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Amid a confluence of macroeconomic factors, such as the rise of sustainable investing and a shift toward stakeholder capitalism, companies are facing increasing demands to gather and report environmental, social and governance (ESG) data. The demand for transparent ESG data reporting has swelled to such a point that expectations for verification and assurance of ESG data are nearing those of financial reporting, prompting many organizations to align existing processes and responsibilities for ESG reporting with those of their financial reporting functions.
As ESG data disclosure is becoming increasingly important, global regulators are working to standardize ESG disclosures, with the U.S. Securities and Exchange Commission proposing climate-related disclosure rules and the European Union finalizing the Corporate Sustainability Reporting Directive. However, it is a rapidly evolving landscape. In the meantime, given the range of ESG frameworks and ratings agencies, companies have a vast swath of data that needs to be collected, analyzed and distributed to various stakeholders, making it imperative that companies find a long-term partner for ESG data management and disclosure.
To help companies navigate this complex landscape, Nasdaq has identified four steps that companies can take to ensure they work with the most suitable ESG partner in a busy marketplace.
Select a vendor built for ESG
As the ESG and sustainability reporting landscape continues to evolve, selecting a vendor specializing in ESG reporting is critical, reducing the burden of tracking and staying up to date on any reporting changes. The vendor should demonstrate a commitment to long-term support, maintenance and update of changing reporting frameworks and standards, such as Task Force on Climate-related Financial Disclosures (TCFD), Sustainable Accounting Standards Board (SASB), International Sustainability Standards Board (ISSB) and European Union reporting requirements. With such a variety of frameworks and standards in use today, staying ahead of the changes is a challenging task and, ultimately, not practical for an internal ESG team. The vendor should also be able to translate and provide guidance for impactful rating and ranking questionnaires, including MSCI, Sustainalytics and the Corporate Sustainability Assessment for potential inclusion in the Dow Jones Sustainability Indices.
Beyond selecting a vendor with these capabilities, it is critical that the vendor can meet the needs of all stakeholders across your organization, such as investors, employees, suppliers and the local communities where business is conducted. Effective ESG technology streamlines both financial reporting and sustainability and selecting a platform that meets the needs of stakeholders across your organization – one with end-to-end ESG data gathering, management, audit and disclosure functionalities – will encourage effective adoption and deployment across the many teams that contribute to ESG disclosures.
Audit-ready your disclosures
As global regulators explore ways to standardize ESG data reporting and disclosure, companies must prepare for potential changes in regulatory requirements by ensuring they have the proper technology capabilities in place today. When determining which technology provider to partner with, companies should verify that the vendor has workflow functions that enable internal edit, review and approval, as well as the facilitation of both internal and external audit for access and review of data. The ESG reporting technology should also be able to provide activity logs showing when updates were made and showcase references that will allow auditors to seamlessly track the company’s audit trail. Furthermore, the technology provider should be able to offer a year-over-year rollover of the company’s data, making it easy to compare what’s changed in the data and indicate any changes in reporting requirements.
Automate as much as possible
Considering the different frameworks and standards for ESG reporting, bringing as many data gathering and certification processes into a centralized system will help the company reduce the risk of manual error and ensure complete, accurate data is collected in a timely manner. So, when a company looks to partner with an ESG data management and disclosure vendor, the company must evaluate whether the vendor can support the many venues in which the company reports ESG information. ESG reporting in regulatory filings, such as the 10-K, is top of mind, but oftentimes, the company is leveraging ESG data across request-for-proposal responses, marketing materials, communications, recruitment and questionnaires. By securing a partner that focuses on the full ESG landscape, companies can mitigate the risk of divergent data sets.
Furthermore, because site-level data collection remains a key source for environmental ESG data, the partner needs to be able to pull source data, such as energy usage from utility bills via API, or bulk upload and translate it into reporting-ready emissions data. Additionally, the vendor’s technology solution should support both a data warehouse to streamline the efforts of the company and link data requests so the company can quickly identify commonalities across reports and ensure the consistency of the organization’s data and messaging. This will be essential for the company’s subject matter experts, minimizing administrative and duplicative work.
Secure a dedicated customer support team
With the continuing evolution of ESG reporting, having an external team to support the company is essential in meeting the demands of stakeholders. The ESG data management and disclosure provider should be able to provide direct assistance on ESG-related topics, including recent changes to reporting requirements and visibility into pending reporting deadlines, and have industry knowledge built into the platform. The provider's team should also receive regular training and development on ESG trends and reporting frameworks.
Beyond that, the company should work to ensure that the team of ESG experts can stay with the company throughout the duration of the partnership. This will ensure that knowledge shared during the introductory phase of the implementation is carried through to the ongoing use of the platform, allowing the vendor to truly understand and support the company's unique business needs.
While the ESG reporting landscape continues to adapt to meet the needs of stakeholders and regulators, companies should take the time now to begin implementing the same data integrity, audit and assurance capabilities for ESG reporting that they leverage for external financial reporting. Even though there are differences between financial and ESG reporting, establishing a long-term commitment from an ESG data management and disclosure provider to invest in the expertise and tools that will enable companies to stay ahead of the curve.
To find out how Nasdaq can help, connect with one of our ESG experts.