Right on track: Measuring emissions to track ESG performance
As environmental commitments become more ambitious, data transparency improves, and climate change accelerates, businesses struggle to measure their ESG performance across the value chain. ESG tracking softwares are changing how environmental performance is measured and strategized.
Rising popularity of ESG softwares
Carbon accounting is an emerging field where organisations measure the E in ESG through an inventory of carbon emissions. There are many methods to measure carbon, and there are huge volumes of data to be processed. One of the ways to measure carbon emissions is categorizing by scope. There are broadly 3 scopes of emissions: Scope 1, 2 and 3.
Scope 1 (Direct Emissions) come directly from a company’s business activities. Scope 2 (indirect emissions) refers to emissions as a result of energy or purchased by a business. Lastly, Scope 3 (Indirect emissions) emissions occur in the value chain through the company’s suppliers (upstream) and the users of their products (downstream) across the value chain.
Carbon accounting — when combined with other indicators of environmental performance — creates a huge burden to companies with ESG commitments. That’s where ESG tracking platforms step in and simplify the data management, visualisation, reporting, and performance tracking, and provide valuable insights that assist with decision making.
ESG softwares have several advantages, including;
- Make a company’s progress on sustainability transparent
- Allow for reports across numerous reporting frameworks to be generated
- Improve accountability and decision-making
- Facilitate quantitative analysis for program evaluation
- KPIs (key performance indicators) help predict legal challenges
- Create possibilities for compensation-based ESG schemes
Role of ESG tracking startups
Today there is a plethora of ESG softwares available in the market. These SaaS products are produced by large consulting firms like PwC and numerous start ups providing one-size-fits-all and tailor-made solutions across industries.
Some softwares boast of user-friendliness, others bring complex data processing tools, and so on. Some businesses get overwhelmed by choice and continue to outsource ESG reporting to big and boutique consulting firms, while others make the switch to a reporting software. There is an undeniable rise in business-led reporting of sustainability, as compared to consultant-led. There are also ESG SaaS startups that provide a blend of direct customer service and software, which provides a unique advantage over fully-human or fully-software led reporting.
Despite being a tech solution, ESG SaaS platforms do not completely eliminate humans in the process of ESG reporting. The onboarding process of most SaaS platforms involves anywhere between 2 to 4 months of intense assessment of a business’s internal and external systems, human resources, reporting practices, and so on. After the assessment, there is a rigorous training and onboarding process, following which the process is automated and primarily software based. Advancements in AI are also enabling startups to increase efficiency and reduce human interventions throughout the entire engagement.
There are many advantages of using ESG tracking softwares. Some SaaS providers include AI tools, value chain mapping, forecasting and many other add-ons to users that give business insights as well as ESG insights. These tools have the potential to increase the profitability of businesses.
It is unclear whether ESG SaaS providers will eliminate consultants altogether, but they have certainly disrupted this niche of consulting services. This growing sector will transform the nature of ESG reporting and increase business transparency and core practices in the long run.
ESG reporting for start-ups and SMEs
ESG disclosure is gaining popularity among investors such as venture capitalists and angel investors, which puts pressure on start-ups and small and medium enterprises (SMEs). Investors consider ESG another metric of business health — poor ESG performance is correlated with poor business practices, which is undesirable for any investor.
ESG disclosure is a laborious and expensive process for organizations. Start-ups are strapped for funds, especially start ups working in the climate and impact space. ESG tracking software can significantly cut costs for startups looking to report their ESG performance to investors. Disclosing ESG performance can increase the chances of gaining investment by building investor confidence in the business as an investment.
ESG reporting softwares come equipped with several features such as user-friendliness, data visualisation presets, reporting indicator frameworks, and guidelines for disclosure. These features simplify the reporting process for users and facilitate the collection and storage of ESG data for SMEs by eliminating the need for specialised staff for data management and report generation.
