Making ESG reporting a part of your data strategy

February 22, 2024
6 mins.
Martin Kjeldsen

Making ESG reporting a part of your data strategy

As organisations prepare to meet the growing demands of Environmental, Social, and Governance (ESG) reporting in 2024, this article highlights the significance of Master Data Management (MDM) as the cornerstone for compiling ESG reporting.

We will delve into the essentials of ESG reporting, and the role of MDM in helping to streamline the data governance processes. Moreover, discover the benefits and challenges of ESG reporting, the importance of a data-first approach, and practical strategies for leveraging MDM to empower ESG initiatives.

Background

The Corporate Sustainability Reporting Directive or CSRD entered into force on 5th January 2023, with EU Member States required to implement its provisions into national law and regulation by 6th July 2024.

The CSRD was a new piece of EU legislation concerning the social and environmental information that companies have to report, with the aim to address the disparity between investors’ information needs and the corporate sustainability information that is available. The first reporting cycle is due in 2025 based on data from financial years starting on or after 1 January 2024.

For the first three years, the application of the requirements will be on a “comply or explain” basis, because for many companies not all the necessary information regarding their entire value chain is going to be readily accessible. 

So, as companies start to build their data foundations in anticipation of upcoming reporting and disclosure requirements they must be able to detail the efforts made to obtain the necessary information, reasons why it cannot be obtained and their plans going forward to obtain the information.

The CSRD directive will directly impact large companies (estimated 50,000+), as well as listed SMEs (Small and Medium sized Enterprises), who will now be required to report on sustainability. The directive however does exclude “micro” companies, those with less than 10 employees or below EUR 20 million in turnover.

Read more: Why Master Data Management should become the foundation for ESG reporting.

ESG – what it is and why it matters

ESG stands for “Environmental, Social and Governance.” ESG can be described as a set of practices (policies, procedures, metrics, etc.) that organisations implement to limit the negative impact of their business on the environment, society at large, and governance bodies.

So fast forward to 2024 and investors are increasingly looking for companies that prioritise sustainability and ESG considerations to guide their investment decision-making. As a result, many businesses have begun to integrate ESG into their operations and business strategies.

When an organisation is implementing ESG, for each element where is the focus?

In regards to ESG reporting, Environment focuses on a company’s adherence to pertinent regulations and their environmental footprint; Social encompasses a company's impact on society at large and its stakeholders (employees, customers, communities, suppliers, and other parties), and Governance relates to the internal systems and structure of corporate decision-making, oversight, and accountability that will be reported on. 

Executing ESG reporting demands accurate and comprehensive data across multiple dimensions and sources, so a Master Data Management (MDM) system is an ideal structure to provide the necessary framework to ensure data integrity and consistency.

By implementing MDM, an organisation has the tools to create most importantly a single source of truth for its data. Using MDM to facilitate data collection, cleansing, and standardisation to ensure that the reported data is reliable, trustworthy, and meets regulatory compliance.

Read more: What is the expected financial impact of investing in your Master Data Management (MDM)?

What are the benefits and challenges of ESG reporting for organisations?

Companies subject to the CSRD directive will have to report according to the European Sustainability Reporting Standards (ESRS). The CSRD also makes it mandatory for companies to have third-party assurance and external auditing of the sustainability information that they report.

The new EU directives will ensure that investors and other stakeholders have access to the information they need to assess investment risks and will also create a culture of transparency about the impact of companies on people and the natural environment. 

How to understand and identify your ESG data

There are a number of different types and sources of ESG data that organisations need to collect and report on, we list a few of the major ones below.

For ESG, Environmental data includes metrics such as carbon emissions, water usage, waste management and pollution prevention, energy consumption, renewable energy usage, and biodiversity impact. This data helps stakeholders understand an organisation's environmental footprint and its efforts towards conservation and sustainability.

Secondly, Social data evaluates how a company manages its relationships with its stakeholders i.e. the workforce, communities, and broader society. This includes information on labour practices, diversity, human rights, community engagement, health and safety standards, privacy protection and product safety and quality. By reporting on social metrics, organisations demonstrate their commitment to employee welfare, respect for human rights, and positive contributions to the communities in which they operate.

Thirdly, Governance focuses on a company's internal controls, transparency, business ethics, and practices that guide decision-making and oversight within the organisation. Through governance data, organisations showcase their commitment to accountability, integrity, and transparent corporate governance practices.

Read more: What Is Stibo STEP & How Can It Help Your Business?

As a business understanding your ESG priorities

What can be confusing for an organisation is to understand what ESG issues could potentially impact their business operations, reputation, and long-term sustainability the most. 

So, they adopt a materiality assessment, a process to prioritise and focus efforts on those issues that have the greatest potential to influence the organisation's performance and stakeholders' perceptions.

With this materiality criteria an organisation can then prioritise ESG issues that serve as the focal points for developing strategies, setting targets, and implementing ESG initiatives.

Taking a collaborative approach also with stakeholders through for example consultations and surveys, provides valuable insights into stakeholder interests and needs. And by embedding ESG metrics into key performance indicators (KPIs) and reporting frameworks, organisations drive accountability and transparency throughout their operations.

Organisations need to identify internal and external sources of ESG data, extensively mapping the data sources and establishing robust data governance processes to ensure accessibility of ESG data across the organisation.

Read more: How to Get Started on Your Master Data Management (MDM) Journey.

Taking a data-first approach to ESG reporting

The importance of a data-first approach to ESG reporting lies in its ability to enhance the credibility and trustworthiness of the reported information reducing the risk of misinformation or misinterpretation. 

Accurate and reliable ESG data provides stakeholders with a clear and comprehensive understanding of an organisation's environmental and social impacts, as well as its governance practices.

Accurate data also enables organisations to benchmark their performance against industry peers, track progress over time, identify trends and demonstrate continuous improvement in ESG performance.

How to use MDM to empower your ESG initiatives

One of the key roles of MDM in ESG reporting is to facilitate data governance with rules, standards, and workflows for managing ESG data throughout its lifecycle. MDM ensures that ESG data is captured, validated, and updated consistently across various business processes and systems, thus enhancing data quality and integrity.

With a single source of truth for ESG data, an MDM system can generate comprehensive and reliable reporting and disclosures that meet the needs of internal and external stakeholders.

MDM enables an organisation to create a centralised repository or data hub for ESG data, which can then serve as a single source of truth across the organisation. By consolidating disparate data sources and establishing a unified data model, MDM ensures that ESG data is consistent regardless of its origin or format.

An MDM system allows an organisation to implement data quality controls and validation checks, and enforce data privacy and security protocols to ensure the integrity and confidentiality of ESG data organisation wide.

Moreover, MDM facilitates data integration and enrichment, streamlining the process of aggregating, and reconciling ESG data from various sources internal and external, and by uncovering deeper insights enabling more accurate and comprehensive analysis and reporting.

Conclusion

In summary, MDM acts as the foundation for compiling ESG reporting by ensuring data accuracy, integrity, and consistency across the organisation, enabling organisations to meet what will be going forward the growing demands of ESG reporting in an efficient and effective manner.

Next Steps

Get in touch to roll out MDM for your ESG reporting.

Achieving success with your MDM project requires a lot of preparation. There are many things to consider and it can be hard to figure out where to start especially with this new legislation around CSRD.

Book a free consultation call with us today to learn more about how we can help.

Related Posts

June 19, 2024
4 mins.
Martin Kjeldsen

Can MDM help move the needle on digital transformation for retail enterprise organisations?

Enterprise organisations in retail are leveraging digital technology to standardise complex business processes, weed out inefficiency and unlock new value from data generated because of digitalisation and in many cases to consolidate data across a complex IT landscape.  The overall effect of digitalisation across an organisation is what we call “digital transformation” which is more […]
read more
May 23, 2024
5 mins.
Martin Kjeldsen

Master Data Management and the Role of Data Governance

Master Data Management (MDM) and Data Governance are two closely related disciplines that work in tandem to ensure the integrity, quality, and consistency of an organisation's data assets.  While these two practices serve distinct purposes, they are interconnected and mutually reinforce each other in the context of data management. And with the huge growth in […]
read more
April 24, 2024
5 mins.
Martin Kjeldsen

How to leverage your MDM System for the EU’s Digital Product Passport.

The EU's Digital Product Passport (DPP) is a significant initiative aimed at enhancing transparency and sustainability in product manufacturing and distribution within the European Union.  The DPP framework requires manufacturers and resellers to collect, manage, and share product-related data across a product's lifecycle. The road to transparency Through conscious activism, such as boycotting products that […]
read more
April 10, 2024
5 mins.
Martin Kjeldsen

Why Change Management Should be an Integral Part of Your Master Data Management Project

When you gear up for your Master Data Management project, remember that you will eventually end up with a new “system” that real people will be using on a daily basis. This system will need to support much complexity that is a reflection of the complexity of how your organisation does business.  An often overlooked […]
read more
March 13, 2024
5 mins.
Martin Kjeldsen

How to align an MDM solution with your ESG reporting obligations

Master Data Management (MDM) is pivotal for organizations navigating the new Corporate Sustainability Reporting Directive (CSRD), ensuring data integrity for ESG reporting. By centralizing ESG metrics, MDM not only streamlines compliance but also embeds sustainability into the corporate ethos.
read more
December 19, 2023
1 min.
Martin Kjeldsen

Video: Christmas and Happy New Year greetings

read more
December 12, 2023
7 mins.
Martin Kjeldsen

How to Get Started on Your Master Data Management (MDM) Journey

So you want to improve the way you manage data in your organisation and you have come to the conclusion that Master Data Management (MDM) is the way to get there. But how do you get started with MDM? The decision to go for MDM is strategic, reaches many years out in the future and […]
read more
November 9, 2023
2 mins.
Martin Kjeldsen

How does your company manage its data?

A data management maturity level is a good indicator of whether bad data practices are likely hindering business growth or at worse exposing your business to the risk of regulatory non-compliance. At Unit of Measure we have developed a free self-assessment test to help you quickly get a sense of what your business is doing […]
read more
October 2, 2023
6 mins.
Martin Kjeldsen

How can a Master Data Management solution facilitate a circular economy?

The principles of a circular economy revolve around products and systems that should be designed with the intention of maximising their lifecycle and facilitating reuse, repair, and recycling.  Which sounds like an approach any self-respecting business would be keen to adopt and adhere to - but, in effect designing out waste and promoting a regenerative […]
read more
September 18, 2023
4 mins.
Martin Kjeldsen

Why Master Data Management should become the foundation for ESG reporting

Master Data Management (MDM) will play a pivotal role in helping larger organisations compile and collate the necessary data that is required to fulfil the new European Union’s ESG (Environmental, Social, and Governance) impact reporting directive, slated to take effect for the 2024 financial year. The change in having to publish findings on a company’s […]
read more
Do more with STEP - Let's discuss how

We can help you in every step of the way

SCHEDULE A CALL