The era of voluntary, purely narrative ESG reports is over. Under new regulatory regimes, sustainability disclosure is becoming mandatory, structured, and subject to external assurance. This transition fundamentally shifts the focus from writing a nice report to generating auditable, reliable data.
Once ESG information is included in the annual management report and submitted in a mandated digital format, it is subjected to third-party verification, such as a limited assurance engagement. The reliability and fairness of the entire reporting process depend on the quality and integrity of the underlying sustainability data. This demands a radical overhaul of current data practices:
1. Systematization is Essential: Organizations must move beyond manual, siloed workflows (where information is often collected using unmanaged spreadsheets) which create risks of error, inconsistency, and delay. The solution lies in centralizing the data collection process, promoting collaboration among previously siloed teams (like finance, operations, and HR), and utilizing specialized data management tools and software.
2. Internal Controls are the Foundation: Before engaging an assurance provider, companies must define the quantitative and qualitative data required, develop robust internal control practices, and ensure that all calculation methodologies are clearly documented and transparent. Data must be verifiable, consistent, and reliable.
3. KPIs and KPNs: Reporting requires measurable Key Performance Indicators (KPIs) presented in absolute values to allow for easy comparability and integration into financial analysis. However, since “numbers” alone cannot always capture the full context of underlying economic and environmental processes, these KPIs must be complemented by carefully defined Key Performance Narratives (KPNs) to provide necessary explanations.
Ultimately, your preparation for assurance must focus on building capacity, establishing methodologies, and defining a “single source of truth” for all data elements to secure the credibility investors and regulators demand.