by Agnieszka Bąk
We invite you to a series of articles about ESG data reporting. The first chapter is about innovations. Read about how to use innovative solutions to prepare proper ESG reports according to the Corporate Sustainability Reporting Directive which is now in force for EU countries.
ESG Reporting wave slowly reaches businesses all around Europe. The new CSRD Directive step by step will cover companies from the top market players to the middle and small ones. As usual with new trends and regulations, there is a shift towards optimization of the processes which could be supported by innovations and new technologies.
It is not so far with the ESG reporting area where there is a need to use analytical tools and IT solutions to allow proper data collection. But the reason is not just because of compliance obligations. ESG reporting is a wider change in operational performance – especially from the data management perspective. Where proper data management starts it is a good point to rethink targets and plans and refresh maintained previous strategies.
Corporate Sustainability Reporting Directive (CSRD)
On December 16 2022 the new CSRD – Corporate Sustainability Reporting Directive – has been published in the Official Journal of the European Union. Now the Member States have 18 months to incorporate the subject document into the local legislation. “There is no public or private strategy without quality data. Otherwise, we are in storytelling”, said a few weeks ago the Chair of the EFRAG Sustainability Reporting Board Patrick de Cambourg. Also, The World Economic Forum has identified the problem of data organization as a major challenge for ESG reporting.
CSRD provides ESR reporting frameworks and requires companies to report their ESG indicators divided into three pillars:
- Environmental e.g. greenhouse gas emissions or energy consumption
- Social e.g. employment structure, access to healthcare, work-life balance
- Governance e.g. anti-corruption policies
A particular challenge is the GHG reporting of emissions from Scope 3. It covers a wide range of company activities, hence the difficulties in obtaining data needed for calculations. Especially categories 1,2 and 15 from that area require specific data modeling not just from their operations but also the suppliers.
The detailed measures and KPI’s precise ESRS – European Sustainability Reporting Standards, which the EU will publish as a delegated act in 2023. Finally, ESRS will be treated as the one and only ESG Reporting standard. As a result, the market needs comprehensive solutions in the field of collecting and integrating non-financial data, and ESG reports preparation using the right technology.
The 2025 reporting obligation will be based on 2024 data. Although these dates seem a long way off, companies need to get ready for the implementation of the CSRD and start collecting data now. Especially since many first-time reporters will begin with no experience, expertise, or knowledge of how to do ESG reporting.
How does ESG reporting use innovation solutions?
Firstly it should be stressed that reporting on its own isn’t a creative or innovative process. It is all about collecting the proper data from the proper entities and modeling the data in the right way. Then place the data in the KPIs and indicators format and you are ready with the ESG Report. Sounds easy and simple. But, for large companies, it is the main challenge according to regulatory changes in the coming years. Low-quality data in distributed databases as well as the lack of data is the key problem faced by IT and Sustainability Departments that are preparing for mandatory reporting under the CSRD Directive.
What technology is used in ESG reporting?
The possible innovations are very close to that of those used in the IT or logistics business. On top of that seems to be digitalization and automatization of the collected data. For example digitalization through AI solutions is used in the food management industry where technology cameras under the waste bin track, learn, and then send to the system the fraction, quantities, and weight of the wasted food. Also well-known are RFID sensors – Radio-Frequency Identification – which is a good way to track the waste bins and their fulfillment.
The facility management market needs IoT (Internet of Things) solutions matched with telemetric sensors. It provides real-time data from all utilities which is crucial from the monitoring and overconsumption perspective as well as from the deeper analysis of human behavior in the office.
How can technology help with gathering data?
Innovative IT technologies can be helpful almost in all main business sectors like retail or FMCG. Whenever in the process there is difficulty in gathering the necessary data. Thanks to advances in IoT and AI, you can get information that is not possible to obtain traditionally.
In IoT technology, the system of interconnected devices allows you to monitor, for example, energy consumption in intelligent buildings, thanks to which they can be more flexible and respond to the real needs of users. This is important not only for reporting but also for achieving ESG goals. IoT is also useful in collecting data on the carbon footprint throughout the supply chain, so you can achieve more accurate GHG emission results.
Due to the specificity of ESG data, which is qualitative rather than quantitative, its assessment may turn out to be very subjective. The use of unstructured data, and especially its purification, is a time-consuming and costly process. AI can help solve this problem, especially through sentiment analysis algorithms, natural language processing (NLP), and machine learning. With these tools, you can analyze huge amounts of data and get key information without unnecessary background.
If you want to deep dive into our ESG solutions or just need help understanding the ESG impact on your business and how the above tools could be adjusted to your demands do not hesitate to contact our ESG team at ESG@cloudsonmars.com