Navigating the ESG data jungle: how software solutions make the path easier

With the start of application of the European Sustainability Reporting Standards (ESRS) at the latest, reporting companies are faced with major challenges in collecting ESG data in view of the large number of data points to be disclosed. At the same time, more and more providers of ESG software solutions, whose digital tools promise more targeted and efficient sustainability reporting, are currently establishing themselves on the market. In the following article, we outline what particular challenges ESRS-compliant sustainability reporting entails and to what extent software solutions can help here. 

In the run-up to reporting, the ESRS stipulate that companies must first identify their material impacts, opportunities, and risks through a materiality assessment. Conducting a robust materiality assessment is a time-consuming and resource-intensive process that should not be underestimated. Based on the results of the materiality assessment, only the quantitative and qualitative data points classified as material are then derived from the standards and integrated into the reporting. In general, the scope of the information to be reported under the new regulations is unlikely to be comparable with previous reporting on sustainability matters. The effort involved in setting up new data collection processes or revising existing ones is correspondingly high. 

A major hurdle here is generally the availability and completeness of the data. In particular, the consideration of the entire value chain required in the ESRS and the high granularity of the data points result in numerous requirements that most companies have probably hardly dealt with to date. For example, if the respective topics have been identified as material, detailed information on biodiversity and ecosystems or water and marine resources must be disclosed. Internationally active companies with a large number of subsidiaries in particular have so far often resorted to the option of excluding individual companies or entire regions from the scope of sustainability reporting. This is no longer possible under the new legislation. In addition, when collecting environmental, social and governance indicators, companies face the challenge that the data – unlike financial reports, which are typically the responsibility of accounting or controlling – must be compiled by different departments. For example, data on employees is requested from the HR department, facility management is consulted for energy data and central compliance management is responsible for obtaining data on corruption. Complex corporate structures and a high degree of decentralization further complicate the coordination of data collection. 

A fundamental requirement for sustainability data continues to be its auditability. In future, companies in the scope of the CSRD will be obliged to have the content of their sustainability report audited. As part of this, the auditor will request evidence of statements made and key metrics disclosed in the sustainability report. In the case of energy data, for example, this may involve invoices from the electricity provider, while HR data can often be taken directly from the HR management system. The linking of data points with the corresponding evidence should therefore be integrated directly into the data collection process in order to ensure the most efficient and smooth audit process possible.

 

In view of the challenges mentioned above, it is hardly surprising that more and more providers are currently positioning themselves on the market with ESG tools designed to support companies in the complex task of data collection. A fundamental distinction must be made here between providers that have developed a special ESG extension for existing financial reporting solutions and those that focus solely on sustainability reporting. The scope of services differs from provider to provider and ranges from calculating the carbon footprint to complete reporting. The benefits of implementing a software solution for ESG data management can include the following: 

1. Centralized data platform 

ESG software solutions offer a standardized platform on which all relevant data on ESG aspects (possibly also on other legal requirements, e.g. EU taxonomy or LkSG) can be recorded centrally. This considerably simplifies data management and access to information compared to manual data collection, which often involves the use of numerous different templates and document types as well as different storage locations. Many tools also make it possible to replicate the corporate structure and thus record the data for subsidiaries separately, which is then automatically consolidated by the tool for the report. 

2. Automated data collection through interfaces 

Many ESG software solutions offer the option of interface integration. Here, other source systems (e.g. ERP, personnel management software, etc.) of the company are connected to the ESG software, relevant data is extracted and integrated directly into the ESG platform. This minimizes manual effort while ensuring that the data is accurate and up-to-date. The interface integration is usually based on the individual needs of the company in coordination with the software provider. 

3. Standardized and complete recording 

If the reporting framework (e.g. ESRS, GRI, etc.) is directly integrated into the software, the software ensures the completeness of the data included in the reporting and facilitates the uniformity of data collection across all subsidiaries. The required units of measurement for the key figures (e.g. MWh, kg, €) and relevant application requirements are often displayed directly in the respective input field, which minimizes research effort and increases the consistency, accuracy and comparability of the data. 

4. Project management 

Most ESG software solutions include various functions that can significantly facilitate project management in the course of preparing the sustainability report. For example, different responsibilities can be assigned, data requirements allocated and deadlines set, including automatic reminders. Those responsible from different locations, departments and subsidiaries can work together in the platform in real time and be informed collectively or individually about outstanding data points, requests for adjustments or verification require­ments. 

5. Improving Auditability 

Even if most of the tools currently available on the market are not yet fully audit ready, they are often already able to significantly improve the auditability of the sustainability report. For example, many solutions already offer a function for uploading evidence (e.g. invoices, certificates, photos, etc.) so that the source of the respective data point can be traced directly both for the company's internal reporting coordinator and for the auditor. Furthermore, an audit-capable tool contains an audit trail function that documents the change history for each individual data point completely and transparently. Some ESG software solutions also include automated validation mechanisms that ensure that the recorded data meets the specified standards (e.g. correct data format) and is plausible. These functions all help to minimize the manual effort required to collect evidence and coherently document the origin of individual data points. In terms of content verification, this is accompanied by a significant gain in efficiency and transparency. 

 

In principle, the selection of a suitable software solution is heavily dependent on the individual needs and priorities of the company. Prior to the actual selection, it is therefore advisable to draw up a specification sheet in which the specific requirements for a software solution are defined. These requirements may include certain functionalities, data protection aspects, language options or options for integrating specific interfaces. Furthermore, it should be determined which regulatory requirements or frameworks the tool should cover (e.g. CSRD/ESRS, EU taxonomy, LkSG, CO2 accounting according to the GHG Protocol, etc.). In addition, aspects such as user-friendliness, flexibility, scalability, data visualization options, pricing models and support services should be taken into account. Based on the specifications, an initial selection of possible software providers is made, with whom a demo appointment can be arranged to clarify specific questions and to get a first impression of the tool. After a thorough evaluation of the available options based on the specifications, a selection can be made that meets the individual requirements and offers added value in the long term. 

 

Due to the large amount of data that CSRD users will have to disclose in the future, most companies will have no choice but to implement a reliable ESG software solution. Such a software solution offers companies an efficient, structured and scalable way of collecting and managing ESG data both at group level and in individual subsidiaries. Compared to manual data collection, the software enables the (partially) automated collection, consolidation and analysis of ESG data through the integration of suitable interfaces, which results in considerable savings in terms of time and therefore monetary resources. The software can also help to minimize data errors and inconsistencies and ensure that the data is reliable, up-to-date and complete by using project management functions, among other things. Even if many software solutions are not yet able to fully cover all desired functions due to the dynamic development of regulations, it is worthwhile for companies to start looking for suitable providers now. Ideally, the implementation should be completed by the time the data for the CSRD-compliant sustainability report has to be collected for the first time.