Improve ESG data capturing for better sustainability reporting

Written by esgcloudonline - ESGCloud Team
25 Aug 2021

The Covid-19 pandemic has intensified discussions about the interconnectedness of sustainability and the financial system. Over and above annual reports, organisations are also investing in standalone sustainability reporting. ESGCloud software provides the means to set standards for ESG data capturing in an organised and transparent way.

Many businesses are adjusting their practices because they see the value of ESG to their brands and operations. Many ESG concerns, including climate change and inequality, are becoming more serious, and market competitive forces are pushing innovation and change.
These are key elements of a successful sustainability reporting journey:

Broad strategic directions

In addition to improvements in upgrading market infrastructure and data systems,
investor focus is expected to transition from ESG risk avoidance to ESG risk reduction, as well as impact measurement and management. Focus will finally shift away from the environment and toward racial and gender diversity, inclusion and equity, human capital management, and a variety of human rights concerns.

ESG performance and ESG data capturing will hold more weight outside of public firms.

Investors focus on enterprise value

Investors will provide constructive, direct input to business through stronger forms of shareholder involvement as data systems and market architecture grow to accommodate ESG data strategies in decision making.

Later in 2021 and into the 2022 AGM cycle, we will see changes in proxy voting patterns, as well as, increasing board supervision of ESG performance.

The convergence of crisis-level scenarios across several risk vectors in climate, inequality and human health will force the essential reform in our global financial markets to address the data and market infrastructure demands.

To this purpose, several investors are already capturing ESG data, employing research methods and business involvement tactics.

The ESG investing paradigm will shift as data technologies evolve. Innovative leaders will see the importance of impact assessment and management and embrace ESG data capturing.

Sustainability scope: defining the priorities

ESG success will be determined in large part by how well an organisation’s technology adapts to the new realities of more data and greater complexity in organisational structures.

Investors must be able to study ESG data in their own way in order to reach their findings. This isn’t an argument for dismissing others’ opinions but is rather a supplement to the investor’s analysis.

Technology is a vital base for investors looking to gain a competitive advantage for ESG data capturing.

It is possible that companies don’t pass every requirement in every ESG category, so investors must select what is essential to them and conduct their research accordingly. Investment firms that follow ESG standards must also define priorities on a practical level. Improvement in capturing ESG data for better sustainability reporting also helps investors avoid corporations with large recent or current disputes, such as employment discrimination, corporate governance, and/or animal welfare issues.

Abiding by a reporting framework

Frameworks, simply put, are high-level recommendations that outline the concepts and procedures for disclosing information. ESG reporting has been guided by several frameworks, standards, ratings, and indices with international recognition since their inception, and they have not ceased evolving since then.

It is recommended to make use of reporting that is based on well-known frameworks and standards. Frameworks provide principle-based direction for identifying ESG subjects and determining how to arrange and prepare the ESG data that is reported.

Reporting in a clear way

ESG data can have inconsistencies and can be difficult to compare. Companies are left to select whether ESG elements are significant to their business success and what information to reveal to investors due to the lack of national standards for most ESG data reporting.

On one hand, rules have the benefit of being explicit and easy to comprehend; on the other hand, severe rules and regulations often result in inflexible and superficial outcomes: explicit data might be sought pertaining to an issue but then the framework requires companies to just illustrate their approach. The use of ESG data varies by context, and the variety of standards may allow for some bespoke reporting that is beneficial to businesses.

Improving the process each time

In order to improve data collecting, analysis, and the process of reporting, companies must aim to pursue investment-grade ESG data to support decision-making. However, businesses must first comprehend the business rationale for increasing internal controls and the integrity of ESG data and they must understand the impact and dependencies of their business models to be resilient, successful and long-term. In their operating environment, they must manage risks and seize opportunities.

In order to improve the process, the business should conduct a gap analysis to understand what needs to be revised and what changes need to be made e.g. the creation of a chart of accounts and a group ESG data manual to training workshops and management reports. This way the process is continually being improved and developed.

Related perspectives

ESGCloud is a SaaS platform that roots ESG in company performance by connecting ESG effort to competitive strategy and opportunities, and in turn profitability.

The software is innovative and intuitive to use, and features have been created with the end user in mind, making data collection and reporting easy through an all-in-one ESG tool.