The EU institutions and the governments of individual countries see the need to go beyond the current reporting schemes, limited only to financial reporting. The global nature of the activities of many companies makes us think about the impact that business has on social and environmental issues. The verification of supply chains and their inclusion in the reporting system aims to provide information about the ecological footprint that a company leaves behind on a global scale. ESG reporting is an important component on the way to greater awareness of business owners. Today we will describe the new standard of non-financial reporting, which will soon be added to the duties of every entrepreneur and supplier. It also helps in making better decisions for investors who create a new, ecological economic reality with the capital model.
What is enterprise ESG reporting?
ESG report what is it in the context of non-financial reporting? ESG reporting (environmental, social, and governance) concerns the issues of care for the environment, social conditions, and company management methods. The factors that should be included in each ESG report include data on water consumption throughout the production cycle, approach to employees and counteracting social exclusion, implemented ideas to reduce carbon dioxide emissions, or information on the selection of suppliers operating by EU guidelines in the field of ecology. As you can see, ESG reporting has a great potential to quickly spread beyond the area covered by EU regulations. Companies forced to do non-financial reporting will look for suppliers who meet the new criteria.
Due to the fact that non-financial reporting entails the obligation to take into account a lot of new information, companies willingly use IT solutions that allow for the automation and schematization of many processes related to the creation of ESG reports. The software developed for ESG reporting is becoming an important step towards designing efficient and fast methods of dealing with the new obligations imposed on enterprises by the EU institutions.
The genesis of the introduction of ESG reports – why were they created?
The event initiating the creation of the ESG reporting system is Directive 2014/95 / EU of the European Parliament and of the Council on the 22nd of October 2018, regarding the disclosure of non-financial and diversity information. The EP decisions clearly show a tendency to promote non-financial reporting as an expression of global business responsibility. The directive creates a legal framework for the implementation of reporting systems, the ESG report aims to show the business model of the entity, describe the implemented ESG due diligence processes with the results expressed in specific numbers, as well as analyze the risk associated with economic relations, products or services, that may have an adverse impact in ESG domains, and how the entity manages these risks. ESG reports, as understood by EU institutions, are therefore an important step towards building environmental and social awareness, forcing companies to take specific actions towards sustainable development.
ESG report – which companies are required to report?
As part of the new ESG assumptions, reporting in Poland covers large business entities, most often listed on the Warsaw Stock Exchange, which employ over 500 employees and generate an annual turnover in excess of PLN 170 million. The implementation of ESG reports for this type of institution took place as a result of the amendment to the Accounting Act of 2018. Non-financial reporting for the 2021 financial year has been extended to include data on CO2 emissions in the entire supply chain and the need to describe climate risks for the entire business model. It is worth bearing in mind the plans to amend the EU directive and introduce the obligation to use ESG reports also for small and medium-sized enterprises. Therefore, entrepreneurs have time to adapt to the new regulations and learn from the experience of large institutions that have been submitting ESG reports for two years.
Automation of the ESG reporting process
ESG reporting, like financial reporting, can be a fully automated process. Including those related to reporting, are still not common in the Polish market, therefore there are not many tools available yet that would improve these processes. Incube CPM, however, developed a custom program based on the use of a system that was originally only used to report financial data. The engine of this solution is IBM Planning Analytics (TM1), while all other elements, e.g. forms, validations, the layer of data collection and preparation are transferred to the web interface – IBM Planning Analytics Workspace. The final ESG report is generated from the Certent Disclosure Management (CDM) tool, which is connected online with the solution engine – any changes to the source data are mapped on a report template that can be generated and distributed.
An alternative to the above tool based on IBM Planning Analytics can also be Qalcwise – a no-code platform, where ESG reports can be prepared in an automated manner based on the workflow forms. Qalcwise also makes it possible to handle other business processes (there are hundreds of them), such as business trips, from which you can automatically download, for example, data on the number of kilometers traveled by employees of a given organization during business trips, and thus provide data on the carbon footprint of a given organization.
All the proposed tools, whether based on IBM Planning Analytics + Certent or Qalcwise, provide flexibility and easy monitoring of changes, save time and significantly accelerate the processes related to the preparation of ESG reports.