How ESRS Reporting Software Can Streamline Your Sustainability Reporting

Sustainability reporting has come a long way in recent years. What was once a niche practice for a handful of forward-thinking companies has now become a mainstream expectation for businesses of all sizes and sectors. From investors and regulators to customers and employees, stakeholders are increasingly demanding greater transparency and accountability on companies' environmental, social, and governance (ESG) performance, seeing it as a critical factor in long-term value creation and risk management.

At the forefront of this trend is the European Union, which has been steadily ramping up its sustainability reporting requirements for companies operating in the region. The latest and most significant development is the introduction of the European Sustainability Reporting Standards (ESRS), which were adopted by the European Parliament in November 2022 as part of the broader Corporate Sustainability Reporting Directive (CSRD).

The ESRS represent a major step forward in the standardization and digitalization of sustainability reporting in the EU. Under the new standards, which will be phased in from 2024 to 2026, nearly 50,000 large companies and listed SMEs will be required to disclose detailed information on a wide range of ESG topics, including climate change, biodiversity, human rights, and governance. Companies will need to report both on their own operations and on their value chain impacts, using a double materiality perspective that considers both the company's impact on sustainability issues and the financial materiality of those issues for the company.

But perhaps the most significant aspect of the ESRS is the requirement for companies to report their sustainability information in a standardized digital format, using the European Single Electronic Format (ESEF) and a set of predefined indicators and templates. This means that companies will need to tag their sustainability data using a standardized taxonomy, similar to the way financial information is tagged using the XBRL format.

The goal of this digital reporting requirement is to make sustainability information more transparent, comparable, and decision-useful for investors and other stakeholders. By providing sustainability data in a machine-readable format, the ESRS aim to enable the creation of a centralized European database of sustainability information, which can be easily accessed and analyzed by anyone with an internet connection.

However, for many companies, complying with the ESRS will be a significant challenge. The standards cover a vast array of ESG topics and indicators, many of which companies may not have previously reported on or even measured. Collecting and calculating the necessary data from across complex global operations and value chains will require significant time and resources, as well as new processes, controls, and governance structures. And tagging and formatting the data in accordance with the ESEF requirements will add an additional layer of technical complexity and cost.

This is where ESRS reporting software comes in. These specialized tools are designed to help companies streamline and automate their ESRS reporting processes, from data collection and calculation to disclosure and assurance. By leveraging the power of technology and best practices, ESRS reporting software can help companies save time and resources, improve the quality and reliability of their sustainability data, and meet the complex requirements of the new standards with confidence.

In this article, we'll take a closer look at the key benefits and features of ESRS reporting software, and provide expert guidance on how to choose and implement the right solution for your company's needs. Whether you're just starting your ESRS journey or looking to optimize your existing reporting processes, read on to learn how ESRS reporting software can help you stay ahead of the curve in the rapidly evolving world of sustainability reporting.

Key Benefits of ESRS Reporting Software

So, what exactly can ESRS reporting software do for your company? Here are some of the key benefits and value drivers of these solutions:

#### Streamlined data collection and management
One of the biggest challenges in sustainability reporting is collecting and managing the vast amounts of ESG data required from across the organization and value chain. This data often resides in multiple systems and formats, making it difficult to aggregate and ensure consistency and accuracy.

ESRS reporting software can help streamline this process by providing a centralized platform for data collection, validation, and storage. Key features may include:

- Automated data integration with ERP, HR, and other source systems to pull in relevant ESG data in real-time

• Customizable data entry forms and workflows to guide users through the process of inputting and validating data
• Built-in data validation and error-checking to ensure data quality and consistency
• Centralized data repository with version control and audit trails to ensure data integrity and traceability

By automating and centralizing the data collection process, ESRS reporting software can help reduce the time and effort required for manual data entry and manipulation, while improving the accuracy and reliability of the underlying ESG data.

#### Automated calculations and indicator mapping
Another challenge in ESRS reporting is performing the complex calculations required to convert raw data into the specific ESG indicators and metrics required by the standards. This often involves applying emission factors, conversion rates, and other calculation methodologies to large volumes of data, which can be time-consuming and error-prone when done manually.

ESRS reporting software can automate these calculations by embedding the relevant methodologies and formulas directly into the platform. This may include:

- Pre-built calculation engines for common ESG indicators like carbon footprint, energy consumption, and waste generation

• Customizable calculation templates and models to adapt to company-specific methodologies and assumptions
• Automated mapping of calculated indicators to the relevant ESRS disclosures and data points
• Integration with external databases and tools for emission factors, benchmarking data, and other inputs

By automating the calculation and mapping process, ESRS reporting software can help ensure that ESG indicators are consistently and accurately derived from the underlying data, while saving significant time and effort compared to manual calculations in spreadsheets.

#### Digital tagging and ESEF compliance
As mentioned earlier, one of the key requirements of the ESRS is for companies to tag their sustainability data using a standardized taxonomy and format, namely the ESEF. This will allow the data to be machine-readable and easily aggregated and analyzed by investors and other stakeholders.

However, implementing ESEF tagging can be a complex and technical process, requiring specialized knowledge of XBRL and other digital reporting standards. ESRS reporting software can help simplify and automate this process by providing:

- Pre-built ESEF taxonomies and templates aligned with the latest ESRS requirements

• Drag-and-drop tagging interfaces to map sustainability data to the relevant ESEF elements and attributes
• Validation and rendering tools to ensure the tagged report is compliant with the ESEF specifications
• Integration with ESEF filing platforms and services to streamline the submission process

By handling the technical aspects of ESEF tagging and compliance, ESRS reporting software can help reduce the burden and risk of digital reporting for companies, while ensuring their sustainability data is accessible and decision-useful for stakeholders.

#### Governance and assurance support
The ESRS also introduce new requirements for the governance and assurance of sustainability reporting, including the need for companies to establish robust internal controls, document their reporting processes, and obtain independent assurance of their ESG disclosures.

ESRS reporting software can support these governance and assurance activities by providing:

- Customizable workflows and approval processes to ensure data is reviewed and signed off by the appropriate stakeholders

• Audit trails and version control to document data changes and ensure traceability
• Role-based access controls and data security measures to protect sensitive ESG data
• Integration with assurance providers' systems and tools to facilitate data sharing and review
• Archiving and retention capabilities to meet legal and regulatory requirements for record-keeping

By embedding governance and assurance into the reporting process, ESRS reporting software can help companies demonstrate the credibility and reliability of their ESG disclosures, while reducing the time and cost of compliance.

#### Analytics and benchmarking
Beyond just complying with the ESRS requirements, companies can also use their ESG data to gain valuable insights into their sustainability performance and identify areas for improvement. ESRS reporting software can support this by providing:

- Interactive dashboards and data visualizations to help users explore and analyze ESG data across different dimensions and time periods

• Benchmarking and peer comparison tools to assess company performance against industry averages and best practices
• Scenario modeling and target-setting features to help companies set and track progress against sustainability goals
• Integration with BI and analytics platforms to enable more advanced data mining and predictive analytics

By providing these analytics and benchmarking capabilities, ESRS reporting software can help companies turn their ESG data into actionable insights and strategic decision-support, driving continuous improvement and value creation from their sustainability efforts.

How to Choose and Implement ESRS Reporting Software

With a growing number of ESRS reporting software solutions on the market, it can be challenging for companies to know where to start in selecting and implementing the right tool for their needs. Here are some key steps and considerations to guide your decision-making process:

#### Assess your reporting requirements and maturity
Before evaluating software options, it's important to have a clear understanding of your company's specific ESRS reporting requirements and current maturity level. This may involve:

- Reviewing the ESRS standards and guidance to identify which topics, indicators, and disclosures are relevant to your company based on your sector, size, and business model

• Assessing your current ESG data landscape and reporting processes to identify gaps, pain points, and areas for improvement
• Engaging with key stakeholders like investors, customers, and regulators to understand their expectations and information needs
• Developing a roadmap and business case for ESRS reporting software based on your compliance obligations, strategic goals, and available resources

#### Evaluate software features and capabilities
Once you have a clear picture of your requirements, you can start evaluating ESRS reporting software options based on their key features and capabilities. Some important factors to consider include:

- Compatibility with the latest ESRS taxonomies, templates, and digital reporting formats

• Breadth and flexibility of ESG indicator and calculation libraries
• Ease of use and customization for different user roles and workflows
• Integration with source systems and external data providers
• Scalability and performance for large and complex data sets
• Security and compliance with data privacy and protection regulations
• Vendor track record and customer support offerings

#### Conduct due diligence and demos
Before making a final selection, it's important to conduct thorough due diligence on your shortlisted software vendors and their solutions. This may include:

- Requesting references and case studies from existing customers in your industry or region

• Conducting in-depth product demos and proof-of-concept tests to evaluate functionality and usability
• Reviewing vendor financial stability, roadmap, and innovation pipeline
• Assessing vendor partnership and ecosystem for complementary services and support
• Negotiating pricing and contract terms that align with your budget and business model

#### Plan for implementation and change management
Once you've selected your ESRS reporting software, the real work of implementation begins. To ensure a smooth and successful rollout, it's important to:

- Develop a detailed project plan with clear milestones, dependencies, and resource requirements

• Assign dedicated project management and technical resources to oversee the implementation
• Engage key stakeholders early and often to build awareness, gather input, and drive adoption
• Conduct thorough testing and quality assurance before go-live to identify and resolve any issues
• Provide comprehensive training and support to end-users to ensure they can effectively use the system
• Establish governance and data management processes to ensure ongoing data quality and integrity
• Monitor and measure adoption and performance metrics to identify areas for optimization and improvement

By following these steps and best practices, companies can select and implement an ESRS reporting software solution that meets their specific needs and drives tangible business value from their sustainability reporting efforts.

The Future of ESRS Reporting Software

As the ESRS and other sustainability reporting requirements continue to evolve and mature, so too will the landscape of ESRS reporting software. Here are some key trends and developments to watch in the coming years:

#### Greater standardization and harmonization
As more companies adopt the ESRS and other reporting frameworks, there will be growing pressure for software vendors to align their solutions with these standards and provide "out-of-the-box" functionality for common ESG indicators and disclosures. This will help reduce the burden of customization and mapping for companies and enable greater comparability and benchmarking of ESG data across industries and regions.

#### Integration with mainstream business systems
Today, many ESRS reporting software solutions are standalone tools that require manual data integration and reconciliation with financial and operational systems. In the future, we can expect to see greater integration of ESG data and workflows into mainstream ERP, BI, and other business applications, enabling more seamless and automated reporting and analysis.

#### Advanced analytics and AI
As the volume and complexity of ESG data grows, companies will increasingly turn to advanced analytics and artificial intelligence (AI) techniques to extract insights and drive decision-making. ESRS reporting software will need to incorporate these capabilities, such as machine learning for data validation and anomaly detection, natural language processing for sentiment analysis and risk assessment, and predictive modeling for scenario planning and target-setting.

#### Blockchain and other emerging technologies
Blockchain and other distributed ledger technologies (DLTs) have the potential to transform sustainability reporting by enabling secure, transparent, and auditable tracking and verification of ESG data across complex global supply chains. Some ESRS reporting software vendors are already experimenting with blockchain-based solutions for carbon accounting, renewable energy certificates, and other use cases, and we can expect to see more adoption and innovation in this space in the coming years.

#### Expansion beyond reporting
Finally, as companies mature in their sustainability reporting practices, they will increasingly look to leverage their ESG data and insights for broader business value and impact. This may include using ESRS reporting software for strategic planning, risk management, product innovation, and stakeholder engagement, among other use cases. Software vendors that can provide these value-added services and support companies in their sustainability transformation journeys will be well-positioned for success in the market.

Conclusion

The introduction of the ESRS represents a major milestone in the evolution of sustainability reporting, one that will require significant changes and investments from companies operating in the EU. To meet the complex requirements of the new standards and unlock the value of their ESG data, companies will need to rethink their reporting processes, systems, and capabilities, and embrace new technologies and best practices.

ESRS reporting software can be a powerful ally in this journey, helping companies streamline and automate their data collection, calculation, disclosure, and assurance activities, while providing valuable insights and decision-support for their sustainability strategies and initiatives. By carefully selecting and implementing the right solution for their needs, companies can not only comply with the ESRS requirements but also drive meaningful improvements in their ESG performance and stakeholder trust.

Of course, software is just one piece of the puzzle, and true success in ESRS reporting will require a holistic and strategic approach that encompasses people, processes, and culture as well as technology. Companies will need to invest in the skills and capabilities of their teams, engage proactively with their stakeholders, and embed sustainability into their core business models and decision-making frameworks.

But for those companies that embrace the challenge and seize the opportunity of the ESRS, the rewards can be significant – not only in terms of reduced risk and compliance costs but also in terms of enhanced reputation, competitiveness, and long-term value creation. By providing credible, consistent, and decision-useful ESG information to the market, these companies can help accelerate the transition to a more sustainable and resilient economy and society.

As a sustainability professional and technology enthusiast, I am excited by the potential of ESRS reporting software to enable and accelerate this transition. While the road ahead is complex and uncertain, I am confident that with the right tools, partnerships, and mindsets, companies can successfully navigate the ESRS landscape and emerge as leaders in the new era of sustainability reporting and performance.

The time to act is now, and the stakes have never been higher. With the help of ESRS reporting software and other innovations in sustainability data and technology, let us seize this moment to build a more transparent, accountable, and sustainable future for all. The journey starts with a single step – and that step is to embrace the power and potential of ESG data and digital reporting. Are you ready to take it?