Over the past few years, more companies have started reporting on environmental, social, and governance (ESG) issues to meet the growing demand for ethical and sustainable practices. As this demand increases, businesses of all sizes are working to build strong ESG programs, and ESG data is becoming a key part of their strategy.
Strong ESG policies drive innovation and growth
ESG refers to a broad range of sustainability metrics that hold corporations accountable for their policies and practices. These metrics address areas such as climate change, pollution — air, land, and water, waste management, resource allocation, employment practices, supply-chain integrity, community engagement, and corporate governance.
These metrics go beyond mere numbers on a spreadsheet. Stakeholders, investors, and customers now use a company’s ESG practices and performance as key indicators of effective management and its overall impact on society. Companies with poor ESG performance increasingly experience consequences like losing customers to competitors, suffering brand damage, enduring reputational harm, facing reduced access to capital, and struggling to hire top-quality talent.
Consequently, companies with strong ESG policies often enjoy greater success, more loyal customers and investors, and attract and retain quality talent. By taking their ESG obligations seriously, these companies discover that analyzing ESG data can mitigate various risks, such as supply-chain disruptions and penalties for non-compliance. Additionally, ESG data can uncover operational inefficiencies and other cost-saving opportunities, while also leading to new opportunities for innovation and growth.
How CFOs and CSOs integrate ESG into business operations
Chief financial officers (CFOs) and chief sustainability officers (CSOs) are taking the lead in integrating ESG criteria into a company's operational DNA because these factors directly influence corporate financial performance and daily business operations.
CFOs ensure the accurate collection and reporting of ESG data, and incorporate ESG considerations into a company's financial strategy and decision-making processes. Meanwhile, CSOs develop and implement ESG initiatives, ensuring the company meets its sustainability goals.
However, these responsibilities present a long list of challenges. In this white paper, we will discuss these challenges and offer strategies for companies to overcome them, particularly focusing on ESG data collection and reporting.
Mandatory ESG reporting: CSRD and other frameworks
Companies, particularly those that haven't invested adequately in technology and resources, encounter a significant challenge in meeting complex ESG reporting criteria. As ESG reporting becomes mandatory in many regions worldwide, addressing this issue is essential for compliance.
After the European Union (EU) passed the “stop the clock” directive in April, companies in waves two and three received a two-year extension to comply with the Corporate Sustainability Reporting Directive (CSRD). Large public-interest entities (PIEs) in wave one already need to report their 2024 results in 2025. Now, large companies in wave two will report their 2027 results in 2028, and listed small to medium-sized enterprises in wave 3three will report their 2028 results in 2029.
Under the original rules, large public interest entities (PIEs) with over 500 employees had to report first. Other large companies followed, defined as those meeting at least two of these three criteria at the balance sheet date — €50 million in net revenue, €25 million in total assets, or 250 employees.
The proposed 2025 Omnibus reforms and the “content directive” would narrow the scope so that only companies with more than 1,000 employees need to report under the CSRD and ESRS. However, lawmakers have not yet passed this proposal. If they do, it will reduce the number of companies required to report by about 80%.
The complexity increases as companies must comply with multiple sustainability standards and regulations beyond the CSRD. Other reporting frameworks directly referenced or used as foundational elements within the European Sustainability Reporting Standards (ESRS) include the Global Reporting Initiative (GRI), and the Task Force on Climate-related Financial Disclosures (TCFD). Although related, each framework has distinct focuses and metrics.
Future challenges of ESG data collection and reporting
The increasing number of reporting requirements and frameworks significantly burdens personnel responsible for collecting, managing, and reporting ESG data. CFOs, CSOs, and their teams encounter several pressing challenges in meeting the demands of these diverse frameworks, including:
Data management. ESG reporting for the CSRD requires companies to manage over 1,000 data points, drawing from the entire network, including various business units, departments, subsidiaries, jurisdictional locations, and suppliers. The volume and complexity of the data, coupled with the absence of a global standard for ESG reporting, creates challenges. Often, data sources are isolated, formats are inconsistent, and ESG staff lack access to necessary data. As a result, collecting and integrating ESG data stands as one of the toughest challenges multinational companies (MNCs) face.
Regulatory compliance. As the ESRS start to take effect, its rules and requirements continue to evolve, alongside those of other ESG reporting frameworks. Amid such uncertainty, companies must actively stay informed about regulatory requirements. Additionally, they need to thoroughly understand how these reporting requirements apply specifically to their organization. Requirements and rule interpretations vary based on the industry, the company, and its jurisdictional footprint.
Technology. Many companies have yet to invest adequately in the technological infrastructure and tools needed to automate ESG data collection and reporting. Manually gathering this information is labor-intensive and prone to errors, particularly when data remains siloed. Switching to a centralized, cloud-based system can streamline ESG reporting and enhance cross-departmental data sharing. For instance, the joint solution from Thomson Reuters and SAP, combining ONESOURCE Statutory Reporting with SAP’s Sustainability Control Tower, can significantly improve accuracy and efficiency, enabling companies to meet ESRS compliance with ease.
Stakeholder engagement. Achieving strong ESG performance requires cooperation and engagement from both internal and external stakeholders. Thoroughness, transparency, and a commitment across the organization to uphold ESG principles are vital. Customers and investors must trust that the organization is fully committed to meeting its ESG obligations. Additionally, communication with stakeholders must be trustworthy, reliable, and honest.
Operational factors. This paper focuses specifically on the challenges of data collection and reporting. However, organizations also face significant operational hurdles when implementing a robust ESG program. Achieving ESG compliance often requires actively improving energy efficiency, reducing waste, running volunteer programs, supporting mental health, training employees, conducting risk assessments, and launching other initiatives. Each of these efforts directly contributes to the organization’s overall ESG performance.
Solutions and best practices for ESG data accuracy
To collect and report ESG data effectively, organizations must establish systems and processes that ensure data accuracy and demonstrate their commitment to meeting ESG benchmarks. Companies that build strong ESG programs typically follow a structured process that includes the following key steps:
1. Establish a strategic framework. Due to the broad nature of ESG mandates, the first step is to narrow down the reporting parameters and develop a framework that guides the execution of the organization's ESG strategy.
Companies should focus on ESG data collection by identifying the material ESG issues, goals, and benchmarks that are most important to the company and its stakeholders, and prioritize those areas. ESG targets should align with the business’s broader goals and overall strategy, creating a complementary, self-reinforcing framework of action initiatives.
Next, companies should identify the reporting standards they need to comply with, such as ESRS, GRI, and TCFD, and structure their compliance strategy accordingly. Since reporting frameworks often need to meet multiple standards, it is crucial to understand the differences among them and incorporate these distinctions into the data collection and reporting process.
An effective strategic framework for ESG compliance involves data-collection efforts that channel relevant data into templates, enabling sustainability personnel to conduct reporting and analysis. This framework should be repeatable and largely automated, with human oversight to guarantee data accuracy and transparency.
2. Prioritize data integrity. Data integrity is the foundation of any effective ESG program. To earn the trust of stakeholders, investors, and authorities, a company must ensure its ESG data is consistently accurate and reliable.
Collecting accurate ESG data presents challenges due to its diverse sources and the inconsistent, sometimes incompatible formats it arrives in. Additionally, verifying the data is crucial, particularly when it originates from third-party suppliers.
Implementing the right technological infrastructure and tools yields significant benefits at this stage. Given the volume and complexity of ESG data, manual collection is impractical and unreliable. The optimal solution is a centralized, ERP-based ecosystem that automatically gathers data from various sources within a company’s network and directs it into a dedicated ESG data platform.
To maintain consistency, train everyone responsible for data collection to use standardized processes and data formats. Before reporting, ensure the data is verified and validated.
Validation processes vary, but many large companies use a multi-tiered system where several individuals or teams review ESG data. This approach ensures the data’s accuracy, thoroughness, consistency, alignment with company policies and goals, and compliance with regulatory requirements.
3. Employ technology and automation. Machine learning, AI, and automation are the main technological forces that are revolutionizing ESG data collection and reporting. Additionally, many companies are starting to use generative AI (GenAI) to analyze data sets, cross-check information, identify risks, run simulations, and generate basic ESG-related reports.
A centralized ERP running dedicated ESG software is essential for large-scale ESG data collection and reporting, regardless of whether advanced AI is used. Without this system, managing ESG compliance for MNCs can become overwhelming. Furthermore, automating the data collection process improves accuracy, efficiency, and consistency.
Generative AI and ESG management
GenAI is anticipated to become increasingly significant in ESG management, especially in real-time monitoring, data analysis, and strategic decision-making.
GenAI can monitor and analyze ESG data in real time, identifying potential risks and opportunities as they arise. It can also perform more advanced data analysis and predictive scenario modeling, aiding companies in refining and enhancing their ESG initiatives.
In short, technology is the key to better ESG performance. Companies that fail to invest in the necessary technology and tools may struggle, or even find it impossible, to keep up with rapidly expanding ESG mandates, particularly in the EU.
4. Encourage cross-functional collaboration. In addition to streamlining data collection and reporting, a cloud-based ERP also facilitates cross-departmental communication and gives departments across the enterprise access to relevant ESG data.
This transparency is crucial because ESG compliance involves more than just data collection. It requires integrating ESG goals and principles into the company’s core and motivating employees and stakeholders to take ownership of the company’s ESG commitments and aspirations.
Toward that end, companies should encourage collaboration and communication across various business units, fostering a company-wide ethos of awareness and cooperation around ESG matters. Encouraging cross-functional cooperation reduces data duplication and helps everyone understand their reporting responsibilities.
Even employees not directly involved in ESG management still play an important role in ESG compliance. They actively implement ESG initiatives in the field, and their feedback can pinpoint areas of concern and contribute to innovative solutions.
5. Strive for continuous improvement. After establishing ESG data collection and reporting frameworks and processes, companies should focus on continuous improvement to keep ESG initiatives vital and relevant.
Here are several ways companies can achieve ongoing ESG improvement:
- Regularly reassess ESG practices to ensure benchmarks and targets align with the business’s overall strategy
- Upgrade technological resources to improve analytics and modeling capabilities
- Include ESG considerations in general business operations and decision-making
- Communicate regularly with investors, customers, employees, and other stakeholders to gather feedback
- Periodically review ESG strategies and incorporate changes based on previous data and experience
- Provide ongoing training for staff involved in ESG data collection and reporting
- Institutionalize a comprehensive annual review of all ESG policies and procedures
- Survey third-party suppliers about their ESG performance and help them comply with the organization’s policies
Recommendations for CFOs and CSOs
ESG data collection and reporting are already mandatory for large companies operating in the EU and could soon be compulsory for thousands of small and medium-sized companies.
The responsibility for executing ESG policies and procedures often falls to CFOs and CSOs. These roles extend beyond managing ESG data and implementing sustainability initiatives. They also use ESG data to identify operational bottlenecks, optimize operations, and reduce costs. Additionally, they aim to avoid regulatory penalties, protect supply chains, mitigate risk, and improve productivity. They also work to build trust among investors, customers, employees, regulators, and other stakeholders.
Those overseeing ESG policies face significant demands, yet they often lack the necessary resources to effectively support their employers’ needs and goals. It's crucial to advocate for additional resources now, as the importance of ESG compliance will continue to grow and the consequences of non-compliance will become increasingly severe.
A collaborative solution for ESG compliance
ESG is now more than just about compliance. It has become a vital strategic asset for companies dedicated to a sustainable future. Additionally, new technologies like GenAI are rapidly expanding the scope and utility of ESG data, increasing its value significantly.
Companies that learn to unlock the strategic potential of ESG data will soon gain a significant competitive advantage over those that don’t. ESG data acts as a powerful defense against disruption and uncertainty, including climate change, supply-chain instability, and political upheaval. It also helps address the lack of trust that currently plagues global commerce.
The combined capabilities of Thomson Reuters ESG solutions, including the latest integrated offering combining ONESOURCE Statutory Reporting and SAP’s Sustainability Control Tower, can help your business navigate ESG challenges and build strong policies, ensuring compliance and driving transparency in corporate reporting.
Explore how Thomson Reuters ESG solutions can help future-proof your company's operations and position them for long-term success.
