With a massive amount of ESG solutions available, the challenge lies in selecting the appropriate one. Our experts share their insights on what to pay attention to when choosing the right ESG reporting technology.
From 'nice-to-have' to 'must-have'
Non-financial reports (NFR) are not a ‘nice-to-have’ add-on anymore. The Swiss Federal Council (Bundesrat) made the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) binding for public interest entities in November of last year. From 2024 onwards, more than 200 Swiss entities are impacted by this decision and NFR becomes a “must-have” for them. To be able to accurately report performance on ESG goals to the public, organizations are now faced with the challenge to implement all requirements before the first regulatory wave will become effective. The good news is: technological advancements will alleviate that burden.
Introduction to ESG / non-financial reporting
ESG reporting consists of the annual non-financial report issued by an organization to document and report to the market. In essence, these reports provide transparency into performance against ESG objectives and make organizations’ ESG performance comparable, so that clients, investors and other stakeholders can make better-informed decisions about dealing with organizations.
To be able to report non-financial information in the most efficient and accurate way, it is key to have in-depth visibility into a company’s supply chain and operations. Only on that level can granular non-financial data for ESG reporting be captured. This in turn can then be connected to the existing reporting ecosystem. Therefore, the ability to capture granular data at the operational level is a key enabler for simplifying and automating non-financial reporting.
The convergence of financial and non-financial reporting
Combining information on financial and non-financial performance will be a challenge for organizations in the coming years. Only then can Finance leaders effectively steer the company towards both their financial and their non-financial performance targets. However, this poses new demands for reporting technology, as it requires integration of operational data from many sources into the existing reporting systems and processes. The picture below gives a high-level overview of what a future-proof reporting landscape can look like.
The left side of the picture shows the conventional process of financial data flows, which is well established in most organizations: from conventional data sources (e.g. ERPs, CRMs), financial data is loaded into a data warehouse (usually via standard interfaces), from which financial KPIs are calculated and made available in standard formats (e.g. push reports, dashboards, or self-service reports).
The right side of the picture shows the process of capturing non-financial data into a standardized format. There will be a wide variety of data sources with quantitative and qualitative data that will mainly be unstructured. This requires an additional data integration step before it can be loaded into a data warehouse. From there, non-financial data can be combined with financial data in what we call a ‘data lakehouse’. The ‘data lakehouse’ as a combined source enables reporting and management of both financial and non-financial targets.