5 ESG Reporting Challenges (And How to Overcome Them)
ESG reporting comes with a host of challenges.
Some people say it’s completely different from anything they’ve ever done before, and they feel unsure of where to start.
On the other hand, others still believe it’s more or less the same as sustainability reporting and even use the terms “ESG” and “sustainability” interchangeably.
So before we even uncover the challenges of ESG reporting and what to do about them, let’s define ESG reporting.
What is ESG reporting?
ESG reporting is the process of collecting data about a company’s environmental, social, and governance performance and presenting the information in an organized format that is usually aligned with an ESG reporting framework.
That’s a mouthful, so let’s break it down some more. In short, ESG reporting involves:
- Choosing an ESG reporting framework to report against
- Identifying relevant (or “material”) environmental, social, and governance goals, metrics, and KPIs
- Collecting operational data
- Cleaning and compiling the data into an organized format for a specific audience and purpose
The challenges of ESG reporting
Now that we have a definition of ESG reporting, what are the most common challenges people face when it comes to ESG reporting?
Perhaps the biggest problem you’ll hear sustainability professionals bemoan is their Excel spreadsheets. That’s because many businesses are still relying on spreadsheets to track ESG data, perform calculations, and create reports.
The problem? Spreadsheets have a lot of drawbacks, such as manual data entry errors, broken links between workbooks, inability to collaborate efficiently, and a lack of data security. What’s more, the spreadsheets used to manage ESG data are usually developed by a single person, with formulas and functions that only that person understands. Obviously this is not good for business continuity if your resident “Excel expert” decides to leave or retire.
2. Data quality
In addition to making data collection harder than it needs to be, spreadsheets make QA/QC less efficient. Distributed, manual systems are difficult to QA/QA, and doing so involves multiple steps of data entry and review. This means that, in order to do any kind of reporting — including ESG reporting — you have to handle the same data several different times. Obviously, this is not the best use of your team’s time.
However, maintaining quality standards for your data is absolutely essential to your business. Investors and other stakeholders who read your ESG reports expect the information contained in them to be accurate. Inaccurate data can be a liability for your company — especially with the rise of mandatory reporting requirements like the E.U. Corporate Sustainability Reporting Directive (CSRD) and the U.S. Securities and Exchange Commission’s (SEC) climate disclosure rules.
3. The disconnect between incidents, assessments, and tasks
Incidents, assessments, and tasks are all examples of operational data that roll up into ESG reporting.
Even if these individual efforts are well-organized, they are often happening independent of each other. These disconnected efforts result in messy data, accountability issues, and overall inefficiency.
The main reason this happens is that companies are using a combination of spreadsheets, “homegrown” databases, and single-point software solutions. Instead of being stored in a centralized location, data is distributed across multiple different systems.
When information is spread out in this way, you don’t have a complete picture of your ESG performance. Some types of data like incidents are tracked in both spreadsheets and databases, which forces you to duplicate effort entering the data into multiple different systems and also increases the chances of making an error. Furthermore, your ability to track tasks across teams or the organization as a whole is limited. This increases the chances of a task being forgotten or a deadline being missed.
4. Defining your ESG metrics and KPIs
Determining which metrics you should be tracking is always hard, since it's common for companies to want to collect data on anything that can be counted and not all of this data is relevant or even usable. This becomes even more difficult with ESG reporting because of the large number of reporting frameworks to choose from. Each framework has its own views on what data and metrics matter most.
There are two sides to this challenge: protecting value (reducing risk) and creating value (capturing opportunities). To start, you can look at which ESG issues others in your industry are reporting on. For example, the Sustainability Accounting Standards Board (SASB) has developed materiality maps that identify and compare disclosure topics across different industries.
You can also talk to your stakeholders to understand which issues are most important to them. For instance, you might conduct surveys or hold roundtable conversations with customers and investors.
From there, it’s a matter of matching up the issues with specific metrics and KPIs — many of which you may already be tracking — that can be used for the purposes of reporting.
5. Engaging frontline workers in data collection
Another challenge you will likely encounter is how to engage your frontline workers in collecting data. Effective ESG reporting is more than just top-down reporting. It’s important to involve all employees at all levels of the organization, every day.
However, many organizations find it challenging to get frontline workers involved in data collection. For instance, what types of data should you be collecting from frontline workers? And how will they actually collect the data and get it into the hands of managers?
That last challenge is easier today with the widespread use of mobile phones and apps that enable data collection. However, many organizations lack a mobile solution. Even if they have one, it’s usually designed for EHS professionals who use it every day — not for the average shop floor worker. The result is that it’s not intuitive for field users to submit incident reports, risk observations, and near misses.
Overcoming ESG reporting challenges
There are always going to be ESG reporting challenges. So how can you overcome them to demonstrate your business’ values, build trust with investors, and earn customer loyalty?
The best way, as many companies have found, is to replace your spreadsheets and homegrown databases with a centralized EHS management system. These systems collect, organize, and manage all your ESG data in one place for greater efficiency and accountability.
Integrated EHS management systems like Perillon streamline time-consuming tasks like QA/QC and compiling data for ESG reporting. All your incidents, assessments, and tasks live under one roof. And, by integrating with your existing systems (such as your ERP), you can easily share data within the platform for a complete and accurate view of your ESG performance.
Involving employees at all levels of the organization in data collection is critical to your ESG success. Perillon makes this simple because the platform is intuitive and mobile-friendly. This means it can be used not only by EHS and sustainability professionals, but also by first-level supervisors and frontline workers. Anyone in your company can easily complete an inspection, fill out a risk assessment, or report an incident/near miss — giving you greater visibility into what’s happening across your business.
The best systems can easily be configured to your existing workflows. You can create your own assessment templates, reports, and dashboard views with the metrics that matter most to you — without having to wait for IT or pay for expensive custom services.
Now that you understand how an integrated EHS software system can help you overcome the most common ESG reporting challenges, here’s how to select the right system for your organization and start delivering ESG performance.