Environmental, social, and governance (ESG) reporting is a required capability for organizations in the European Union and beyond, with most of them legally required to implement new regulations (starting in 2025 for the financial year of 2024) when the EU’s Corporate Sustainability Reporting Directive (CSRD) directive comes into law. ESG leaders often grapple with significant challenges when establishing an ESG program but also when having to navigate the broad and often confusing avalanche of software options promising the ultimate solutions to their sustainability management and reporting problems. ESG leaders are facing several challenges, including: 1) defining a sound strategy; 2) managing data collection and processing; 3) aligning with ever-changing global standards; and 4) identifying the right technology to support sustainability goals.
I have seen a lot of confusion in the market as to whether ESG reporting products stand up as a solution feature or a market in its own right. Clients ask us how they can cut through all of the vendor hype and marketing snake oil to identify the right solution to help them develop a long-term strategy around ESG requirements and good-quality ESG reporting capabilities founded on reliable and compliant data.
In the recently published Forrester report, ESG Reporting Is A Feature, Not A Product, I argue that, for most organizations, ESG reporting as a standalone market does not make much sense. Many standalone solutions simply act as reporting shells, overlooking essential steps in the process of defining and assessing the materiality of sustainability data across all three pillars, setting up reliable data collection practices, and ensuring the quality and traceability of the data to be processed. Feeding in bad-quality data risks regulatory issues and accusations of greenwashing, so making the right choice here is crucial. We find that sustainability management solutions, an adjacent market space, often have reporting as a feature integrated into a wider platform looking at the entire reporting problem, from sourcing the data to collection, transformation, and the final reporting component. Forrester clients can read my report to find out more about this perspective but, more importantly, the six steps that ESG leaders should follow to implement a robust ESG reporting program. Here is a sneak peek at some of the key findings from our research:
- ESG leaders tasked with reporting are faced with many challenges. ESG leaders face a number of challenges, including lack of resources, lack of expertise, and lack of standardization. Organizations that we talk to often struggle to define and identify the right data sources pertinent to regulatory reporting on ESG matters required for legislation such as the CSRD. Excel spreadsheets, emails, and manual effort abound.
- Sustainability management solutions can help. Standalone ESG reporting solutions can be expensive, complex, and difficult to use. Sustainability management solutions can help ESG leaders overcome the challenges of ESG reporting and produce high-quality reports that source high-quality and traceable data, ensure compliance and transparency, and provide data-driven insights for performance-oriented optimization strategies.
- ESG reporting is an embedded feature as opposed to a market. ESG reporting solution vendors often talk a good game, but in reality, they do not focus on the most important aspects of an end-to-end ESG management program, which is to focus on getting and disclosing the right data. Sustainability management platforms provide most of the same functionality and focus on the broader picture. For most ESG leaders in search of a comprehensive solution, it doesn’t make a lot of sense to even pick up the phone when a standalone reporting provider calls. The only limited case where it can make sense is for a mature organization with an existing sustainability management platform that requires more functionality than provided in its incumbent provider’s reporting features. I expect such occasions to be limited at present.
If you are interested in learning more about the challenges and opportunities of ESG reporting, Forrester clients can read the report here. Also, feel free to reach out to me at ralexandru@forrester.com to connect and share your experiences and best practices on the topic. If you are a Forrester client, schedule a guidance session, inquiry, or strategy session if you have any questions or need any assistance in defining your own ESG reporting strategy.
