The current business landscape presents many challenges for companies, with increasing demand for ESG practices being a prominent issue. ESG refers to Environmental, Social, and Governance practices, and the reporting of such practices is crucial for companies seeking to establish trust and maintain a positive reputation with stakeholders, including investors and employees.
The disclosure of ESG information encompasses three topics: environmental criteria, social aspects, and governance practices. Environmental criteria deal with a company’s energy consumption and waste management, its impact on the environment, and carbon emissions. Social criteria concern the company’s relationship with its community, labor relations and diversity. Governance involves the company’s internal decision-making systems, compliance with legal regulations, stakeholder management, and political lobbying.
Despite some concerns that ESG initiatives may take a back seat during an economic downturn, the COVID-19 pandemic has emphasized the need for businesses to demonstrate resilience and focus on long-term sustainability goals.
Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) are among the existing voluntary standards that are increasing in usage, and the introduction of new non-financial regulations is expected to drive reporting rates higher.
ESG-focused investing is becoming increasingly popular, and a growing body of research shows a positive correlation between strong ESG propositions and higher equity returns.
With more stakeholders and the public becoming conscious of the environmental and social impact of corporations, companies that effectively address ESG risks and opportunities can improve their reputation, build trust with stakeholders, and attract customers, employees, and investors who share their values. Thus, ESG is not just a trend but a critical component of corporate strategy.
The Problem: ESG Adoption Challenges
Considering these trends, businesses should focus on understanding stakeholder expectations, identifying key ESG topics, establishing a cross-functional governance structure, and investing in robust nonfinancial data management.
A successful ESG reporting program should comply with mandatory reporting regulations, accurately reflecting the material impact of the company on the environment and society, and effectively illustrating how ESG risks and opportunities are integrated into its business strategy.
However, ESG reporting can be a challenging task for many organizations due to varying reporting standards and frameworks, non-mandatory reporting standards, and data sourcing, collection, and preparation issues.
One of the major challenges of ESG reporting is the lack of standardization and uniformity in the reporting process which creates confusion for companies trying to ensure they comply with ESG reporting standards.
Furthermore, nonmandatory reporting regimes make it difficult for investors to make proper comparison between similar organizations operating in different regions.
The required data is often dispersed across various departments and systems, making it arduous to collect and manage. Also, the data must be prepared in a way relevant to the ESG frameworks.
This can lead to significant difficulties in creating a single, comprehensive view of the company’s ESG performance.
The Key to Sustainable Growth: ESG Data Beyond Reporting
The Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), and the EU Taxonomy are some of the major frameworks and regulations that companies must comply with.
However, beyond the process’s reporting side, ESG data can also improve sustainability planning and analyze the correlation between a company’s ESG efforts and financial performance.
By incorporating ESG data into a converged reporting framework and integrating it into a comprehensive strategy, the interplay between ESG data and financial and operational information can be demonstrated.
This interplay is crucial for making ESG initiatives sustainable and profitable, facilitating the creation of budgets, variance reports, and predictive forecasts.
ESG monitoring can also mitigate business risks by detecting potential issues in advance and enabling proactive steps to protect the ESG score.
Furthermore, ESG data can decrease credit risk by simulating scenarios affecting the ESG rating and selecting ESG initiatives with the most favorable impact.
The Solution: CCH Tagetik ESG & Sustainability Performance Management
To address ESG risks and opportunities, companies need a robust and efficient ESG reporting process. This can be a complex and time-consuming task, involving the collection and analysis of a vast amount of data from a variety of sources.
Inulta is helping businesses tackle these challenges by providing the right software solutions and expert support to ensure efficient, accurate and transparent ESG reporting.
CCH Tagetik ESG & Sustainability Performance Management, offered by Wolters Kluwer, and Inulta, as a strategic Wolters Kluwer CCH Tagetik Platinum Partner, provide the solution and support that companies need to integrate ESG KPIs into their planning and analysis strategy, connecting financial, non-financial, and sustainability data all in one place.
With a centralized platform for collecting, storing, and reporting ESG data, designed to be fully compliant with regulations and industry standards, companies can easily track and analyze their ESG performance over time and identify areas of improvement for long-term financial performance.
CCH Tagetik ESG & Sustainability Performance Management has been honored with the prestigious Stevie Award in the Financial Management Solution category of the 2022 American Business Awards.