Why Data Automation is the Key to Better ESG Reports

Despite the benefits of ESG reporting (risk management, meeting regulatory requirements, better access to capital, etc.), many companies still can’t finalise a fast, accurate and repeatable method of creating them.

The problem isn’t the reports themselves, however. Most organisations know how to lay out an ESG report and what to include.

It’s data collection that’s really difficult. Even if you know the data you need to collect and where it’s stored, extracting it can be tedious and time-consuming.

But it doesn’t have to be this way.

In this article, we’ll show you how automating your ESG data can solve a lot of your ESG reporting problems. You’ll learn how automated ESG data collection works, what a good solution looks like and how to futureproof your automated data collection practice.

The problem with most companies’ data collection practices

The accuracy of your ESG reports hinges on the quality of your data. Any business serious about implementing sustainability initiatives needs to consistently collect and manage that data.

But here’s the rub: most businesses have an ESG data collection problem.

And it’s called a spreadsheet.

Spreadsheets are one of the most popular ways to collect ESG data. In fact, an EY report found that 55% of public companies house ESG data in spreadsheets — something many agree is impractical when collecting data from dozens of different sources.

We’d argue it’s impractical for almost any business business, full stop — and here’s why:

• ESG data is diverse. Environmental, social and governance data covers a huge range of metrics and KPIs across dozens of different systems and departments. There’s no one-size-fits-all solution for companies, and keeping everything organised in a spreadsheet can be a nightmare.
• ESG data isn’t standardised. Because ESG data comes from so many different sources, it’s rarely in a standardised format suited to copying and pasting into spreadsheets. In most cases, the data will need to be transformed before reporting, a process that is subject to human error and can lead to mistakes.
• ESG data can be hard to access. A lot of ESG data is stored in ERP systems, which make it very hard for customers to extract data from these platforms. This forces users to manually copy data from the platform to spreadsheets. That can take a huge amount of time and lead to a lot of errors.

You can have the hardest working and most diligent employees in the world, but when you manage ESG data in spreadsheets, you’re either going to make mistakes, or your employees are going to waste hundreds of hours that could be better spent generating revenue.

This waste is even bigger if the people responsible for ESG data collection and reporting are senior members of finance or ESG departments. There’s simply no reason for these professionals to manage data in this way, even if ESG reporting is a regulatory requirement for your business.

How automation can address these issues

Spreadsheets might be a tried-and-tested data storage method, but they should be used as infrequently as possible in modern ESG reporting. Instead, we recommend organisations implement an automated data collection method that improves the speed and accuracy of your reporting.

Where possible, an automated data solution will connect to ERPs and other tools via custom-built APIs, centralising information in a data warehouse where it can be stored, mastered and managed. Given the scope of ESG reporting requirements, you may not be able to eliminate manual reporting completely. But automation should drastically reduce the number of times you have to ask employees or suppliers to fill out surveys and spreadsheets.

The benefits of implementing an automated solution are as significant as they are obvious:

• More accurate and efficient data collection: Automated data collection doesn’t have room for human error, giving you absolute faith in the accuracy and integrity of your ESG data. This could lead to reduced time in gaining third-party assurance required by the CSRD and other ESG reporting legislation.
• Enhanced visibility: An automated solution lets you collect and store data in a single location and a single format. That’s a lot easier to see and manage than dozens of separate spreadsheets.
• Less time wasted: An automated solution significantly reduces the time your team needs to spend gathering and processing information. The time your team spent manually copying data from one application to a spreadsheet can now be spent on more important, strategic and revenue-generating tasks.
• Real-time reporting: With an automated solution, there’s no delay between data being created in your ERP systems and your access to it. This lets you track targets in real-time and allows action to be taken sooner to ensure you exceed your targets.

Once you’ve got the data in a centralised warehouse, you can start using it to do more than just reporting. It becomes a lot easier to create accurate ESG targets and track your progress, for instance. You can even use that data to predict how ESG initiatives will impact your emissions in the future.

Tools and regulations are always evolving. So should your automated ESG strategy

Unfortunately, you can’t just set up an automated ESG data tool and then forget about it. Both the tools you collect data from and the regulatory requirements themselves are constantly evolving, which means you need a solution that evolves with them.

The biggest issue with ERPs and other tools is their tendency to move the goalposts when it comes to data extraction. This means the techniques and methods used to extract data one year may not work 12 months later. Case in point: Microsoft recently deprecated its Export to Data Lake functionality—the ninth time this has happened in the Dynamics era.

Expect ESG regulations and frameworks to change, too. While ESRS may be the most widespread ESG regulation and the International Financial Reporting Standards is the most common framework right now, this may not be the case in a year’s time, let alone three or five years in the future.

That’s why it’s so important to work with a technical partner who guarantees the long-term functionality of your solution. A monthly subscription may seem like an unnecessary and additional cost compared to vendors charging a one-off fee, but it will almost certainly cost you a lot less in the long run.

Act now to automate your ESG reporting with 5Y

For organisations affected by any ESG Reporting legislation such as CSRD and NFRD reporting, there's little time to waste — your data needs to be collected now so it can be published at the end of accounting periods that commence after January 1st, 2024. Even businesses unaffected by these regulations should align their reporting systems as soon as possible.

If you want to learn more about automating and accelerating your sustainability reporting in 2024, then sign up to our free webinar on Tuesday, May 14, 2024. We’re running an introductory session on the topic in light of recent updates to CSRD legislation.

Attend, and you’ll learn:

• How automation can accelerate ESG reporting
• How to format sustainability data
• What CSRD legislation means for you

You’ll also see what sets 5Y’s ESG solution apart and how we ensure you’ll retain access to ESG data, whatever changes your ERP platform makes.