ESG Tech: Essential for ESG Progress

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by Aaroshi Rathor
Graphic of environmental, social, governance digital interface

Change is inevitable. However, those who embrace changes are likely to succeed in life. This quotation serves as a stern warning to stakeholders, including investors and ESG aficionados, to completely embrace the transformation in ESG that is taking place at lightning speed. 

We are all aware of the positive effects that technology has had on our everyday lives, businesses, and how we conduct ourselves. Technology has improved every aspect of our life, from networking and healthcare to communication and transportation. Also, it has facilitated global connections and made it much simpler to communicate and work together. Applications of technology have accelerated and increased the output of numerous corporate processes, including marketing, advertising, sales, and accounting. Several business components require the use of technology, from internal operations to the external output of the activities, from small processes to significant activities. 

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What do we mean by ‘ESG technology’?

So, it follows that when technology adopts ESG, it will benefit from accurate reporting and reduce the labour of businesses that rely on human data and reports, which not only put stress on management teams but may also result in misreporting and factually incorrect data. Using the most recent ESG technology software reduces the likelihood of inaccurate reporting and improves collaboration when developing internal and external reports. 

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The Importance Of ESG Reporting

To build investors and stakeholder trust, as well as to gain clarity on sustainability goals, ESG reporting is essential. Reported data provides an insight into how a company is managing its environmental and social impact, and whether the results are ‘good’ or not, it relays a more realistic picture from which to make decisions.

The requirement for accurate ESG reporting has increased as a result of rising investor demand for ESG reports and rising interest in ESG issues by international organisations. Strong ESG scores are highly sought after by investors since they are seen to represent companies that are low-risk and better positioned to develop longer-term, sustainable growth opportunities.

ESG ratings aim to provide an unbiased assessment of a company's ESG performance and how it stacks up against its peers in terms of sustainability goals. Also, they are used by fund managers and individual investors to inform investment strategies by identifying potential sustainability threats to company performance.

ESG Ratings Denote Progress

ESG ratings are an extremely valuable internal benchmarking tool for end clients, in addition to being important from an investing perspective. They can improve sustainability performance, support decision-making, and shed light on an organisation's position in the market. ESG reporting used to be done manually, involving the preparation of ESG reports, the collection of data from various sources, including the environment, human resources, the supply chain, and finance, and the use of emails, spreadsheets, or general file management systems to gather and compile information.

Benefits Of ESG Reporting Tools

To simplify the reporting process, more businesses are choosing specialist software reporting solutions. ESG reporting can be challenging for big businesses. To create business financial reports, they can choose to employ specialised accounting software like Quickbooks or Oracle Netsuite. Although there are many ESG software reporting options on the market, it is crucial for both large and small organisations to perform due diligence to find a solution that fits their specific reporting requirements.

When investing in ESG software for your business, take into account the size of the organisation, the extent of the ESG reporting, the type of value chain, the internal team and technical capabilities, as well as the compliance, audit, and IT security requirements. Also, since reporting will be an annual, repeat obligation, you should ensure any adopted system can adequately build on historic data for comparison and archiving purposes.

ESG Rating Agencies 

Also referred to as ESG data providers, these are another significant technological advancement in the field of ESG reporting,  a third-party vendor that offers an evaluation of the risks, opportunities, and effects of a company's actions within ESG-linked areas. In order to understand their overall ESG firm performance and position in the industry, companies can submit their ESG performance data to these highly specialised agencies. 

By making investments in more modern and effective machinery, a firm may demonstrate how well it uses its resources and how cost-effectively it operates. ESG rating companies provide a wide range of beneficial services, including stock screening, industry and sector research, and due diligence audits. The most significant benefit is that they offer a fair and accurate assessment of the ESG risks of an investment, the ESG performance of a company, and the typical ESG scores within a particular industry that assist companies in tracking their ESG performance and enhancing areas where they fall short. 

Leading Providers

Sustainalytics, MSCI ESG Research, and ESGI are some of the leading companies that offer ESG ratings and statistics. These organisations publicly disseminate their scores in order to increase data openness and help businesses gradually improve their ESG practices.  To better understand the market, several of the established ESG data suppliers are embracing new technologies, such as AI.     

Measuring Carbon Offsets with ESG technology 

ESG reporting platforms like Workiva pull data from source systems, combine ESG frameworks (SASB, GRI, TCFD), and encourage cooperation between various departments. In order to achieve the worldwide net-zero emissions target by 2050, ESG technology is also assisting businesses in measuring both their carbon footprint and carbon offsets. 

Software solutions for carbon accounting are useful for benchmarking, historical comparison, and estimating a company's overall carbon emissions. By making it easier to track and verify emissions, technologies such as Blockchain are particularly helpful in advancing sustainability efforts. Tracking carbon balances and other environmental metrics is made possible by its immutability, accountability, and transparency, which enables firms to be held responsible for their sustainability claims. 

Automated Tracking

Blockchain technology automates the tracking of a company's overall carbon emissions and helps stop businesses from greenwashing customers and consumers. Businesses have implemented carbon accounting techniques and technology as a result of realising the value of accurate reporting of greenhouse gas emissions (GHGs). However, it is crucial to remember that merely making data publicly available will not be helpful; instead, it is crucial to understand how to monitor greenhouse gas emissions, which can be challenging but is essential to achieving net-zero emissions.  

Other significant cloud-based software applications, like SAP Product Footprint Management and Salesforce Net-zero cloud, have entered the ESG domain to aid in integrating a comprehensive sustainability management solution that fits a company’s specific needs..  

Takeaway 

If we're going to reach our worldwide net-zero targets, ESG technology is a sustainability trend that shouldn't go away. Such cutting-edge technologies greatly improve the accuracy and simplicity of measuring, collecting, and reporting ESG data. As a result, businesses may better understand their sustainability claims and the ESG areas where they need to make improvements. 

Even if for the potential accuracy in tracking data that they provide, and the likelihood of revealing human-based tracking errors, ESG tech products should be an essential component of any company’s operating processes.

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