In a world where sustainability has taken center stage, organizations are no longer on a relentless pursuit to align their strategies with Environmental, Social, and Governance (ESG) principles, they are also required to disclose information about the impact of their activities on the environment and people. As organizations strive to accelerate their sustainable transformation in line with these reporting requirements, the compass guiding their journey is the robust foundation of data governance and management.
Navigating the ESG seas
New reporting requirements are popping up like waves on the horizon and the reporting spectrum varies for each regulator and stakeholder. Organizations embarking on the sustainability reporting journey find themselves navigating a sea of regulations and reporting standards. For example, the EU Taxonomy determines whether business operations and activities are effectively sustainable and beneficial for the environment. Its classification system is in line with the Corporate Sustainability Reporting Directive (CSRD), which ensures the transparency and reliability of ESG information and makes sure the information is consistent and comparable, enabling stakeholders to make informed decisions. As you navigate these and other standards, remember they all serve the same purpose: a more sustainable future!
Turbulent waters
Today, organizations are on a quest to build a sustainable future, investing time, resources, and energy into various sustainability measures. However, a silent enemy – data inefficiency – threatens to drain their sustainability reporting teams’ energy and divert focus. Reporting on ESG is hard because the information required by these ESG regulations isn't always readily available within the company and new data about environmental, social, and governance topics needs to be collected from a wide variety of internal and external data sources. This complexity, combined with the ever-evolving reporting standards for ESG, can turn into a fog that leads to misinterpretations errors and delays, making it impossible for a sustainability reporting team to navigate on its own.
Lighthouse in the fog
Luckily, proper data governance and management will help guide your ship through this fog, paving the way for reliable and impactful ESG reporting. Let’s have a look at the following example of an energy company, observing how it navigates the challenges that the ESG landscape must undergo.
The energy company is required to disclose information on Scope 1 greenhouse gas (GHG) emissions (ESRS E1 Climate Change, Disclosure Requirement E1-7). This company, armed with robust systems for energy monitoring and emission tracking, is well-positioned for carbon accounting. There is a dedicated team in place, armed with the right tools and skills for managing the data and ensuring its quality. Ownership is clear: experts from the business make sure the necessary information is provided in time toward the sustainability reporting team. Accurate and transparent reporting on Scope 1 GHG emissions? Check!
Imagine that same energy company having to disclose information on business conduct, more precisely providing the total number and nature of confirmed incidents of corruption or bribery (ESRS G2 Business Conduct, Disclosure Requirement G2-3). Even if they already have a whistleblowing procedure in place, there is no dedicated tool. A bunch of e-mails, PDF files, and best case, Excel files are scattered throughout inboxes and network drives. Speaking of sustainability: how on earth will the sustainability reporting team make the reporting itself sustainable? Unlike the mature carbon accounting process, this is uncharted territory.
This difference in maturity within an organization regarding the reporting topics creates complexity and is difficult to deal with. Regardless of the maturity, for every aspect of ESG reporting it is important that clear roles and responsibilities are defined. Where the disclosing of information and ESG reporting itself is the responsibility of the sustainability reporting team, ownership of the underlying data elements lies within the business. Organizations should have a clear approach or process for every reporting requirement on how the necessary data is going to be collected and how its quality will be ensured, which will often require involved employees to follow education programs and training to learn about less familiar topics.
Sailing forward – Benefits await
As the landscape evolves, data governance and management offer a steady compass, pointing the way to a more sustainable, transparent, and responsible tomorrow.
Organizations can navigate this evolving landscape by:
- Determining the relevant regulations
- Gauging the overall data and reporting maturity
- Aligning ESG reporting practices with generic best practices
By implementing data governance and management, ESG (reporting) efforts can be easily rerouted in response to new regulations, ensuring sustainability reporting itself becomes sustainable!
Authors: Julie Verheye & Louis Engelen
