Environment, social, and governance (ESG) regulations are on the rise. Here’s how to ensure your organization is equipped with the right ESG tools for its reporting and performance improvement needs.
Increasing pressures around environment, social, and governance (ESG) concerns have organizations across industries turning to their CIOs to revamp their strategies for ESG reporting.
After putting in place the right data infrastructure and governance for ESG reporting, ensuring the enterprise has the right ESG reporting tools in place is critical. To date, many companies have merely repurposed existing technology solutions for their ESG reporting needs. But as regulatory requirements intensify and transparency needs increase, many organizations now need purpose-built solutions — especially if they are looking to go beyond reporting to improve ESG performance as well.
“Not only is the CIO responsible for gathering, analyzing, and ensuring the integrity of the massive amount of data that informs ESG reporting, but more and more they are expected to establish and be responsible for the digital infrastructure: the tools, processes, and technology integrations,” says Nancy Mentesana, ESG executive director at Labrador US, a global communications firm focused on corporate disclosure documents. “Ultimately, CIOs may increasingly be held accountable for the veracity of the reporting, the third-party assurance of the data, and ensuring their organizations’ compliant disclosures align with their corporate ESG goals.”
The current marketplace for ESG solutions is rapidly evolving with both large incumbents and emerging startups pushing tools to market, from standalone software offerings, to ERP add-ons, to full ESG platforms and niche solutions. Amy Cravens, research manager for GRC and ESG at analyst firm IDC, anticipates significant market growth in 2024 and 2025 “as companies prepare for regulatory requirements and perhaps suffer ramifications of compliance failures resulting from insufficient tech enablement.”
Point solutions focused on a very particular issue or a specific sector are already somewhat mature, says Marsha Reppy, leader of the Americas’ Sustainability Technology Consulting practice at EY. “But there is no ‘silver bullet’ out there which can address all sustainability and ESG reporting requirements holistically and across the entire value chain,” she says.
Moreover, any given organization’s solution for ESG reporting may be quite complex, Reppy says. “Applying concepts of solution architecture to truly solve the problem end to end is not really negotiable,” she says. “For large organizations, the end-to-end data and technology solution will include your ERPs, data and analytics landscape, certainly AI, low- and no-code platforms, and a range of emerging tech.”
As CIOs evaluate their options, the following tips will help narrow the field of ESG tools to those best suited for their organizations’ ESG reporting and performance improvement needs.
Get the right stakeholders involved
“The first step to implementing any sort of new technology solution, including ESG reporting platforms, is to get the right people around the table to define what the ideal platform needs to be capable of to meet everyone’s needs,” says Daragh Mahon, CIO at truckload transportation and logistics services provider Werner Enterprises.
“My job is to sit at the table with the right stakeholders and ask the questions that help us evaluate the tech landscape and narrow down our options to a few select providers,” says Mahon, who facilitated the conversations between vendors and IT and other company stakeholders to make sure the product Werner selected would best meet everyone’s needs.
Zero in on the ESG business problem you’re trying to solve
“ESG reporting is quite broad and has many different flavors,” EY’s Reppy says. “So getting specific is important.”
For some, compliance with the EU’s new Corporate Sustainability Reporting Directive (CSRD) will be the top priority driving decision-making. Other companies may be better served by an environmental reporting solution, with carbon management solutions garnering the most attention these days; whereas still others may need a data management, reporting, and performance management solution across all environmental, social, and governance categories.
“Keep in mind that ESG software is not merely a KPI repository, but also a vehicle to drive efficiencies and internal benchmarking,” says Tom Andresen Gosselin, ESG practice director at compliance firm Schellman. “The perfect ESG software would encompass all lifecycle elements of an ESG strategy, be a potent program management tool, a risk management tool, provider of analytics, and a vehicle for accountability and verification.”
Gosselin also advises avoiding investing in ESG software that may be too narrow, such as one that handles greenhouse gas reporting only.
Consider your overall IT strategy to maximize your investment
“Existing relationships with vendors may have some relevance as well in easing the implementation and data integration requirements,” says IDC’s Craven.
For Rainer Karcher, longtime IT leader and current chief sustainability officer at Allianz Technology, choosing ESG solutions from existing vendor partners has delivered multiple benefits, not least of which has been a smoother introduction to key users. For example, Allianz Technology, an Office 365 shop, opted for Microsoft’s Sustainability Manager for its ESG reporting.
“It made sense to make use of a tool in that landscape that will be more easily adopted. If those who need to use the tool decline to do so because of UX or implementation problem, they’ll never make use of it,” Karcher says. “If it’s natively integrated with our other tool sets, we’ll be able to send pop-up messages to remind people to upload necessary data sets, eliminating more of the manual work required.”
For ESG planning and strategy, Allianz is likewise adopting the ESG module within ServiceNow, as it wouldn’t make sense for Allianz Technology employees who are not involved in ESG reporting to use the Microsoft tool, given that it’s much more granular and not optimized for their area of responsibility.
“We don’t want anyone to have to go to a different dashboard or system to see what the ESG outcomes of their decisions are,” Karcher says. “Everyone from Salesforce to SAP to Oracle has some ESG functionality. It’s a matter of perspective, but from my point of view, CIOs should look at what the majority of people who will use the system are already working in on a day-to-day basis.”
Even more importantly, both the Microsoft and ServiceNow modules will use the same enterprise ESG data sets, which Karcher is moving to the Allianz data lake this year. “That’s where the single source of truth comes into perspective and increases performance,” Karcher says.
Ensure data integration is effective — and goes both ways
While the ESG landscape ranges from industry- or purpose-specific tools to full management platforms, IDC’s Craven notes that “the critical aspect for all these solutions is to connect with other software platforms to both source data as well as to push data into other solutions.”
That’s why, if a company has significant investments with a particular enterprise vendor for ERP, for example, it often makes sense to consider their sustainability products for integration purposes.
Still, as Reppy notes, “the tech landscape is still evolving in this space and there are variations by sector.” So a chief concern, whether bolting onto an existing enterprise implementation or integrating a new point solution, is ensuring that your ESG solution will be able to access data from the wide range of systems necessary for reporting purposes, as well as to send data back to other systems for performance enhancement decisions.
Factor price and scope — and consider growing as you go
Cost is always a consideration. And broader capabilities may come with a bigger price tag. But there may also be modular solutions that companies can implement with fewer features enabled early on that can grow along with organizational needs and maturity. The good news is that “given the range of vendors and solutions in the market, there really is something for everyone,” says Craven.
Choose with an eye on the future
When deciding on ESG software, CIOs should consider their organization’s ESG journey over the next five years, says Schellman’s Gosselin. And they should dig into any vendor’s planned product development roadmap to ensure a long-term fit.
Developing close relationships with ESG vendors is critical, not only because their products will grow over time but also because ESG reporting itself will evolve to include much more complex and challenging areas such as Scope 3 emissions.
“Treat your solutions provider like a partner and extension of your team so that they can help best customize their solution for your company’s needs,” advises Mahon of Werner Enterprises, which implemented Salesforce’s Net Zero Cloud with Workiva’s reporting platform to track, analyze, and report reliable environmental data after extensive research to settle on the right partners.
EY’s Reppy says flexibility and scalability are crucial selection criteria “especially in a space where most products are not yet mature” — and one in which regulations will continue to develop rapidly. Still, although there may be no perfect solutions today, Reppy believes that smart decisions and good partnerships will lay a solid foundation now and for the future.
IDC’s Craven agrees that partnerships are key.
“ESG software deployment is complex and, if done correctly, interwoven throughout enterprise systems,” she says. “Given the changing nature of the landscape, choose a trusted vendor that will likely be able to evolve with your organization’s needs.”
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