At our latest Sustainability Networking Forum event, we hosted a panel discussion on the importance of environmental, social, and governance (ESG) data in business today. Catherine Bell, BDO Sustainability Principal, moderated the panel, which included Andrew Gazal (CEO & Founder of ESGTech), Lambros Siamos (Executive General Manager, Georgiou), Patrick Mutz (Managing Director, Image Resources) and Peter Dawson (Director of Strategy, Lycopodium) where they also discussed the value of digitising ESG data and integrating its use into the corporate strategy.
The importance of ESG data
Historically, ESG and corporate sustainability have roots in Corporate Social Responsibility (CSR). CSR was primarily a qualitative exercise where companies would share case studies to demonstrate commitment to their communities. More recently, stakeholders have been increasing pressure for companies to measure impacts and report using more quantitative ESG data. Reporting quantitative ESG data comes with the same challenges as any other reporting system. It requires a process for collection, management, access, and the ability to share the information with key stakeholders effectively.
ESG data comes with its own challenges too. It is common for companies starting their ESG journey to underestimate the sheer amount of information they will be collecting regularly: from emissions to water management and waste, human rights to customer satisfaction, board composition to data protection, and the list goes on. While organisations might already collect much ESG-related information, it is often fragmented, with the data’s owners spread across different business divisions. This is where technology can streamline ESG reporting and build better ESG management abilities.
How technology can help to solve the problem
Similarities can be seen between the current challenges in sustainability management and those faced by the finance industry when digitising accounting and moving towards standard reporting metrics. And as we’ve seen, almost every company has implemented detailed and complex accounting software, from small home businesses to large multinational corporations. Introducing a system for the management of ESG data has similar challenges, with a greater variety of data that each organisation might opt to collect and a lack of clarity on how to manage it.
The first step is recognising the difficulty in quantifying improvements without first taking baseline measurements. Along with setting targets, companies must also embed good practices in their businesses to ensure ESG data is collected efficiently. Technology has been developed to fill the gap, providing platforms that deliver auditable processes and confidence in the data collated to enable the effective management and reporting of ESG data. ESG platforms reduce the reporting load on teams, allowing them to focus on collecting the data while the platform provides outputs that correctly align with the chosen reporting standards.
Regulation is coming
As it currently stands, there are no direct requirements for organisations within Australia for broad-based sustainability reporting, but there is growing expectation from regulators to disclose material risks through the existing reporting requirements and the prohibition against misleading deceptive statements, also known as greenwashing. Unfortunately, businesses still fall into the trap of providing unreliable sustainability data that cannot be verified and therefore does not have a reasonable basis. Suppose this data is used to make forward-looking statements. In that case, organisations might be exposed to negative impacts on their brand and reputation or even action by activists and regulators if greenwashing is suspected.
Outside of Australia, sustainability reporting regulation has already begun, with the European Union Sustainable Finance Disclosure Regulation imposing sustainability disclosure requirements at an entity and product level. The U.S Securities and Exchange Commission has also signalled its appetite for sustainable disclosure requirements, with proposed amendments to rules and forms to promote more consistent reporting of ESG factors.
Assurance over ESG data
If published separately to a company’s financial statements, organisations have no legal obligation to have ESG data audited within most jurisdictions. However, an auditor is still responsible for ensuring it is consistent with any audited reports. Given this, it is no surprise that only 51% of organisations reporting ESG-related data obtain some level of assurance over it.
The market has matured and moved past the point of accepting company sustainability statements at face value, as people have become more aware of ‘greenwashing’. Companies that do not report and assure their ESG data may be left exposed to an unknown level of risk until regulation is eventually imposed. At the same time, organisations already delivering ESG reports will be well placed to capitalise on it.
We expect this growth and interest in publicly-reported ESG data will only continue to build, along with stakeholder expectations around how companies manage their ESG impacts.
Get in touch
If you’d like to learn more about how BDO can help you on your sustainability journey, don’t hesitate to contact our sustainability team.