| Efficient IT solutions will be key to meet future ESG disclosure and reporting requirements of investee companies. The ESG software market is developing fast but full integration of sustainability data with financial data will take a few more years alongside the implementation of CSRD. IT solutions need to be adaptable to new regulation and customer needs. Management will expect ESG data on decision-dashboard level.
Asset owners, asset managers and financial advisers are eagerly awaiting all those ESG datapoints from investee companies to arrive soon.
This includes not only information on various taxonomies, SFDR, SDR, principle adverse impacts, DNSH but also information-related to specific sustainability tax regimes globally, for example.
Plastic taxes as one of many global challenges
The EU’s plastic tax regime was one of the important initiatives as part of the Green Deal with the objective to reduce consumption of raw materials and waste.
Companies with production facilities in different countries will have to track, aggregate and report on production and consumption of plastic worldwide. Enterprise software systems will have to cope with that and also provide the relevant sustainability information to operations, management and investors.
In the past subsidiaries in the respective countries might have handled local tax reporting and payments. Today operational data and financial data need to be reported to head office and managed on a group-wide basis. The need to introduce efficient software tools to manage this process is clear.
CSRD and Timing
It represents a major challenge to asset owners, asset managers and financial advisers that most investee companies in Europe will provide solid ESG datapoints (verified and assured) alongside the implementation of CSRD only in 2024 with the first reports to be expected in early 2025. A lot of smaller companies will provide reports in 2026 and 2027.
While companies gear up their efforts to source and locate the relevant data financial advisers are already obliged to obtain retail clients’ sustainability preferences and their views on how to invest. The lack of ESG data from investee companies and new terminology creates the risk of not matching investor expectations when deciding which products to offer.
How companies select ESG IT tools
Companies need to evaluate the existing IT and data infrastructure first and map operational and financial data with regulatory and sustainability reporting frameworks.
Companies need an integrated process of data collection, data quality control and aggregation along the whole value chain.
Companies need to understand what the current IT infrastructure provides and where the major gaps are. A company working with SAP might have access to data on the operational side which are relevant for existing business processes. What will be needed to provide the data for EU taxonomy alignment, SFDR and PAIs?
Data are to be generated at the source. IoT (Internet of Things) and machine learning can provide efficiency. Data needs to be verified and audit trails as well as logs are required. Excel is on the way out. Connectivitiy, data interfaces and APIs are key components. Collaborative working of different departments as well as external resources is today’s reality.
Companies need to decide which tools will be developed internally and which external tools will be used.
The selection decision will also be based on software update cycles, connectivitiy with other systems and the pricing structure and model.
Sector specific solutions are available on the market. The most widely used sustainability reporting standard is GRI.
For many companies it all starts with CO2 emissions tracking and management. Salesforce users might come across the Net Zero Cloud, others might work with SAP S/4HANA, Tagetik or Workiva which represents a well integrated platform providing useful tools to create sustainability reports directly on the platform.
ESG Data Dashboards for Management
Due to regulatory pressure ESG disclosure and reporting requirements are often seen as being an additional burden in a challenging market environment with inflation, geo-political tensions, wars and a global energy and food crisis. But ESG data also provide valuable information for management to improve operations, employee relationships and the future viability of the company.
It can be expected that management will demand ESG data transparency across all business units presented on management dashboards – continously updated.
Some data points might only change once or twice a year and some others might change in real-time. A philosophy of continuous improvement very much supports sustainability efforts on a company level and creates engagement opportunities for staff and stakeholders.
Procurement, capex, disposals and any major business decision in the future will be based on operational, financial and sustainability data in combination.
The procurement manager will require ESG data, ratings, certifications (EcoVadis and others) in combination with traditional data obtained in the past on the decision dashboard.
How many different software tools companies will be using very much depends on the sector the company is active in, the complexity of the operations, the geographic locations of business units, the structure of the value chain and the customer base. The implementation of new ESG software tools might also represent an opportunity to phase out old legacy systems and upgrade the overall IT infrastructure, move to cloud-based solutions and digital platforms.
| All opinions expressed are those of the author and/or quoted sources. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.
