reporting architecture. Many organizations start with processes that deliver data directly from its source to the reporting stage. But creating value from ESG data requires considering how this data can be used for other purposes. Effectively structuring your data makes it easier to disaggregate information by business unit, geography and other criteria. This lets different members of your organization run queries to meet their specific ESG data needs, including internal reporting to improve their function’s sustainability performance.
Reinforce your ESG reporting team. Extracting data from various sources within and outside your company requires a high degree of business acumen and judgments around reporting controls and definitions. Leading organizations bring members of their finance and ESG teams together and work toward integrating ESG data into their financial reports.
Questions to consider
- Do you understand your current data-to-reporting processes?
- How can you use your existing technology investments to build out your architecture?
- Which off-the-shelf solutions and technology platforms will best fill your remaining gaps?
- Have you considered how you can use your ESG data architecture for internal performance management and other purposes beyond external reporting?
Designing your ESG reporting technology ecosystem
Data sources
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Data ingestion
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Data structuring
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External and internal
performance reporting
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Set implementation priorities for new ESG solutions
Revisit your ESG strategy. When examining the case for technology investments, it’s helpful to understand how ESG translates into value for your business and how technology will enable this value creation. For example, an organization focused on decarbonization likely wants dashboards and other reports showing the impact of initiatives to cut emissions, and how these translate to value such as cost reductions or contributions to targets linked to green financing.
Review your reporting requirements. Keeping your disclosures in mind can inform your implementation plan and help you decide how you’ll automate previously manual processes. For example, a company that needs real-time emissions data may think about creating an application programming interface (API) connection that pulls energy consumption information directly from their utility, or business travel records from its ERP system. Conversely, a simpler option, such as structuring a query, might make more sense for data that’s only needed quarterly or annually. While a technology integrator can implement many of these features, it’s valuable to work with a provider that can also upskill your employees so they have the ability to operate your reporting system independently as your ESG information needs change.
Plan your implementation. Setting priorities based on your opportunities to create value through ESG and meet reporting requirements can help define your implementation plan and the supporting business case. It’s important to explore whether there are existing technology transformations underway or that will be implemented in the near future that should be integrated into your ESG reporting system. Additionally, consider if there are solutions that solve immediate problems or quick wins that can scale or adapt as other systems come online.
Help your employees think strategically about ESG. Upskilling isn’t limited to technical capabilities. As manual tasks are automated, your employees have more time to think critically about your organization’s ESG data. Rather than just pushing out numbers as part of a compliance exercise, they can challenge themselves and others within your organization with strategic questions. They can ask what they can interpret from the data, what it says about the organization’s state and how they can better help others within your organization understand their ESG performance.
Questions to consider
- How will ESG technology investments lead to value creation for your business?
- How will you phase in your technology investments?
- How will your organization’s unique reporting requirements shape the implementation and operation of your reporting system?
- Do your employees have the technical skills to effectively run your ESG reporting systems?
- Are you future-proofing your ESG reporting by integrating it with your enterprise risk management system?
Plotting your ESG reporting technology roadmap
Building trust and creating sustained value through technology-enabled ESG reporting
We’ve seen companies realize powerful returns from investing in ESG reporting technologies. They disclose ESG information with greater speed and accuracy by using automated workflows to produce standardized metrics based on traceable and auditable data, helping to meet reporting obligations and find opportunities for operational improvements.
Companies with even higher ambitions realize additional benefits. They use insights derived from their sustainability data to create value and reduce ESG-related risks by transforming their business to better align with their stakeholders’ rising expectations. This helps secure investments and lower the cost of capital. It also helps attract and retain customers and employees who want to engage with companies that share their values. Modernizing your data-to-reporting infrastructure also positions your organization to take advantage of the next generation of advanced technologies, such as climate risk modelling and other predictive analytics tools, entering the market.
Technology-enabled ESG reporting can create the high-quality data needed to improve your sustainability performance and effectively communicate your achievements. This builds trust with stakeholders and turns ESG into a sustained source of value.
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Managing Director, ESG Technology, PwC Canada
Tel: +1 613 755 5961 | Cel. : +1 613 240 6857
National Platforms Leader and ESG Strategy Partner, PwC Canada
Tel: +1 250 298 5272