Are your systems ready for ESG reporting?

In particular, reporting of ESG performance is coming under increasing scrutiny, and it’s no longer enough to give impressive, if selective or ad hoc, accounts. With initiatives such as the Task Force on Climate-related Financial Disclosures (TCFD), Non-Financial Reporting Directive (NFRD) and Corporate Sustainability Reporting Directive (CSRD), the bar is being raised for non-financial accounting. Your sustainability reporting will need to be repeatable, consistent and transparent, and apply the rigorous standards previously reserved for financial accountability.

For many businesses, this represents more than simply a change in reporting practices. While financial reporting reflects a single, inward-looking factor at the heart of business (i.e. money), ESG reporting reflects a much broader range of factors, many of which fall outside traditional commercial thinking.

The key to achieving high standards of reporting is to have the right processes and systems in place, underpinned by consistent and compliant data standards, and informed by an understanding of an organisation’s impacts in the world. This isn’t an easy task – especially for organisations that haven’t yet considered what data to collect, much less how it’s collected.

Up to now, some businesses have got by with an ad hoc approach, using manual data collection and spreadsheets, sometimes done differently each year. Not only are these time-consuming and error-prone, but – with the advent of more rigorous standards – they also fail to produce consistent and repeatable indicators. The sure way to become compliant, save time and cost, and ensure high quality, is to establish processes and systems that make the collection and reporting of sustainability data part of your everyday business practice.

Fortunately, the leading suppliers of enterprise systems are becoming alert to the need for sustainability intelligence, and are now rolling out products to support sustainability policies. SAP, for instance, has introduced Product Footprint Management and Sustainability Control Tower modules to enhance its existing enterprise systems. Although there are well-established, standalone tools, such as Greenomy, these still rely on manual collection of existing data, but could offer useful interim solutions for companies only just embarking on their sustainability journey. 

It’s important to recognise that these enterprise solutions are still in their early stages, and that suppliers might be finding their way through the regulatory minefield as much as you are. In SAP’s case, for instance, the current sustainability modules are being developed to meet the EU regulations, but we believe those will set a precedent for other emerging standards around the world, and expect such systems will readily adapt for global ESG compliance. Nonetheless, we recommend that you evaluate and initially deploy sustainability systems on a pilot basis. With so many new factors, standards and practices – both internally and externally – it demands a more careful approach than, say, implementing new finance systems, for which many of the underlying standards are already established business practice.

In general, it’s better to start now than to start perfect. Even for organisations that aren’t yet ready to implement, say, Sustainability Control Tower, existing solutions such as SAP/SAC can offer an interim reporting solution, or provide a familiar front end while embedding new data sources and collection practices. In particular, Deloitte has developed a range of tools and accelerators that combine our ESG and data experience, to harness your existing enterprise systems and get you up to speed. D-Carb offers a way to model carbon emissions across the supply chain as part of your planning cycle; SDG Impact Management models and monitors your organisation’s progress toward greater sustainability; Intelligent Infrastructure Control Centre (IICC) helps governments evaluate the carbon impact of infrastructure planning; Sustainability Analytics Platform harmonises ecological data across the value chain to bring standardised reporting, simulations and optimisations; and Carbon Analytics uses machine learning, simulation and optimisation around carbon-related KPIs.

Just as sustainability reporting demands a rigour that’s familiar from financial reporting, core disciplines such as data structure, definition, collection, storage and quality assurance won’t bring any surprises. What’s new and unknown for many businesses is the different and broader scope of data being collected, and what such data say about the company’s role in, and impact on, the planet and society.

Ultimately, the value of such systems reflects a company’s readiness for reporting. Getting there might require significant business transformation, but the extent – and corresponding benefits – can be flexible. At very least, businesses must become ready to comply with global and local regulations, to avoid penalties and negative auditors’ opinions (and reputational damage). A more ambitious approach is to work across the whole value chain to decarbonise, reduce waste and become more circular and socially responsible. Ultimately, a strategic vision built around sustainability can lead to innovative, sustainable products, services and business models, which yield new offerings and reach new customers.

Whatever the benefits being sought, boards will need a business case for investment. A decade or so ago, sustainability might have offered market differentiation, competitive advantage and green premiums. Now, simply complying with minimum standards will become a requirement for any large business that wants to stay in the game. Nonetheless, many companies can respond proactively to the need for sustainability reporting, with a transformation that brings strategic business advantages.

While Deloitte can help you present the business case, or plan, design and integrate sustainability reporting into your enterprise systems, the bigger challenge is often getting ready for those. We can also support your whole sustainability journey, from outlining an ESG strategy and driving sustainability across the supply chain, to becoming an organisation that not only gets the best from your systems, but also gets the best from sustainability..