Sustainability analytics - the first step towards sustainability

More and more investors, customers and regulatory authorities are demanding that companies disclose their performance in the areas of Environment, Society and Governance (ESG) and thus make their impact on the respective areas assessable. But what exactly does this mean and how do companies deal with it? As BIG.Cube’s Sustainability Analytics team, we take a closer look at the challenges and opportunities of ESG reporting and explain why it is becoming increasingly important for companies to be transparent about their sustainability performance.

EU obliges companies

SFRD, taxonomy, CSRD – the European Union’s directives are now diverse and can be confusing for many stakeholders affected. The EU taxonomy, for example, provides numerous criteria that classify corporate activities as sustainable or non-sustainable. The diverse regulations are intended to support companies in making their contribution to a sustainable economy.

Many companies have been obliged by these regulations to carry out ESG reporting.

In our experience, the complexity that is encountered in the course of such a project is high.

Challenges of ESG reporting

There are several hurdles that companies have to overcome when implementing sustainability information into an existing business warehouse (BW).

To integrate ESG information into the BW, companies must first collect and provide the necessary data. This can be difficult, as data from a wide variety of sources inside and outside the company often has to be brought together. The challenge is even greater if the organization does not yet have the necessary processes or interfaces. Data may have to be collected manually internally or reports may have to be purchased from external data providers.

Integrating this different data in BW while complying with various reporting standards can be complex and usually requires customizing BW systems and the associated reporting processes.

Another challenge is the integration of sustainability data into receiving systems. These require the ESG information in certain forms, for example adapted to accounting structures. Old schemas often have to be expanded or adapted in order to meet the complex and varied ESG reporting requirements.

The introduction of ESG reporting also brings functional challenges. There are many different standards and new guidelines that companies can or must follow when preparing ESG reports. In addition to the EU guidelines, there are also international reporting standards that can be complied with on a voluntary basis. Examples of these are the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD).

The guidelines and standards are not only diverse, but can also be difficult to understand and implement in some cases, especially for companies that have not yet gained any experience with ESG reporting. As some guidelines are constantly being adapted, expanded or changed, a generic approach with a high degree of agility is also essential.

ESG reporting as a first step towards a sustainable economy

However, once all technical requirements have been clarified, the implementation completed and all relevant data is in the system, sustainability reporting based on international standards offers all stakeholders great added value. It enables the analysis and evaluation of non-financial results.

Investors can obtain detailed information on the sustainability profile of companies and make their investment decisions on this basis. By analysing ESG data, they can assess risks and opportunities in relation to sustainability and adjust their portfolio accordingly.

Governments and other regulators can benefit from ESG reporting by taking corporate sustainability information into account when developing laws and regulations. Non-governmental organizations (NGOs) can use ESG data to support or criticize companies, depending on whether the commitment meets the respective requirements.

Last but not least, customers can better understand how companies’ actions impact the environment and society. By knowing this information, they can make purchasing decisions based on sustainability criteria and support companies that meet their requirements.

In turn, credible ESG reports can help to increase the trust of all stakeholders in a company and improve its image. It also provides the basis for an analysis that enables suitable measures to be taken to act more responsibly.

Conclusion: ESG reporting requires specialized teams & agility

The challenges outlined above and the often simultaneously given time criticality until the reporting requirements come into force are not an easy framework for companies. In order to successfully implement requirements in ESG reporting, the following should be emphasized:

The use of highly specialized teams, especially with regard to Business Analysis
Agile project approaches and, where possible, generic implementations to cope with the volatility of requirements

This is the only way to set up well-founded and sustainable ESG reporting. Currently still more often seen as an obligation rather than an optional extra and as a “preventer”, it will, however, be indispensable as an enabler within the business processes of tomorrow.

Written by Alexander Röttinger

Sustainability analytics - the first step towards sustainability