Currently, ESG data management and disclosure is one of the key challenges faced by companies in India including over 80% of the 1,000 listed companies along with decarbonization execution and capacity building
As per Securities and Exchange Board of India (SEBI) guidelines, Business Responsibility and Sustainability Reporting (BRSR) is mandatory for 1,000 listed companies by market capitalization. The BRSR has to be a part of the annual report, which gets notified to the stock exchanges, published on official company websites, and separately provided to shareholders.
The key environmental metrics companies need to disclose from the current year onwards in BRSR include material environmental impacts, energy consumption and intensity, water consumption, intensity, withdrawal and discharge, greenhouse gas (GHG) emissions (Scope 1 to 3). Similarly, detailed information is also needed under the ‘Social’ and ‘Governance’ buckets.
Numerous market participants are seeking ESG performance data from listed and unlisted companies with an eventual impact on the financial performances and efficiencies of businesses. The key market participants include Investors, who are either into impact investing or require pre and post-investment ESG metrics. The second category includes corporates, who review sustainability parameters of their supply chain partners. The third category comprises rating agencies – both credit and ESG rating agencies with potential impact on rating output and hence cost of capital and ability to raise funds. The last category is of lenders, who have started seeking ESG information for large borrowers as part of their credit underwriting and risk management process.
Given this criticality of ESG information, it is fundamental for businesses to have robust internal controls and seamless processes to capture accurate and complete data points for reporting and analytical purposes. Data analytics would be important to get sharp insights and plans actionable for enhancing ESG scores.
Currently, ESG data management and disclosure is one of the key challenges faced by companies in India including over 80% of the 1,000 listed companies along with decarbonization execution and capacity building. Last year, only 15% of 1,000 listed companies published their sustainability reports. Though our recent interactions with many of these listed companies, including their CEOs, CFOs, Heads of Sustainability and EHS, suggest that sponsorship of designing and executing ESG strategy is at the highest level, however, data management remains a challenge.
The current trend in most of these companies is to gather scattered data across various functions, plants and offices in a manual form at infrequent intervals which is prone to error and non-standardization. Then there is the issue of supply chain sustainability covering ESG impact throughout the lifecycle of products and services. Supply chains often account for more than 80% of GHG emissions of companies when taking into account their overall climate impacts. Ever evolving standards and norms also put pressure on companies to continually update their approach and processes for sustainability assessment. More time is being spent on this administrative data flow rather than driving ESG initiatives toward decarbonization and enhancing overall scores.
Technology can be used by businesses to transform the ESG reporting processes by enabling companies to collect scattered and unstructured data and analysing it more effectively towards their net zero goals. Right from capturing all operational data points at the source level -- be it energy, water, or waste among many others -- to its conversion as per required emission factors and eventual reporting as per sustainability standards involves a well-designed process to ensure its accuracy and completeness for which digital solutions can play a pivotal role.
Software as a Service based ESG solutions can be used by companies that enable tracking, monitoring and reporting of ESG performances in a seamless manner. These digital solutions can also perform GHG accounting in an automated way along with the generation of sustainability reports aligned to BRSR and other global standards such as Global Reporting Initiative (GRI), Task Force on Climate-related Financial Disclosures (TCFD) and Sustainability Accounting Standards Board (SASB) among others. Most of these solutions would be backed by comprehensive taxonomy and cover materiality mapping at the industry level to make it relevant for every business.
Many organizations can swiftly deploy these SaaS-based sustainability tools in a matter of weeks across the organization at multiple sites and plants with access to their people who own the energy, water, waste, health and safety, HR, social and other compliance processes. Respective teams can either enter the ESG data directly in this configured solution or upload any voluminous excel files at regular intervals or certain periodicity as per their internal process. Large organizations that use energy management systems and any other ERP applications such as SAP or Oracle can also integrate these with the ESG software that they have deployed so that there is a seamless flow of data from one system to another without any duplication of efforts. At an operational level, there are energy-related systems that facilitate utility bill tracking, real-time metering, building HVAC and lighting control systems and supporting related activities. The IoT (Internet of Things) technology will now be slowly penetrating many sectors.
Some of the new-age digital ESG solutions are also deep enough to enable businesses in capturing Scope 1, 2 and 3 data points to comprehensively calculate their carbon footprint across their processes. They can also digitally assess the ESG performances of their supply chain partners which could be small to medium-sized unlisted entities, too. A technology-equipped solution would also ensure appropriate audit logs and documentation for ESG processes supporting audit protocols and risk management objectives of organizations, especially given that much of this information would gradually now be available in the public domain for consumption of external stakeholders.
Technology-enabled ESG processes and reporting would enhance the sustainability performances of businesses manifold and also support peer comparisons, predictive analysis and target versus actuals tracking. Such technology-enabled ESG reports would fulfil the requirements of regulators, investors, ESG and credit rating agencies among internal stakeholders and committees under the Board of Directors. These solutions can also be used by funds and lenders to monitor the ESG performances of their portfolio companies.
Leveraging new-age technology has made it possible for companies in India to navigate their ESG performance management and reporting challenges smoothly. Many of these solutions can be easy to use and affordable for any size of the company across various industries and geographies. In a way, it is more of a change management process that leaders can initiate in whichever small way that would gradually become part of core business processes and culture with economic and social benefits.
The author is co-founder & chief business officer, Updapt – an ESG Tech Co