Digitization in sustainability management



published on 8 March 2023 ​ 

Sustainability-related data is becoming increasingly important due to rising regulatory requirements, among other things. In order to be able to capture, analyze and thus control this data, it is worthwhile for companies to implement and use ESG software solutions at an early stage. The digitization of processes in the ESG area offers the possibility of audit-proof data collection, timely transparency and can thus contribute to the improvement of corporate ESG performance. Linking sustainability-related data with other corporate data relevant to management is also of great importance, espe­cially in view of the upcoming legal framework. The linkage provides an important basis for decision-making for the company and its various stakeholder groups, such as investors, customers or potential employees.  

Support through software solutions 

The Corporate Sustainability Reporting Directive (CSRD) amends the EU Accounting Directive to make sustai­nability reporting mandatory in the management report. Due to increasing requirements for sustai­nabi­lity-related data, such as improved trans­parency and audita­bility, the use of suitable software can bring advantages over the comparatively error-prone manual data entry. The software can already support the implementation process during the introduction of the new reporting standards and bring together all data sources and areas within a company or group. The software solutions are diverse and cover different parts of the reporting process. From structured data collection and data consolidation to disclosure management with an integrated ESEF solution. The software solutions can make a decisive contribution here to quality assurance and audit security. 

Opportunities and challenges of digitization in ESG management

Current software solutions for ESG data range from solutions for specific topics, such as CO2 accounting, EU taxonomy or ESRS, to holistic solutions for the collection and analysis of sustainability-related data and the partially automatic preparation for reporting. When selecting the software, it should be determined in advance which type of connection to the company software is desired, for example API connection or integration as a software module, and which specific topics are to be offered as a solution in the software. The digitization of data collection processes through the integration of software solutions can lead to process optimizations, for example by minimizing the susceptibility to errors or also time savings through the automation of data collec­tion and analysis. In order to achieve this potential, it is important to select the right software tailored to the company, its IT landscape and its respective reporting requirements.  

Sustainability reporting through CSRD in the European Single Electronic Format (ESEF)

From fiscal year 2024, companies that are already required to provide a non-financial statement under the Non-Financial Reporting Directive will be required to provide sustainability reporting in the management report using the European Sustainability Reporting Standards (ESRS). From the 2025 financial year, then also the large companies outside the capital market. The CSRD also means that the ESEF format, which is already familiar from financial reporting, will be introduced into sustainability reporting. Through the ESEF regulation, reporting is to be carried out in a uniform European electronic reporting format in order to enable a structured analysis of sustainability information. To this end, EFRAG has been tasked with developing a taxonomy for sustainability reporting using ESRS. A first working draft (proof-of-concept) was already published in May 2022 and has been under revision since then. The aim is that, based on the ESEF regulation, machine readability of the information in the sustainability report is made possible. This means that sustainability disclosures would have to be labeled separately and thus the affected user group of the ESEF regulation could also expand. Due to the close coordination between financial reporting and sustainability reporting and the synchronization in time, it is to be expected that disclosure management solutions with integrated XBRL labeling will gain in importance and that the outsourcing of labeling to service providers will decline. 

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