ESG reporting is a fundamental component of the entire ESG value chain. As an important communication channel with stakeholders including shareholders and investors, it serves as one of the major sources of ESG data and functions. With the growing demand for quality ESG data, tightened regulations towards ESG reporting have been applied in many Stock Exchanges around the world to ensure listed companies provide decision-useful data.
For instance, the Stock Exchange in Hong Kong has amended its ESG reporting guidelines to implement more stringent disclosure requirements under the “comply or explain” approach in 2020. It is noted that future ESG reports will be more comprehensive and holistic, along with higher expectations from report users.
However, there are a few challenges when we are heading towards enhanced ESG disclosures. Quantitative data management is not an easy task for corporates, especially in this data booming era. Moreover, more standards or frameworks have to be aligned to reveal the ESG ambition of a company. For example, more leading companies are now committed to science-based targets (SBT) and most of them are pursuing greenhouse gas reduction within the value chain (scope 3). Scope 3 includes indirect emissions that occur in a company’s value chain formulated by a great amount of quantitative data. Inevitably, it is time-consuming and labor-intensive to handle diverse data sources throughout the process of data collection, analysis and reporting.
To overcome these challenges, advanced technologies can be one of the ways out to relieve the burden of data management. As a leading sustainability and ESG strategist, Allied Sustainability and Environmental Consultants Group Limited has foreseen the changes in the market and is establishing a portal to manage environmental and social data to assist corporates from diverse industries in generating ESG reports. Digitalizing and centralizing ESG data in an online platform can bring the following benefits.
- Digitalized data
Data can be centralized from various units in one place. It is much convenient for data storage and management as compared with the traditional way. This also allows us to identify abnormal data more easily so as to minimize calculation errors. In addition, complex data are visualized into charts and tables to make it much easier to analyze data and track progress.
- Performance tracking
After digitalizing and gathering data into a centralized database, companies can benefit from identifying areas of improvement through a timely performance comparison. It is effective to track the target progress at the group level. In addition to self-performance comparison, peer benchmarking is also another handy function from the database which is available to benchmark with peers and identify opportunities to improve.
- Autonomous reporting
There are various reporting frameworks and standards in the market. They may serve different purposes, ranging from basic compliance to brand-building. Sometimes it is challenging to align all of them and meet the needs of all stakeholders. Therefore, it is crucial to wisely allocate the existing resources to the material issues, and select the appropriate reporting standards or frameworks that respond to significant stakeholders so as to ensure effective ESG disclosures. Using technologies such as artificial intelligence for matching ESG data with applicable ESG reporting frameworks and standards is cost-effective.
Apart from ESG reporting, assurance is another trend that is worth putting an eye on. According to research from the World Business Council for Sustainable Development (WBCSD), 82% of a total of 159 reviewed reports have obtained external assurance. Some ESG reporting portals also offer external assurance for ESG reports to enhance their credibility and accountability. In future, external assurance is seen to be in greater demand.
Applying technologies to ESG reporting is cost-effective and could facilitate data collection, calculation, analysis and performance comparison. Human resources could then be reserved for more strategic stages that artificial intelligence could not replace, such as sustainability performance enhancement and strategy planning. As a result, companies can utilize their resources and reduce costs to maximize their profits leveraging on technologies and digital tools.
Looking ahead, digital transformation is a megatrend and has seen revolutionary changes in the ESG industry. It is no longer limited to reporting but also helps achieve sustainable development, such as applying green Internet of Things (IoT) property management to enhance the efficiency of resources utilisation and operational performance, ensure an informed decision-making process, and continuously identify ESG-related risks and opportunities. With technology as catalysts, we could collaborate more effectively to shape a more sustainable world, in hopes of improving the sustainability performance of companies and cities and enhancing health and well-being of people.
- Sustainable Stock Exchange Initiative – ESG Disclosure Guidance Database https://sseinitiative.org/esg-guidance-database/
- Questions relating to environmental, social and governance reporting – Frequently Asked Questions Series 18 (Released on 31 August 2012 / Last updated on 28 February 2020) https://en-rules.hkex.com.hk/sites/default/files/net_file_store/HKEX_FAQ_18.pdf
- WBCSD (2019) WBCSD 2019 Report https://docs.wbcsd.org/2019/10/WBCSD_Reporting_Matters_2019.pdf
- Corporate Value Chain (Scope 3) Accounting and Reporting Standard https://ghgprotocol.org/sites/default/files/standards/Corporate-Value-Chain-Accounting-Reporing-Standard_041613_2.pdf
- Science Based Targets – Companies Taking Action https://sciencebasedtargets.org/companies-taking-action#table