Playing catch-up with sustainability reporting, many businesses are wasting precious resources looking backward, rather than planning for the future, argues Frank Meehan, Co-Founder and CEO of Equilibrium World.

Some 80 percent of companies worldwide now report on sustainability, according to a recent report from KPMG. North America leads the way with 90 percent of companies reporting. However, Asia Pacific comes a close second at 84 percent.

This rapid rise from a figure of just 12 percent globally in 1993, the report states, is “driven not only by new laws and regulations but also by a growing understanding in the finance sector of the power ESG issues have to impact financial performance and corporate value.”

In Europe, the EU’s new Sustainable Finance Disclosure Regulation (SFDR) became applicable in March, further incentivizing improved ESG reporting in EU member countries. With the goal of moving more capital towards ESG-oriented organizations and initiatives, the SFDR rules dictate a broader scope of sustainability-related information that must now be disclosed by financial market participants (such as insurance companies, venture capital and pension funds, asset managers, and banks) and financial advisers operating in the EU.

A 2020 survey conducted by BlackRock of 425 investors across 27 countries (collectively representing some $25 tn in assets under management) reported: “Eighty-six percent of EMEA respondents have stated that sustainable investing is already – or will become – central to their investment strategies. Fifty-seven percent of respondents in APAC and 47 percent of respondents in the Americas share this view.” Respondents said the main obstacle they faced in sustainable-minded investing was poor quality or unavailable ESG data and analytics.

Clearly, effective ESG reporting is no longer a “nice to have” – it is essential.

Companies are having to adjust at incredible speed, however, so it’s understandable that many are still finding their footing and testing best practices. Through our experience, research, and client feedback, we find that businesses typically spend 70 percent to 80 percent more than they should on sustainability reporting and management, and nowhere near enough on strategy planning and the implementation of improvements.

Looking in the rear-view mirror

Why are reporting and management proving so costly for businesses? Essentially, it comes down to the antiquated, unwieldy, and disjointed way in which sustainability data is often gathered and collated.

As the BlackRock survey reveals, investors and banks now expect detailed reports on companies’ ESG performance, which is increasingly factored into financing and interest rates. A company’s ESG rating is also of growing importance to suppliers, clients, and customers. As a result, companies have had to quickly improve their sustainability reporting – frequently starting from scratch.

To solve this new problem as swiftly as possible, many organizations have resorted to engaging teams of consultants. Decision-makers in the C-suite tend to see this as a frictionless solution, but it’s also slow, highly expensive, and static. Often, consultants’ reports are only published six months or more after the fact, meaning companies lose precious time capitalizing upon improved ESG performance to access more favorable interest rates.

Even companies with sufficient ESG focus to join the World Business Council for Sustainable Development (WBCSD) experience delays in reporting. The WBCSD states that its Asian and North American headquartered members report at an average of 6.4 months and 5.8 months, respectively, after the end of the fiscal year.

Back in 2015, large US corporations spent $877 million on consulting advice related to sustainability reporting, energy efficiency, risk assessment or strategy, supply chains, and product, according to research firm Verdantix. As sustainability reporting becomes even more prevalent, that number has very likely ballooned. The question is, has expenditure of this size helped effect positive change, or simply provided a better look in the rear-view mirror?

Watch where you’re going

Whether allocating in-house staff or engaging consultants to track sustainability, human and financial resources are being wasted. Instead of going through the time-consuming process of engaging expensive consultants or devoting manpower to crunching Excel spreadsheets, CSV files, and other fragmented forms of documentation (even, in the case of some companies, old-school paperwork), organizations need to seek out more efficient solutions.

Utilizing real-time tracking of key sustainability indicators such as energy usage, pollution, and waste, companies can monitor their performance on a day-to-day (even minute-to-minute) basis. Rather than waiting six months for a report on how things looked last year, companies can see their present position — and look ahead.

Harnessing AI to automatically extract and compile data from disparate sources, it is possible to instantly calculate and report a company’s energy consumption and emissions, as well as those of the supply chain. This not only facilitates detailed monitoring that allows on-the-go adjustments to improve emissions or rectify anomalies: It also empowers vastly improved forward strategy, whether short- or long-term, helping set and achieve emissions and fuel consumption reduction targets.

Perhaps more importantly, though, is the ability to use more efficiently collated data to run scenarios and simulations. These look at how various factors such as changes to the market, the environment, or government regulations, to give just a few examples, may affect a company’s ESG rating going forward.

With real-time ESG data, a company is able to respond to investor and financier requests for up-to-date information in a timely fashion, enjoy improved interest rates without delay, and vitally, make better decisions about the organization’s future.

Frank Meehan is the CEO and Co-Founder of Equilibrium World, a carbon and sustainability data management platform for companies. He is also a Co-Founder and  Partner at Australia’s leading Agricultural, Food and Sustainability investment firm, SparkLabs Ventures, with 34 investments worldwide. Originally from Sydney, Frank started his career as a software developer for Ericsson, before joining Hutchison and being part of the global engineering team for the first 3G network rollouts in the world outside Japan. He then joined Horizons Ventures, where he represented Horizons on the boards of Spotify,  Siri, Summly and Affectiva. Now entirely focused on technology innovation for climate change, sustainability and regenerative agriculture.

Equilibrium World is a next-generation sustainability and ESG data management platform– helping companies become ESG leaders and achieve their climate targets. Its software enables companies to manage carbon emissions, automate ESG reporting and benchmark ESG–across company operations, suppliers, and investor portfolios. Equilibrium is working with large corporates in USA, Europe, and Asia on their climate data management and strategy, and is now expanding to Australia.

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