Navigating the labyrinth: The complexity of ESG data collection

September 23, 2024 | 4 minute read
Wayne Heather
EPM Product Marketing Director, Oracle
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In today's business landscape, Environmental, Social, and Governance (ESG) considerations have moved from peripheral concerns to central factors in strategic decision-making. Organizations are now constantly being asked about their sustainability credentials by new customers, investors, and business partners. Consumers are willing to pay more money for more sustainable brands, and sustainability credentials can even impact the cost of capital. Now add in the ever-growing landscape of ESG reporting mandates being implemented globally, companies are faced with complex reporting requirements.

The path to effective ESG reporting is fraught with challenges, with many organizations having to report in multiple frameworks across different geographies. This means a variety KPIs required by various jurisdictional regulations, reporting in different timeframes and at different levels of granularity, and this creates a huge data challenge.

The ESG data collection challenge:

Now let’s take a look at some of the data and challenges. ESG data comes from a variety of internal systems across HR, finance, supply chain, manufacturing and more. Now add in Scope 3 emissions which represents the indirect emissions that occur in a company’s value chain, both upstream and downstream. These are often the most significant source of a company's carbon footprint but are also the hardest to measure. The complexity of gathering all of the data required for ESG reporting arises from several factors:

  • Diverse Data Sources: The required data is scattered across various systems. This variety requires companies to gather data from a multitude of sources, which are often disconnected. This could be data from supply chain systems, IoT data, labor, and HR data etc. and also data from suppliers of which they do not directly control. This data is from various stages of the value chain, from the procurement of raw materials to the end-of-life treatment of sold products. You can only imagine what a task it must be to make sure you have collected all of the data. How do you manage and track the process? How do you verify the data is correct?
  • Different units of measure: Not only does data come from various sources, it also comes in many forms. Most data will require preparation and transformation before it can be used to calculate impact metrics. Take, for example, for energy consumption, some companies will use KW, some will use KJ. Therefore, companies will need a solution that does unit of measure translations. You will need a way of transforming and standardizing this data to report your ESG metrics uniformly across your business.
  • Lack of Standardization: Unlike financial data, ESG data often lacks standardization. Different suppliers might have diverse methods for data collection and reporting, leading to inconsistencies and difficulties in aggregating data. The data will need to be validated, sometimes transformed, and then aggregated so all KPIs comply with a set standards for different reporting requirements.
  • Accountability: Companies must often rely on third-party data to calculate their emissions, which can be incomplete or of uncertain accuracy. This reliance makes it challenging to get a true picture of the emissions footprint. Being able to manage the data collection process and track accountability and compliance is challenging. Having a full process where people approve and submit the data through a workflow enables full transparency to the source of the data.
  • Advanced Analytics Requirements: Interpreting and utilizing ESG data effectively requires advanced analytics capabilities. Companies need sophisticated tools to collect, process and make sense of the vast amount of data and then the ability to analyze, track ESG performance and report in multiple formats. It is also key to be able to create an operational and financial plan to reach your ESG targets and AI driven insights will alert you when you miss goals so you can quickly take corrective action.
  • Audit requirements: A major challenge facing business leaders is the attestation, audit, and assurance of their public disclosures. What is even more, stakeholders are expecting organizations to change from limited to reasonable assurance. Companies will benefit from a comprehensive audit trail of changes, that traces the data back to where it originated.

Overcoming the challenges:

Despite these hurdles, it is crucial for companies to accurately measure and manage their ESG data. Here are some strategies that can help:

  • Building Strong Supplier Relationships: Encouraging suppliers to adopt standardized reporting can improve data quality. Collaborating closely with suppliers ensures more transparency and consistency in data.
  • Investing in Technology: Leveraging in a platform that can help you collect, transform, convert, aggregate, plan and report on this detail of data is key. Look to adopt a platform with a proven record of achieving this already. Oracle Cloud EPM has been doing this for years by helping many companies comply and report with finance regulations. That is why finance is well poised to be in the driver’s seat for helping companies with their ESG reporting responsibilities. ESG follows a similar lifecycle to complying to financial regulations, the difference being the data has an ESG lens on it, not financial.

So, while the journey to effective ESG data collection is complex, it is the most critical component of comprehensive ESG reporting. By investing in relationships, the right technology, and collaborative efforts, companies can navigate this labyrinth, ensuring they not only report on but also effectively manage their environmental impact. In fact, there are even upsides with 43% of people responding to a recent KPMG survey saying that getting a handle on their ESG data can help identify areas of business opportunity and growth.

In the next blog titled "Aligning sustainability with strategy: Oracle Cloud EPM for Sustainability," we will discuss how Oracle Cloud EPM offers proven platform for ESG planning and reporting and can help organizations align their ESG goals with company strategy.

Wayne Heather

EPM Product Marketing Director, Oracle


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