What are the business considerations for ESG reporting?

As CIOs build their ESG data collection platforms, they should address considerations for now and the future.

In brief

• Will you be able to align stakeholders and report ESG data with confidence?
• Will your organization be flexible enough to get ahead of changes and create more sustainable ways of doing business?

The data from your organization’s environmental, social and governance (ESG) efforts holds the key to positive outcomes, in climate control, sustainability, company culture and profitability. But in order to realize the benefits of their efforts, organizations must first address the business decisions around ESG data collection. They have to decide which metrics or taxonomy will help them achieve their ambitions. The next steps are to locate and collect that data and design a decentralized platform that allows teams to use that data to drive sustainability initiatives.

ESG reporting rules are forthcoming but far from final. Will you be able to report with confidence? CIOs need to provide the systems and tools to confirm that relevant data is captured and accessible for ESG reporting. Leading organizations are beginning to think about their data collection and reporting strategy, governance and architecture. Those that take these steps not only will be prepared with a system that provides a consolidated view and audit-ready reports, they also will be able to identify new capabilities that drive their ESG initiatives further.

Four steps CIOs should take in preparation for ESG reporting

1. Align stakeholders

ESG cuts across the enterprise. Each stakeholder has a different lens, and there is going to be a proliferation of ESG requirements that affect them all. CIOs not only should meet the individual requirements of each stakeholder but also connect them. Key to ESG data strategy development is to identify the right stakeholders, at the right time, to form the strategy and gain alignment. Across all business units, find common definitions and define metrics so that you’re not aggregating the same data twice or measuring inconsistently.

2. Turn to governance

Because data is collected throughout the enterprise, the system of record will need to be a central ESG data repository: one that everybody can consume and use as their roles require, with controls in place that will stand up to audit scrutiny. To build the data model, identify what metrics to report and the mechanism for collecting the data and managing the information.
Some organizations have developed specialized ESG data and audit teams to test their methodologies and help them set realistic goals in advance of the SEC ruling. Build architectural governance into the system, establishing a process to make changes as new source systems are brought online, a new reporting requirement is added or when decommissioning an older system.

3. Build a strong, flexible architecture

We know that regulations and requirements are going to evolve over time. The architecture for the platform will need to change with it. There must be a system in place for flexibility. Organizations are challenged to build a system that is extensible to support evolving regulatory or financial reporting requirements.

4. Think beyond reporting

Some organizations are focused on reporting for the sake of meeting regulatory requirements. If they stop there, they run the risk of missing out on the added value of analyzing that data and using insights to drive innovation.

There are three ways we can look at analytics:

1. Descriptive - what happened (e.g., emissions month over month)
2. Predictive - using scenario forecasting or modeling to show what is likely to happen
3. Prescriptive - looking at actions the organization should take, based on the data

Tangible business value can be found in ESG initiatives. Now that you’ve collected this data, you have the opportunity to turn that data into value, which can be exchanged, such as purchasing carbon credits, supporting circular economies, and incentivizing suppliers and helping them participate in your data collection needs. This can be in the form of blockchain-based reporting systems or other types of technology that allow secure and trusted exchange.

ESG commitments at their core are a data problem, and no one is better positioned than the CIO to lead the charge. By working across business lines and building relationships across the ESG ecosystem, CIOs will help their organizations get ahead of the changes, produce high-quality ESG disclosures, build confidence in data and create more sustainable ways of doing business.