Sustainability professionals are calling for new process-specific technology to make environmental reporting simpler. Current systems are failing to keep pace with changing compliance demands and the lack of dedicated full-spectrum reporting tech is adding to the complexity that many companies face.
Technology is essential for compiling and collaborating on environmental data, validating data for accuracy and mapping disclosures to regulations and framework standards. Still, current solutions must catch up to rapidly evolving compliance issues and increasing volumes of data.
In a recent survey of global businesses, 51 per cent said individual departments within their organisation did not have the tools necessary to provide data for ESG reporting. In addition, one in five said their organisation did not employ technology suitable for managing ESG reporting processes and net zero initiatives. Thirty-two per cent said they do not fully understand what technology is available or needed.
Only four in ten UK respondents said their organisation uses technology and data well to make decisions on advancing ESG strategy, compared to 65 per cent in the USA. The survey by Workiva highlights the urgent need to improve the efficiencies and performance of data and technology used in ESG reporting.
“Business and industry needs technology to provide clear and accurate data, but the major issue that companies face is that they don’t have the right tools in place,” Mandi McReynolds, head of ESG at Workiva, says. “We need technology innovations to meet the many, and growing, data demands. We need an end-to-end solution that pulls together all the disparate sources of ESG data. With environmental reporting, for example, your scope 3 emissions could come from multiple data sources that you need to capture, measure, and analyse to define emissions within a wider footprint. There is an urgent need for tech that brings it all into one place.”
Standards complexity demands simplified solutions
New solutions are needed to cope with the vast array of environmental frameworks, and standards companies must navigate to establish targets and report on, suggests Ann Marie Taylor, director of regulatory compliance and investigations at DWF Law.
“There are over 450 worldwide certifiers and accreditations, 200 in Europe alone, and there is little standardisation,” she explains. “Existing reporting systems can be problematic because they too often rely on generalised criteria. Companies use third-party reporting with generic data and datasets not tailored to the individual company, its products, circumstances or operations. It does not add up because the data was never intended to be used that way. There should be a standard set of claims you can make based on criteria you have to meet.”
Technology solutions addressing such complexity would go a long way to simplifying reporting and encourage more companies’ efforts to tackle climate change, McReynolds believes. “An essential tool needed by companies is the ability to tag ESG data in different ways for different uses,” she continues. “Data needs to be aligned with other reporting disclosures to go out to stakeholders such as customers, partners, investors or public disclosure. Therefore, data tagging is going to become a significant element in reporting.
“As Scope 3 data accuracy is dependent upon other people, companies need dedicated technology to help in their reporting. Footnoting will become important in defining your reporting and demonstrating where you are in the journey and net zero processes.”
Environmental reporting moving from spreadsheets to AI
For many years, a lack of dedicated technology has forced companies to create their own reporting systems and processes that, being mainly paper-based, fail to meet changing reporting and business demands.
“The major issue today is that the systems many companies are using to track their footprint are mostly stapled together with spreadsheets, or they are a custom-built solution that somebody in the company has hacked together,” Mauro Cozzi, CEO of EmitWise, says. “It is by no means a criticism as companies are only doing that because there has not been the right technology available to meet their needs.
“We do not see companies adopting a robust third-party technology solution, the same as an accounting system, that has been third-party audited for trust to create a transparent audit trail. We have yet to see a dedicated robust system that allows corporations and SMEs to report on their carbon footprint. There is no doubt whatsoever it will need to happen. We still see too many companies running on paper reporting, and that is not good enough for boards and investors who demand more than to know their business is being held to account just on a spreadsheet.”
Technology innovation to aid reporting
New regulations driving the transition to net zero are a challenge for most industries, but a commercial opportunity for others, fuelling the growth of technology innovation as vendors develop new solutions to address the practical needs of companies faced with rapidly evolving compliance issues.
“New solutions are needed for predictive analytics, scenario testing and automation so data can be used to help drive decisions forward,” McReynolds urges. “Companies need to model and forecast many years not just for operational reasons but to see the impact on their carbon footprints. Technology which enables seamless integration between teams in one centralised platform will be key to streamlining the reporting process and delivering transparent reports that meet evolving demands.”
Technology is rising to meet the challenge with action on climate change and aids to ESG reporting driven by a range of new solutions such as IoT and space-based environmental monitoring, artificial intelligence (AI) and machine learning that can provide practical solutions and enable greater accuracy in reporting.
Data analysis enabled by AI can aid industry’s requirement to report environmental impact, predict long-term climate trends and identify solutions. AI-driven data analysis enables a systematic approach to gathering and presenting data to pinpoint climate risks, quantify impacts, identify priorities and allow the adaptation to climate change. In addition, it can provide critical information to understand the cost of inaction and the socio-economic returns on ESG investments.
Data-fed machine learning offers the potential to reduce carbonequivalent impact by streamlining the supply chain, optimising heating and cooling systems and prioritising clean electricity over fossil fuels.
Industry 4.0 aims to help meet legally binding net zero emissions targets with the reduction of carbon emissions in manufacturing driven by the digital transformation of practices focusing on interconnectivity, automation, blockchain and realtime data. Transformative technologies have the potential to impact energy efficiency, consumption and demand, inventory management and operational controls such as lighting and cooling.
Bespoke solutions are still required
Technology advances may promise practical solutions to climate change and a simplified future of ESG reporting. However, companies still face challenges in sourcing a ‘one-stop’ solution to reporting and compliance.
B-Corp-certified green retailer, the Bower Collective, worked with a team from Oxford University to build its ESG data model so it could demonstrate the amount of waste saved through its reusable packaging system. “There was no off-the-shelf solution available,” says Nick Torday, CEO of Bower Collective, “so we’ve had to do a lot of it ourselves, some with B-Corp and some with third-party partners. Our proprietary data is fed into a web-based dashboard so the company, its suppliers, and customers can see the carbon footprint of products and how much waste they’ve saved through their orders.”
Dr Warren Bowden, head of sustainability and innovation at the Scottish Leather Group and Muirhead, reflects the experience of many that have had to create their bespoke tech systems or customise existing platforms to meet their reporting needs. “When we began to create our low carbon manufacturing process in the early 2000s, there was no ‘how-to’ textbook and no ready-made tech solutions that provided us with the tools we needed.
“We had to design our process, create programmes, integrate existing technologies and write the software to drive our operations and ESG reporting. It was all done by gaining knowledge as we went along. We have spent millions of pounds developing the plant, and it is still not perfect, so we keep evolving. Learning and developing new skills is an important and valuable part of the sustainable journey.”
Regulations due to come into force, such as the US Securities and Exchange Commission’s new disclosure rules, the International Sustainability Standards Board’s disclosure standards and updates to GRI standards, aim to bring a level of standardisation to reporting. The EU’s CSRD has been delayed until 2024, partly to develop a greater harmonisation of standards and clarity of reporting.
It will take time to align major global reporting frameworks and standards. Still, current trends suggest a centre of gravity is emerging that will enable tech companies to produce the dedicated solutions needed to simplify environmental reporting and compliance.
“Everyone needs to recognise that we are in transition, and it is going to take time to develop the technology and processes needed to build data confidence,” says McReynolds, “but it will only happen if we invest in progress.”