In recent years, Environmental, Social and Governance (ESG) criteria have undeniably taken a higher priority in business. In fact, the Wall Street Journal’s annual survey of sustainability officials found that 63% of organizations were already disclosing ESG information in 2023, compared to 56% the year before. To this end, developing an automated ESG reporting system becomes critical for companies to align with modified regulatory requirements, especially with significant changes in the global regulatory environment.
As part of the European Green Deal, the EU established a framework for transparent ESG reporting, known as the Sustainable Finance Disclosure Regulation. It guides how organizations report their sustainability figures to investors, consumers and stakeholders. Doing so allows these entities to gauge the organization’s sustainability performance and impact on people and the environment.
Several years later, the EU introduced the Corporate Sustainability Reporting Directive (CSRD) in January 2023 to strengthen and improve the existing system. The CSRD focuses on ensuring investors and stakeholders have access to information needed to assess an organization’s impact on the environment and people within that environment and the risks and opportunities that may be associated with the company due to climate change and other sustainability issues.
After much persistence, the US has only recently begun to guide how and when organizations present their sustainable operations. In March 2024, the US Securities and Exchange Commission (SEC) implemented regulation to enhance ESG reporting and standardize climate-related disclosures. This latest mandate requires public companies and offerings to publish environmental data alongside their SEC filings – like annual reports and registration statements. Previously, organizations filed ESG reports voluntarily months after annual reports, which were often not easily accessible to the public.
The SEC’s governance establishes that certain climate and emissions related information be disclosed in public filings as footnotes. These include climate-related risks that have had or may have material impact, greenhouse gas emissions and specified climate-related targets/transition plans. Additionally, reporting standards will be changing, whereby companies must obtain limited assurance on climate account controls, with many companies considering retaining an ESG controller that can oversee and govern the reporting process.
While guidance on ESG reporting is a step in the right direction, many are still reluctant to adopt the procedure. With a lack of expertise and siloed networks, the system can seem labor-intensive and more of a chore than a digital transformation opportunity to enhance organizational reporting. Since ESG is a multi-faceted space, each company’s reporting and monitoring factors will depend on its individual needs. However, the impacts of leveraging automation are beneficial to every industry’s reporting strategy.
For instance, transparency is a fundamental aspect of ESG reporting. A concise and accurate report clearly shows a company’s commitment to ESG principles, establishing trust and accountability with stakeholders. By deploying automation tools, companies can significantly reduce the risk of manual errors and decrease administrative labor and time commitments. Due to its innate objective and unbiased data handling capabilities, an automated ESG reporting system can significantly improve the process. Additionally, automation can streamline data retrieval, processing and reporting, ensuring timely, precise and efficient results. This capability allows for ongoing real-time updates, accurately representing where a company stands regarding its ESG efforts at any given time.
Such reporting systems may prove indispensable for demonstrating regulatory compliance. Stringent ESG regulations have become a prerequisite for organizations in most sectors. A robust, accurate tracking and reporting system can help organizations adhere to these standards and avoid adverse consequences of non-compliance, including potential financial and reputational damages.
While an automated ESG reporting system benefits organizations, it also gives clients valuable information. Increasingly, clients, whether consumers, investors or other businesses, make choices based on a company’s ESG performance. Accurate ESG reports help clients determine the alignment of their values with those of the company. Also, accurate reporting is crucial if an enterprise’s business is a part of its clients' supply chain.
For investors specifically, ESG reports serve as risk management tools, as they can indicate potential risks associated with a company’s ESG practices. Automating such reports provides up-to-date and accurate information, enabling investors to make informed decisions. By automating ESG reporting, organizations can gain comprehensive insights to maintain informed and strategic decision-making processes. Organizations can also identify and anticipate risks and opportunities in their ESG initiatives, allowing them to modify their business strategies in response to near real-time data.
While setting up an automated ESG reporting system might require significant time and resources, the benefits outweigh the instigation costs in the long run. It also accelerates reporting and makes it more accurate, saving time, improving decision-making processes, vindicating regulatory compliance and providing value to clients. Here are a few essential factors that you should include in these reporting systems:
In an age where ESG considerations form a critical part of business strategies, establishing an accurate automated ESG reporting system isn’t merely a helpful tool—it’s become a necessity and a requirement. As businesses strive to meet increasing societal expectations, global entities have shifted focus on establishing proper ESG guidance to help make adopting such systems easier. Those looking to invest in an ESG-focused business model should begin implementing automation to chart a new path forward of fortifying the company’s commitment to sustainable and responsible operations for their benefit and that of their clients.
Boris Khazin is Global Head of Digital Risk Management/Governance, Risk and Compliance at EPAM Systems. Inc., where he is passionate about providing solutions that deliver business value and exist at the intersection of people, processes and systems.
Mr. Khazin has more than 20 years of management, consulting and product development experience in the financial services and fintech sectors. During his tenure at EPAM, he has led several GRC, business intelligence, enterprise analytics and organizational capability/maturity assessments to help clients identify, define and prioritize frameworks that guide them toward a desired future state. From this, he has developed a keen understanding of opportunities and challenges that arise when organizations adapt to change. Previously, Mr. Khazin worked at multiple financial firms, including UBS, S&P and Bloomberg. He was also an Investment Oversight Officer at TD Ameritrade. Mr. Khazin has a Bachelor of Science in Behavioral Economics from Pennsylvania State University and an MBA from Pace University.
