ESG – environmental, sustainability, and governance – reporting will be mandatory for nearly 50,000 companies beginning in 2024 as a result of the EU’s Corporate Sustainability Reporting Directive, according to consultancy group KMPG.
It will affect companies even beyond the European Union. Globally, some companies in the UK are required to report on certain climate-related financial disclosures. Some Asian countries like Malaysia have mandated publicly listed companies to file ESG reports, and the Bahrain Bourse has also made ESG reporting mandatory beginning next year. In the US, the Securities and Exchange Commission (SEC) has proposed disclosure requirements.
Already, many firms are incorporating ESG strategies into their business operations. In 2022 KPMG found that 96% of the world’s largest 250 companies by revenue publicly report on ESG or sustainability matters.
“Businesses are accelerating their proactive measures and are seeking to invest and integrate third-party solutions that, in part, help businesses stay abreast of international regulatory requirements and keep up to date with ESG global news,” finds a new Thompson Reuters study The 2023 State of Corporate ESG: How companies are embracing ESG for resilience and growth.
Beyond regulatory compliance, ignoring ESG issues can result in a number of issues ranging from talent shortages, violating shareholder reporting expectations, and loss of investors and reputation. Additionally, poor reporting and planning can make it more expensive to borrow money which may have pricing impacts as the higher capital costs and higher insurance are passed onto buyers, according to a report from enterprise cloud software company Oracle.
ESG reporting is difficult
ESG reporting can be incredibly complex due to its nature as an evolving set of metrics. ESG reporting is the future, but it’s far-reaching and it’s not cheap for firms to audit all the facets of a business that should be included in ESG reporting.
For finance chiefs, this matters because companies must find a uniform way to collect, standardise, and aggregate data from across the organisation. AI-powered software can be incredibly powerful in capturing, organising, visualising and reporting ESG data.
Supply chain, human resources, IT, ERP and other operational systems all generate ESG data for different metrics at various levels of granularity.
For example, environmental data may include carbon emissions, energy usage, or product sustainability. Social metrics may include employee wellness initiatives, digital upskilling, gender and minority representation, and employee retention. Further, governance data may be captured through reporting on the number of female and minority directors, board oversight on climate issues, and executive compensation.
According to Oracle’s report titled Effectively Plan and Report on ESG Initiatives, to get ESG reporting right, there are three questions firms can ask:
- How do you ensure the integrity of your data?
- How can you be confident that you’re complying with the latest standards?
- How do you plan, track, and communicate your sustainability agenda to ensure that you can meet future commitments?
How Oracle helps answer these questions
Oracle has built a solution for ESG reporting within the AI-powered Oracle Cloud Enterprise Performance Management (EPM). It provides a robust platform for analysis and insights, helping managers to truly understand their ESG practices and plans, as well as review and analyse the results.
Oracle Cloud EPM combines dashboards, charts, spreadsheets, and narrative into a single solution so you can produce comprehensive reports that not only show a business’s KPIs, but also provide commentary to help stakeholders understand targets, blockers, and progress.
To learn more about how Oracle’s AI-powered Cloud Enterprise Performance Management system can help your firm capture and report ESG data seamlessly, download the free report.