Boosting your ESG performance reporting

Environmental, Social and Governance — known as ESG — has become a top priority for organisations worldwide, including Australia. All stakeholders, from customers to staff, regulators, shareholders and investors, are demanding that companies contribute positively to society, treat their workers fairly and care for the environment.

ESG has been on the business radar for many years and provides a qualitative measurement of a business’s impact on society and its stakeholders. On the other hand, ESG is a way to quantifiably measure a company’s impact on society and the environment, using metrics that deliver long-term stakeholder value. In a manufacturing business, measuring ESG standards comes down to tracking internal and external environmental, social and corporate governance standards.

But it goes beyond that. ESG has become a determining factor in access to capital and in the decisions made by consumers and B2B customers. This is underpinned by a Bloomberg report, which indicates that global ESG assets are on track to exceed US$53 trillion by 2025, representing more than one-third of the US$140.5 trillion in projected assets under management.

So, it’s not surprising that leaders are taking ESG seriously. EY’s 2022 CEO Outlook indicates that 97% of CEOs say their company has a sustainability strategy. What’s more, 28% believe they will gain valuable competitive advantage by becoming leaders in sustainability.

However, before CIOs, CFOs and boards consider technology investment, they should be fully aware of the growing role of ESG in reporting and in boosting corporate performance. As corporate strategy rapidly incorporates ESG, digital strategies must align accordingly.

For example, a manufacturing company may commit to improvements in water usage in production processes, carbon emissions, the proportion of its products that are recyclable, and wages and working conditions of employees and contractors. Without a technology strategy that supports the collection of high-quality data along the entire value chain, companies will not be able to report data or demonstrate progress against these commitments.

ESG in the supply chain

Speaking of the value chain, supply chain sustainability shifts the focus from short-term financial considerations to long-term value creation as well as managing the ESG performance of suppliers. By taking these factors into account, sustainable supply chain management not only benefits the environment but also reduces risks, mitigates impacts and realises reputational and financial benefits such as cost savings, brand goodwill and customer loyalty.

Companies with strong ESG performance typically have robust governance frameworks, manage social and environmental risks well and have stronger relationships with suppliers. Prioritising supply chain sustainability can reduce general risks for corporations, including minimising operational disruptions caused by environmental and regulatory risks as well as reducing reputational risks posed by labour issues.

Weak ESG performance, on the other hand, can translate into a financial or environmental cost, harmful social or reputational exposure and financial damage to the bottom line and, ultimately, the shareholders.

Getting to grips with ESG reporting

The time and effort needed to produce an annual sustainability report have increased dramatically. Internal and external demands for ESG data continue to rise, compelling companies to do more than put a spreadsheet together once a year.

Instead, they need to embark on a journey that will involve evaluating the data needed to track ESG performance, identifying how and where to source it from, understanding local and global compliance requirements and implementing systems to enable existing, amended and new processes.

A great deal of the information is generated by or managed in disparate systems, requiring immense manual effort to produce a consistent format suitable for consolidated regulatory and financial reporting. Robust enterprise-wide solutions are a must.

The role of ERP in ESG reporting

Enterprise resource planning (ERP) has a critical role to play. Without a centralised ERP system, compliance and visibility can be manual, tedious and costly, even resulting in penalties. Supply chain visibility has many advantages for today’s global and agile businesses. It allows them to reduce complexity, improve communication throughout the organisation, stay nimble and keep up with a complex regulatory landscape regarding ethically and sustainably sourced goods.

By providing organisations with visibility into relevant data across the business, ERP enables the insights required to comply with regulations, meet stakeholder and customer expectations, cut costs, optimise processes and improve overall efficiencies to meet ESG standards.

Technology solutions like artificial intelligence (AI), machine learning (ML) and big data analytics enabled by an ERP system can also assist with managing environmental impacts. For example, this technology can help organisations identify the fastest, cheapest and most sustainable shipping routes.

Image credit: iStock.com/kmingww