Lowering the Barriers to ESG Reporting With Technology
New technology can help firms ensure that they capture key performance indicators (KPIs) in sustainability more accurately. Some of these KPIs include Scope 1, 2 and 3 emissions, volume and intensity of waste generated, as well as data on employee health and safety. Solutions are also becoming more sophisticated. This has significantly lowered the barriers to collating and acting on non-financial ESG data.
Companies, particularly public-listed firms, are increasingly expected to meet relevant reporting and disclosure requirements. Subject to greater public scrutiny of key environmental, social and governance (ESG) metrics from various stakeholders, particularly from investors and potential partners, many companies now need to provide detailed information about how they are managing their natural, social and human capital, as well as information beyond what is traditionally collected, including on their carbon footprints, business conduct and labour practices.
Collecting, measuring and reporting these non-financial data, however, can be difficult. ESG reporting has evolved quickly over a short period of time, with data quality becoming a key focus, and new criteria, comparable to those for financial data, are emerging. Existing international guidelines, such as the International Sustainability Standards Board (ISSB) of the IFRS Foundation, the Sustainability Account Standards Board, and the Global Reporting Initiative, to name a few, are being consolidated on an ongoing basis. At the same time, different frameworks are emerging to distinguish between climate, nature and carbon reporting, such as the Taskforce of Nature-Related Disclosures, the Climate Disclosure Standards Board and the Carbon Disclosure Project. ESG reporting remains a complicated and moving landscape for companies to navigate. Employees engaged in the collection, validation and management of ESG-related metrics need to be communicated to and assured of effective controls that can enhance the usability and clarity of such data.
Companies may face the following challenges:
Not knowing where to start and what data to report first
Lack of resources to collect the needed data
Communicating clear reporting guidelines to business units
To ease this complex process, organisations may turn to technology to strengthen their analytics capabilities.
“Globally, the sustainability technology landscape is at a nascent phase, but it is fast evolving,” said Arina Kok, Malaysia climate change and sustainability services leader and partner at global accounting firm Ernst & Young (EY). The key is to find the right technologies to invest in, as companies transform their business models, she said.
An Oracle survey of more than 11,000 consumers and business leaders across 15 markets found that 88% of business leaders believe organisations that use technology to help drive sustainability and social issues will be the ones to succeed in the long run. These leaders identified key areas they need assistance in the collection and verification of data, target planning and revision based on performance, as well as report and analysis automation. The survey report stated that humans and technology combined can make for meaningful change.
Malaysian companies are already ahead of the curve, according to a recent PricewaterhouseCoopers (PwC)’s report. It found that among Asia Pacific countries, Malaysia stands out for disclosures of boards’ responsibilities and companies’ ESG governance structures. It is also among the two countries in Asia Pacific that demonstrate the highest level of disclosure for mitigation strategies.
“With ESG information increasingly being used by the capital markets and various stakeholder groups to make investment and purchasing decisions, it has never been more important to ensure that ESG disclosures are of high quality,” said Herbert Chua, Partner, Sustainability Reporting and Assurance at PwC Malaysia.
Here are five technology-driven solutions that can help more organisations improve the quality of their ESG reporting.
1. Energy management systems
The first step to understanding an organisation’s carbon footprint requires the collection and management of data from various sources. Energy management systems (EMS) can support the tracking and optimisation of energy consumption to conserve its usage across an organisation’s physical assets, including in factories and office buildings. Currently, ISO 50001, the global energy management standard, specifies requirements for companies to develop and implement a robust EMS, providing organisations with a framework that validates best practices relating to energy efficiency, use and consumption. This usually requires the collection and analysis of energy consumption data, which can be implemented using devices such as smart meters, sensors and power monitoring software. Areas of significant energy use and opportunities for improvement are then identified and organisations can better understand their energy profile. In many cases, the ISO 50001 is also used as a compliance route in support of other environmental regulations.
For example, telecommunications firm Telekom Malaysia was able to calculate their indirect emissions and waste generation at eight sites that implement EMS. Using their “unified electricity monitoring solution”, which includes advanced energy behaviour analytics and alert mechanisms, the group was able to keep track of emissions data as well as reduce Scope 2 emissions — indirect emissions from the generation of purchased energy — by 9.2% in 2021.
Another company that has benefited from monitoring energy usage through an EMS is IOI Oleochemicals, a subsidiary of IOI Plantations. The group explained that the technology “provides visibility of energy flow and energy consumptions to achieve optimum energy efficiency”.
2. ESG data monitoring dashboards
Companies must not be lost in the deluge of data because they do not have the proper tools to understand and analyse it in alignment with multiple international reporting standards.
This is where data warehouse and dashboard services come in. Cloud-based, central repository systems enable organisations to collate ESG data from multiple sources, offering a single view of an organisation’s ESG performance.
Putting this into practice, telecommunications group Axiata has leveraged on a visual interactive dashboard in combination with their environmental data system. “These form an important reference point to steer our short and long-term targets as well as action plans,” said Axiata.
In addition to helping the firm identify opportunities to improve energy efficiency, Axiata also said that the dashboard can function as a key communication platform, creating awareness of the company’s emissions among employees.
3. Integrated ESG analytics platforms
Beyond ESG data collection and review using dashboards, there are now analytics platforms that companies can use for better planning and optimisation of resources. These platforms use various metrics to calculate impacts, create reports, unlock data for analysis and provide actionable insights for companies to act on. The result is a further streamlining of an organisation’s ESG efforts.
Many software providers now offer integrated sustainability-focused analytics solutions. Hong Kok Cheong, Managing Director of software provider SAP Malaysia, said that when companies have complete transparency on their environmental footprint to monitor and report on sustainability metrics, they can identify areas for improvement and adapt to changing regulatory conditions.
In its recent sustainability report, engineering, property and infrastructure company Gamuda said that the use of an analytics platform focused on resource planning, had helped in improving data processing and transparency.
“Since the digitalisation of procurement and supply chain processes, the Group had achieved more than RM300 million in savings through supply chain collaboration to achieve more competitive pricing in delivering superior values to project stakeholders. A holistic digitalisation initiative in procurement eliminates significant paper consumption that are circulating in the supply chain processes,” Gamuda said.
4. AI and machine learning for scenario planning
Artificial intelligence and machine learning are some of the new frontiers for companies to navigate when it comes to scenario modelling. For companies looking at meeting specific United Nations’ Sustainable Development Goals (SDGs) or other sustainability-related targets, data can be fed into scenario-based models in the context of their sustainability plans. With machine learning capabilities, patterns in resource allocation and opportunities for process optimisation can be identified.
For example, consumer goods giant Unilever sought to improve its logistic efficiency and reduce costs by deploying a multi-mode transportation management system to gain better visibility of its operations and streamline its transportation fleet. The system expanded Unilever’s visibility of transport lanes. With the use of automated planning algorithms, vehicle and container utilisation were also optimised. Data provided by Oracle Applications (ASEAN), which provides Unilever with the scenario planning system, indicates that overall emissions of the company’s transport emissions were reduced by 9% as a result.
5. Interactive reporting
Communicating sustainability initiatives and metrics with various stakeholders, from investors and customers to employees and suppliers, can be improved with interactive reporting technologies that make ESG data accessible and relevant to each group.
To this end, several providers of the above-mentioned solutions, such as integrated ESG analytics platforms, have made it possible for both internal and external stakeholders to collaborate on data and ESG narratives. This includes providing third-party vendors or suppliers with access to input their metrics, to give an organisation’s senior management, board and investors a more holistic overview of their supply chain.
As for investors and customers, interactive sustainability reports that are digital-first can improve engagement and distribution. Simple tweaks, such as using responsive design, can make reports more accessible across different devices, while links within the report can broaden the access readers have to an organisation’s existing sustainable policies or practices, further enriching the ESG narrative.
“Investors are increasingly concerned about greenwashing in ESG reporting, marking the call for Public Limited Companies (PLCs) to provide more precise and transparent non-financial information to help steer their investment decisions,” EY’s Kok said.
“Reporting on the current state of ESG and sustainability is not enough. The goal—in investors' and customers' minds—is to drive change, and for that, you need the data to tell you not only where you are now but also where you need to go,” Oracle said on their website.
Ultimately, technology is only as effective as the purpose it fulfils, PwC’s Chua said. Organisations must ensure that underlying the implementation of new technology, rigorous processes and internal controls are applied alongside effective governance practices and the right human capabilities to use the data and take appropriate actions.
Click here for the original post.