There has been no shortage of ink spilled over the increase in sustainability reporting requirements coming down the pike for corporations. Between the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and new global sustainability standards developed by the International Financial Reporting Standards (IFRS) International Sustainability Standards Board (ISSB), businesses need to disclose more information than ever about the impact of both their operations and in some cases, those of their supply chains, on the environment, social issues and governance practices. One detail that often gets overlooked in those discussions, however, is the enormous data challenge that comes along with those new reporting requirements.
Under the CSRD, for example, companies will need to report according to European Sustainability Reporting Standards (ESRS). These standards, which were developed by the European Financial Reporting Advisory Group (EFRAG), contain a detailed taxonomy for exactly how information needs to be digitally tagged and shared so that it can be universally accessible and interoperable across all companies, government agencies and other interested stakeholders, that may need to access it. To that end, the legislation also mandates that the data is made available via the European Single Access Point (ESAP) to facilitate access to publicly available information of relevance to financial services, capital markets and sustainability.
Bracing for the Data Deluge
The end-result of all of this is going to be a massive surge in the amount of data that is reported and cataloged on everything from carbon emissions to perceived human rights risks in global supply chains. Just for the CSRD alone, companies will be reporting data related to climate change, pollution, water and marine resources, resource use and circular economy impacts, biodiversity impacts and various aspects of workforce safety and human rights. It is a staggering amount of information that will create challenges for businesses, both in terms of accessing the data necessary and organizing and tagging it appropriately to align with reporting standards. Not to mention the task of trying to interpret and make sense of all of that data once the fire hoses open!
In fact, I recently attended a conference session in which one panelist projected that in three years’ time, the amount of sustainability data in the marketplace could well be as much as five times larger than the total universe of financial data that’s currently out there.
This raises a number of questions for the companies that need to start collecting, organizing and tagging their sustainability data, and all of the investors, analysts, watchdogs and consultants who hope to extract meaningful insights from it, about how they are going to manage the flood of new information. Fortunately, the European approach, which is anchored in a standard reporting taxonomy using XBRL, will bring some degree of comparability to the process. In the U.S., The Securities Exchange Commission’s (SEC) Climate Related Disclosure Standards, which is currently delayed, is also adopting a similar approach. However, it is still unclear how other reporting requirements and approaches will vary from one jurisdiction to the next.
Spotlight on Data Governance
Accordingly, data governance and the ability to accurately capture real-time information from across all aspects of a global operation and its networks of vendors and suppliers has become an important focal point for sustainability and regulatory compliance teams.
This same pattern is playing out at every level of the enterprise. Businesses need to be able to know with pinpoint accuracy exactly what’s happening at every point in their global supply chains from raw materials sourcing to transportation to production, and they must be able to capture the associated data in near-real time. To survive in this environment, businesses of every size need to not only be able to aggregate and analyze data from across the organization, they must also be able to manage the data collection process to ensure they are getting a complete, unbiased and accurate view of the entire landscape.
As we continue down this path toward ever-more detailed sustainability reporting requirements, expect data quality and volume to become the number one priority for C-suites everywhere. Fortunately, the evolution of these new requirements has coincided with a golden age of innovation in data analytics and cloud-based tools for housing and deploying that data. The challenge now is finding ways to harness that innovation to deliver the answers businesses need to stay competitive in this new era of heightened transparency of data related to sustainability disclosure requirements.
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