In 2023, we're on the cusp of a significant shift toward greater transparency and accountability when it comes to ESG (Environmental, Social, and Governance) matters. On June 26, the International Sustainability Standards Board (ISSB) introduced its first-ever standards, IFRS S1 and IFRS S2, marking the beginning of a new era in sustainability-related disclosures across global capital markets.
Moving ahead, on July 31, the European Commission embraced the European Sustainability Reporting Standards (ESRS) for use by all companies subject to the Corporate Sustainability Reporting Directive (CSRD), emphasizing their importance in supporting the EU's sustainable finance agenda.
Then, on October 7, 2023, California enacted climate disclosure and financial reporting legislation, known as the Climate Corporate Data Accountability Act and the Climate-Related Financial Risk Act. By the end of the year, the United States' Securities and Exchange Commission (SEC) is expected to finalize its climate-related disclosure rules.
While these various frameworks have different scopes and specifics, they all share a common goal: providing a standardized set of information to help investors understand the sustainability impact of the companies they invest in. Redirecting funds toward low carbon transition technologies and companies is crucial for meeting the goals of the Paris Agreement.
Why the New ESG Standards Matter
First, due to their broad geographical and value chain coverage, it's anticipated that most companies will be affected by these standards. Additionally, these standards are likely to become more stringent and mandatory, raising the bar for ESG reporting.
One of the most significant changes is the requirement for independent auditing of ESG data. This means that companies will need to revamp their processes for collecting, maintaining, and reporting ESG data. While there is ongoing debate about whether this will usher in a new era of ESG reporting, there's a growing momentum among our customers.
We're noticing a shift in responsibility from the Sustainability function to the Financial function. This transition has a profound impact on the focus of discussions within organizations. Financial professionals are increasingly focused on platforms that can streamline workflows and centralize data within a single repository. This approach ensures that both internal and external reporting of specific metrics originates from a controlled source, making data more accessible and fostering cross-functional collaboration to meet ESG reporting goals.
Controlling ESG Data
Our customers are also expressing concerns about establishing controls over ESG data. Take, for example, energy usage data, which can come from various sources, be measured in different units, and vary in quality. ESG reporting covers the entire value chain, engaging numerous stakeholders, making data collection and management more complex.
For those customers who have already started, they are using Dataiku as an ESG data hub, allowing them to:
- Seamlessly collect data from multiple sources and enhance data quality.
- Aggregate data in a structured format, ensuring consistency and standardization.
- Analyze data quality to assess accuracy and completeness.
- Transform and migrate controlled data into the reporting system for business insights.
Selecting the right technology is critical for crafting an ESG data management strategy. The choice extends beyond fulfilling regulatory obligations, as it can also provide insights into supply chains, reduce production costs and energy consumption, and apply AI and natural language processing to analyze unstructured text data for ESG claims while monitoring progress toward net-zero objectives.
As you consider your company's ESG reporting strategy, ask these questions:
- How is ESG data collected today, and have all data sources been identified?
- Does the system allow automated workflows to streamline data entry, validation, and transformation, along with related data controls?
- Is your company prepared to have its ESG data audited, from sources to reporting?
- Can the system accommodate changes in acquisitions, calculation methodologies, or regulatory frameworks while maintaining controls and ensuring comparability across time periods?
- Do you need Advanced Analytics and Business Intelligence to derive deeper insights from the data to meet your decarbonation commitments and targets?
We are experiencing a transformation in ESG reporting similar to what we saw with financial reporting 30 years ago. The difference today is that we have data analytics and AI/ML platforms that can accelerate our transition toward a low-carbon future, as the clock is ticking on climate change.