New ESG data requirements can unlock sustainable growth

It is essential for regulators, investors and other stakeholders - and to ensure its usefulness across a range of internal and external decisions that will drive sustainable growth. But while most organisations capture and report ESG data in some form, it is very often not of the same quality as financial information, not ready to meet the expectations of stakeholders, and in most instances is not ready for the rigour of Independent assurance - something now mandated in certain other territories worldwide, and in the EU from 2024. This means that various stakeholders may currently be taking false comfort from the ESG data on which they rely.

Even those organisations who have already seen the benefits of integrating sustainability into their strategy and who use cross-functional teams to collect and report their ESG data will find their current data does not meet the needs of the “big three” ESG reporting standards. The data required reaches far beyond what even the most mature reporters have previously disclosed, and all parts of an organisation will need to truly buy-in to the strategic importance of collecting, measuring and being held accountable for this information.

All organisations will therefore need to invest time and effort to meet the new requirements and make sure everyone from across the organisation understands the benefits that should flow from them. They will need to redeploy, or find more resources, and those people will need to acquire new skills, and be more connected across the organisation than ever before. The teams setting the ESG strategy and collecting the relevant data will also need to measure progress against their stated aims. This may be hard for teams who are inexperienced in external reporting and are unlikely to have been audited before. The ESG data itself is also likely to bring its own challenges.

The particular challenges of ESG data

Processes and controls for financial data have been honed over decades and are well-established, which is not the case for sustainability-related information. ESG data is typically collected in disparate spreadsheets, databases, and systems in an unstructured way (in contrast to the uniform accounting systems that underpin financial reporting.) It is unusual to find the same robust controls, oversight, and governance that are necessary for financial reporting.

Rapidly evolving reporting requirements mean some of the data has never been collected before, so whole new processes need to be put in place. Some of the data relies on complicated estimates, or on data from third parties which can be hard to obtain. Even for ESG data which is already being reported, the processes and controls applied to gather it can be immature. For example, evidence to support the data is often not kept, or judgements and manual interventions are not documented or explained properly. Additionally, there is often a lack of consistency across parts of the business with respect to how ESG policies and data gathering are applied. The outputs are seldom subject to independent review or challenge.

Five key steps for quality data and reporting, and why it matters

The journey to getting the data and reporting right begins with winning hearts and minds, moving beyond straightforward compliance to unlocking value for the business. For everyone in the organisation to want to get the data right, first time, then they need to believe that good ESG data is critical for setting meaningful targets and measuring strategic progress that supports business growth.

So, where should you start?:

1. Create a truly integrated sustainability vision and strategy. Understand how the mandatory reporting requirements fit in with this strategy, and make this part of winning hearts and minds as you collectively agree targets and measure progress. Identify the data you need to be able to do this.
2. Confirm roles and responsibilities with respect to the strategy and increasing data requirements, which is likely to span across functions, and embed the necessary governance from the outset.
3. Think about the new processes and controls you need to gather the data and check its accuracy (particularly the ESG data points not collected before). This may involve new systems, so consider involving your CTO or CDO. Your internal audit team may be able to support you.
4. Spend time educating all relevant stakeholders in the business. Create clear guidance, like group financial accounting policies, that can be understood easily and applied with consistency.
5. Make sure that those responsible for collecting ESG data understand the evidence they need to keep. The data will need to be audited, just like the financial information.This will include evidence from third parties - which may need some early engagement to obtain - as well as documentation on any judgements and assumptions made.

The new ESG data requirements will demand a great deal of data from across the business. There is effort involved. But if organisations link that data in their reporting to their strategy, then they will quickly be able to realise value. Management and stakeholders will have the information they need to make decisions that build trust with stakeholders and secure a sustainable future for its business.