Sustainability is rapidly becoming an integral part of business strategy. For a growing number of companies, sustainability is the business strategy. Almost all companies have to achieve three strategic objectives relative to sustainability:
- Comply with mandatory regulatory disclosure requirements which increasingly requires alignment and partly integration of the sustainability report and the annual report
- Create and implement a credible sustainability strategy
- Satisfy stakeholder expectations
Most companies with a substantial number of employees face the annual task of creating sustainability reporting mandated by government regulation and in response to stakeholder expectations. A growing number of companies are advocating that their proactive sustainability strategy is good for their profitability. Regulators and investors have come to realise that sustainability reporting and the associated public accountability are key to transition the economy and investment portfolios to sustainable value creation.
Today, this Environmental, Social, and Governance (ESG) data reporting is largely a manual process because there is no effective technology that can cover all of the above stated strategic objectives. Sustainability Central from Trusted.one provides companies a new capability to automate sustainability management based on three key principles.
Three essential principles for the automation of your sustainability strategy are:
- Everyone engaged; all stakeholders aligned with your sustainability strategy.
- Everything interrelated; all data, people, processes, knowledge, and standards linked.
- Supply-chain integrated; towards automation for scope-2 and scope-3 reporting.
Why do the three principles help to achieve your sustainability goals?
The goal is to get all stakeholders aligned with the sustainability strategy. Because sustainability management is becoming an integral part of business strategy, companies face the challenge to engage a significant number of their employees in the sustainability data collection process. Equally important is creating and steering broad employee and stakeholder engagement towards achieving the sustainability goals and targets. That is why Sustainability Central has collaboration built in with flexible role management so that everyone that is essential to achieve your sustainability strategy can be engaged.
The goal is to link all data, people, processes, knowledge, and standards related to sustainability. Small to midsize companies typically have to map 100+ ESG data points against three or more complex reporting frameworks. Multinational companies have to manage thousands of ESG data points, that are defined by dozens of regulatory and voluntary reporting frameworks and complex ESG data measurement standards. Because regulators and investors push towards integrated reporting of sustainability data in the annual report, the need for interrelated sustainability data and knowledge will increase rapidly. The knowledge graph database of Sustainability Central is the only technology that can deal with the interrelated nature of multiple sustainability standards, reporting requirements, and global ESG-data from a wide variety of sources and systems.
Supply chain integrated
The ultimate goal is to enable the automation of scope-2 and scope-3 reporting. The initial focus of ESG data reporting started with sustainability metrics that are related to the company’s own operations. So-called scope-1 reporting. Company regulators, investors, and banks, are well aware that the environmental risks and impacts of companies are mainly related to greenhouse gas emissions caused by energy consumption, called scope-2 emissions, and scope-3 emissions caused by assets not owned or controlled by the reporting company but directly related to their value chain.
With the advent of EU wide regulation (CSRD) and the convergence of global ESG reporting standards, the focus will shift towards including scope-2 and 3 emissions in regulatory disclosures. To implement scope-2 and 3 reporting requires so-called FAIR data principles: ESG data must be Findable, Accessible, Interoperable, and Reusable across the supply-chain. The knowledge graph databases from Sustainability Central implements these essential FAIR data principles.
Why use universal and common standards for non-financial reporting
In 2020, a project developed within the International Business Council of the World Economic Forum, working with the Big-4 global accounting firms, defined a set of common metrics for sustainable value creation. The stakeholder capitalism metrics for non-financial reporting. The aim was to improve the ways that companies measure and report their contributions towards creating more prosperous, fulfilled societies and a more sustainable relationship with our planet.
The core metrics consist of a set of 21 established and critically important metrics and disclosures. These are primarily quantitative metrics for which information is already being reported by many firms or can be obtained with reasonable effort. They focus primarily on activities within an organisation’s own boundaries.
The expanded metrics consist of a set of 34 additional metrics and disclosures that tend to be less well-established in existing reporting practice and standards and have a wider value chain scope or convey impact in a more sophisticated or tangible way, such as in monetary terms. The expanded metrics represent a more advanced way of measuring and communicating sustainable value creation.
Sustainability Central provides a fully automated smart solution to report using the Stakeholder Capitalism Metrics for non-financial reporting and all associated reporting requirements that mainly stem from the leading international sustainability reporting standard the Global Reporting Initiative (GRI).
Stakeholder Capitalism Metrics and the new EU CSRD regulation
EU law, the Non Financial Reporting Directive (NFRD), and related guidelines, require most large companies in the EU to disclose information on the way they operate and manage social and environmental challenges. This helps investors, civil society organisations, consumers, policy makers and other stakeholders to evaluate the non-financial performance of large companies and encourages these companies to develop a responsible approach to business. EU rules on non-financial reporting currently apply to large public-interest companies with more than 500 employees. This covers approximately 11 700 large companies across the EU. Under Directive 2014/95/EU, large companies have to publish information related to:
- environmental matters
- social matters and treatment of employees
- respect for human rights
- anti-corruption and bribery
- diversity on company boards
On 21 April 2021, the EU Commission adopted a new proposal for a Corporate Sustainability Reporting Directive (CSRD), which would amend the existing reporting requirements of the NFRD. The standards will be tailored to EU policies, while building on and contributing to international standardisation initiatives. The Corporate Sustainability Reporting Directive (CSRD):
- Extends the scope to all large companies and those listed on regulated markets.
- Requires the audit (assurance) of reported information
- Introduces more detailed reporting requirements
- Requires reporting according to mandatory EU sustainability reporting standards.
- Requires companies to digitally ‘tag’ the reported information, so it is machine readable and feeds into the European single access point.
Regulatory standards typically require reporting on ESG data, for which reporting standards already exist, often based on the Global Reporting Initiative. Measurements require quantified metrics and therefore the WEF-SCM standard for non-financial reporting also provides a seamless fit with most mandatory reporting requirements.
Sustainability Central can therefore fully support any applicable EU regulation and due diligence. The same applies for the new UK Environment Act and the global leading voluntary reporting standards. The flexibility and power of our knowledge graph database makes it possible to respond to changing international regulations and reporting practices. Our software also provides companies a capability to add and customise sustainability KPIs.
Sustainability Central provides smart technology for the automation of almost all voluntary and regulatory reporting
Because the need for mandatory and voluntary reporting is rapidly increasing, better digital tools are crucial for companies to avoid that most of their sustainability investments are consumed by reporting activities rather than achieving their goals. Sustainability Central is designed to enable and encourage more companies to disclose sustainability information and to help companies make progress towards achieving their goals.
Why use smart technology?
As a company, how could you know if the sustainability goals and targets that you set are appropriate and effective relative to your peers, your market, the regulatory environment, and goals defined by supranational unions and bodies in conjunction with global environmental science?
How would you know if you are making sufficient progress to achieve your goals and objectives? Will your progress satisfy your shareholders and stakeholders at large?
This is where smart technology, such as the knowledge graph database of Sustainability Central, comes into play. Knowledge graph databases, also known as semantic networks, are based on ontologies that hold machine readable semantic information about your data and the context in which this data is created and used using relationships between all real-world entities involved with sustainability management. This automated knowledge is essential to apply artificial intelligence and to enable independent verification of your sustainability reporting without excessive additional cost to reexamine the ESG-data you already reported.
The need for sustainability management automation
Sustainability reporting in its current state is largely an unstructured manual process that needs to be repeated yearly requiring significant cost and effort. Reporting consumes resources that companies would rather direct towards making sustainability progress. Keeping sustainability reporting in sync with annual reporting is an additional complex challenge that companies face. Sustainability reporting is largely reinvented every year due to a lack of systematic and automated data and knowledge capture. Using Sustainability Central has the potential to yield 10X cost and time savings already after the second year of reporting is done with the product.
Building the leading global knowledge graph for sustainability management
Knowledge graph technology has been gaining momentum in leading tech companies as a means to integrate and interrelate complex diverse data and knowledge. That is why we started building a large global knowledge graph for sustainability. We use the Metaphacts open standards based decision intelligence and knowledge democratisation platform. The low-code database technology and front-end flexibility provide us the capability to implement smart technology for a wide range of use-cases and devices. Our aim is to simplify complex sustainability management tasks and deliver essential knowledge on the device of choice of the end-user.
Why linking sustainability to compensation makes sense
Beyond the business mantra “what gets measured gets done” an equally relevant credo “you get what you pay for” applies to sustainability goals and objectives.
That is why Sustainability Central includes smart technology to interrelate executive incentive models to sustainability KPI’s including company wide employee performance incentives.
Why collaboration beyond your company is a win-win situation
We believe that beyond the practical need for collaboration within your company, there is a growing need and value to extend collaboration to include the global business community. Solving many of the sustainability challenges can be achieved faster and better through sharing knowledge and best practices. That is why we will create the Circle of Trust – community of sustainability solvers. Initially, we will start to develop the community by actively featuring best-in-class sustainability management and reporting examples as part of the knowledge graph database. As more examples become available and more companies use Sustainability Central for their reporting, the Circle of Trust will gain in importance and value.
Blog article written by: Peter Storm
Join us today
Join us to secure early access to our ESG reporting knowledge, solution and courses.
Leave A Comment