Introduction
In the face of escalating environmental, social, and governance (ESG) demands, modern businesses are finding it increasingly necessary to integrate ESG criteria into their core operations and decision-making processes. In a recent survey, 77% of small and medium-sized manufacturing firms in the UK reported being presented with stricter ESG-related requirements from their customers, but less than half felt they had the resources necessary to meet them. Even large companies have reported difficulties keeping up with current regulations and market demands.
It's clear that a software (or multiple software) is necessary to manage this complexity, but choosing a suitable software is no mean feat -- on the Qurator marketplace alone, there are 65 software providers under the search term "ESG Metrics Software".
This article aims to guide your firm — whether a large corporation with a dedicated sustainability team or a smaller enterprise embarking on your ESG journey — toward making informed decisions in choosing ESG software that aligns with your strategic goals and operational requirements.
What Is ESG Software and What Does It Do?
ESG software serves as a digital backbone for companies aiming to embed ESG standards into their operational and strategic frameworks. In short, it should fulfill some of these functions:
- assist with the efficient collection, consolidation, management, and analysis of data that reflects a company's sustainability efforts,
- ensure compliance with both mandatory and voluntary reporting frameworks, such as ESRS, CDP, GRI, and SASB,
- aid in the accurate representation of an organization's ESG impacts, risks, and opportunities.
This is often achieved through a rigorous double materiality analysis, which evaluates the financial and environmental stakes of business decisions.
Most importantly, from finance managers to operational staff, your ESG software should make the abovementioned tasks as easy and painless as possible, and should allow you to move beyond mere data collection and regulation compliance to making strategic business decisions.
What Are the Types of ESG Software?
However, since the "ESG" scope is vast (it does cover everything from Environmental sustainability, Social justice to Governance after all), various types of ESG software has emerged, each designed with different features to tackle specific aspects of ESG reporting and performance.
Broadly speaking, ESG software solutions fall within these two ends of a spectrum, from specialized to comprehensive all-in-one solutions.
A. Specialized software
These are targeted tools designed to address specific ESG needs or processes. They fall into two primary areas of specialization:
i. Scope Specialization (carbon accounting vs. everything else)
These tools are designed to address specific segments within ESG scope, mostly in the area of carbon accounting. This has emerged out of growing concerns over climate change. Moreover, given the unique challenges across industries, some companies have chosen to specialize in serving specific sectors or market segments as well. Recently, due to the implementation of stricter regulations like Corporate Sustainability Reporting Directive (CSRD), many of these carbon-emissions-specialized companies started extending their software to enable CSRD compliance.
Some examples: Persefoni (General, Financial Services), Vaayu (Retail), Emitwise (Complex supply chain), Sinai (Heavy Industries), Greenly (small-mid market), Watershed (large institutions)
ii. Process Specialization (Collection vs. Reporting)
Since there process from data collection, reporting and analysis can be long and windy, some companies chose to specialize on certain parts of the process.
Some examples: Fulcrum (field data collection app), KoboToolbox (field data collection app), Workiva (pulls data from your other software to facilitate reporting)
B. Comprehensive platforms
- Conversely, comprehensive, all-in-one platforms provide a holistic view of a firm's ESG performance. These systems usually integrate data across all three pillars of ESG to deliver unified reporting and management tools. There could be differences in coverage of the various subtopics under ESG: ESG Reporting, carbon footprint calculation, ESG strategy implementation, and EU Taxonomy compliance. They would most likely offer full process integration from collection to reporting as well.
- Some examples: Sweep, kShuttle, Enablon, Cority, Sphera
Whether specialized or comprehensive, the choice of ESG software hinges on a company's specific needs, strategic ESG objectives, and the complexity of its operations. By understanding the landscape of available ESG software solutions, firms can better navigate the market and select a system that best supports their individual journey toward sustainable business practices.
The 6 Steps for Finding the Right ESG Software
So, how should one pick the right ESG software?
1. Identify Your Needs and Objectives
Before diving into the sea of ESG software options, the very first step is to decide what your organization wants to achieve. For example:
- Are there specific regulations or standards you need to comply with?
Identify the relevant regulations and frameworks that your company must comply with, be it mandatory ones like the CSRD, or voluntary ones like the Carbon Disclosure Project (CDP).
- Do you have specific industry requirements?
Different sectors have unique requirements and challenges, such as supply chain emissions in manufacturing or diversity metrics in services.
- What kind of existing software do you have?
The compatibility of new software with your existing systems can be crucial in facilitating seamless data integration, reduce redundancy, and improve overall efficiency.
- How fast do you need this new software implemented?
In general, the higher the software complexity, the longer it will take to implement and roll out.
- How big and complex is your business?
Larger and more complex entities often require comprehensive tools that can handle high data volumes and differentiated data.
- How mature is your organization in this topic? What level of guidance and consultation do you need?
Typically, in B2B software, having suitable during- and after-sales services can be just as crucial as having a functional software itself. Make sure that the service capacity of your provider matches your needs.
The maturity of your organization in ESG also plays a significant role in the software choice. If you have never done any reporting before, you might need to start with something simple to uncover your needs (hint: good ol' excel could a helpful and cheap way to get started). If you have a reporting process in place, the suitable ESG software should be the one that helps you in the analysis and formation of future business strategies using existing data.
- Who will be using this software? What are their usage patterns and preferences?
Different stakeholders have varying expertise, expectations and needs -- the people gathering data will have different requirements from the people running regional reports, for example. What kind of user interface are they used to and how much of a change would this new software be? Misalignment and not having buy-in from all levels can lead to friction or poor software adoption down the road.
- How do I expect my organization to evolve?
If your business plans to scale or venture into another industry, the future scalability of the software should be an important consideration.
- What budget do I have?
ESG software price tags vary from several thousands to hundreds of thousands (of Euros). Balancing the cost against the expected benefits to choose a solution that provides the best value while aligning with your financial resources.
Due diligence is crucial at this stage, because choosing the wrong software at the start of your journey then being forced to change in the future to adapt to new strategic goals, regulatory requirements, or poor stakeholder feedback or can be extremely costly and time consuming.
2. Evaluate the Software's Capabilities
Once you are clear about your needs and objectives, translate them into software features, then weigh them in terms of their relative importance to your organization. Some capabilities to evaluate are:
- Scope and Regulatory Compliance
Determine whether specialized or comprehensive platforms better meets your needs based on the specific regulations and industry requirements you need to comply with. Choosing software that is already aligned with the exact regulations you face can significantly reduce the need for manual configurations, saving time and effort.
- Scalability and Future Readiness
Your ESG software should scale alongside your company's growth and maturity in ESG practices. Organizations in dynamic, high-growth environments benefit from modular solutions that can expand with evolving requirements. Larger and more complex companies should consider collaborating with their software provider to create a multi-year implementation roadmap. This approach helps establish a solid data baseline, gathers user feedback, and fine-tunes the system over time.
Ensure that the software accommodates growing data volumes, adapts to emerging reporting needs, and supports expansion into new markets. It should also be capable of handling regulatory changes to remain compliant over time.
- Flexibility and Customization
Opt for software that offers customization options to match your organization's unique structure and operational methods. This includes the ability to set different user interfaces and permission levels, create customized metrics, set global and localized ESG targets.
- Data Management and Integration
As a basic requirement, the platform should allow for the seamless collection, aggregation, and integration of data across various departments.
“Data” comes in both qualitative (e.g. a write up of the transition plan for climate change mitigation) and quantitative (e.g. numbers in defined metrics) forms. Some regulations, like CSRD, require reporting of qualitative data, so this must not be overlooked.
Managing qualitative data is of course trickier than quantitative data, so any smart feature, such as AI-Assistance, could prove to be handy. Some use cases include AI-assisted writing, and AI-assisted input consolidation (e.g. consolidating data input from several geographies into one).
Another crucial feature that is often overlooked is the ability to identify missing data (or unavailable data). It is common in ESG reporting to not be able to directly measure certain data points, and being able to identify and track those allows one to identify gaps and formulate data strategies (such as using proxy measurements or extrapolation) accordingly.
- Data Audit Features
This is related to data management, but is important enough to listed as a standalone requirement. It’s crucial that the platform maintains a transparent audit trail for all data-related activities to ensure integrity and accountability. As this is a regulatory topic, the software should be able to track the origin of the data, who entered it, when it was entered, who validated it, and when it was validated. The capability to add a comment and a supporting document to each data can help too.
- User Collaboration Features
Chances are, ESG reporting and analysis will require team effort. If the software has the ability to leave comments, tag other users, provide clear instructions and contextual explanations, show who the relevant contacts are for specific issues, and notifications, it will save your teams considerable time.
- User Interface and Usability
The more user-friendly the interface, the easier it will be adopted by all relevant team members, irrespective of their technical expertise.
- Efficiency and Automation
Look for features that automate data collection and analysis, minimizing manual input and reducing the risk of errors.
- Language and Regional Support
For organizations operating globally, it’s essential that the software provides multilingual support and complies with regional data protection and privacy laws, ensuring coherent and compliant ESG reporting worldwide.
- Advanced Analysis and Reporting
For companies with a higher maturity and are moving towards developing their ESG own strategies, look for solutions that allow for sophisticated analysis, such as pro forma and variance analysis. Additionally, comprehensive disclosure support should be offered, including XBRL tagging for regulatory compliance.
3. Understand the Pricing Model
ESG software pricing models can vary depending on the features offered, the size of your company, and the vendor itself. Here's a breakdown of some common models:
- Freemium model: A limited free version with basic functionalities might be offered, with paid upgrades for additional features or data storage capacity.
- Subscription-based pricing: This is the most common model. You pay a recurring fee (monthly or annually) based on a tier system. Each tier offers a specific set of features and functionalities, with higher tiers catering to larger companies or more complex needs.
- Per-user pricing: Some vendors charge based on the number of users who will access the software. This can be a good option for smaller companies with limited users.
- Transaction-based pricing: Less frequent, but some software might charge based on the volume of data you collect or the number of reports you generate.
Here are some additional points to consider:
- Implementation fees: Some vendors might charge a one-time fee for setting up and configuring the software for your specific needs.
- Customization costs: Customizing the software to integrate with your existing systems or cater to specific workflows might incur additional charges.
- Data storage fees: Depending on the amount of data you collect and store within the software, there might be additional storage fees.
- Additional consultation fees: Some vendors offer experts on the subject matter to hold stakeholder workshops or consultative calls guide your organization's ESG measurement to strategy.
Understanding the pricing models in detail will help ensure you select a solution that not only meets your ESG reporting needs but also represents a wise financial decision for your organization.
4. Review Security and Compliance Features
When choosing ESG software, prioritize security and compliance. Ensure the software has strong security measures like encryption, access controls, and regular audits to protect sensitive information from evolving threats. It should also comply with international standards such as GDPR for EU companies or SOC 2 for data management. Compliance reinforces your company's reputation and commitment to data privacy. The software should be able to adapt to changing regulations to stay current and responsive.
5. Request Demos and Trials, Call for Proposals
Before finalizing your decision on an ESG software solution, it's wise to see it in action. Requesting a demo and taking advantage of free trials from providers are critical steps in assessing this software.
For bigger organizations, a typical process would be to hold a Call for Proposal (also known as Request for Proposal "RFP", or Request for Pitch). This entails first creating a case study that highlights your company’s specific needs and challenges for ESG reporting, and sending this to a handful of shortlisted vendors to invite them to participate in a Proof of Concept to demonstrate how their software can effectively address these challenges. While this can be a critical step for companies that require high customization and multi-year roll-out roadmaps, do bear in mind that this can be a resource-intensive and drawn-out exercise.
6. Seek Recommendations and Read Reviews
Leveraging insights from those who have firsthand experience with ESG software can be invaluable. Seek recommendations from industry peers, especially those in similar sectors or with comparable objectives. Their experiences can highlight potential strengths and weaknesses of the software that may not be evident during a demo or trial. Additionally, reading online reviews and case studies provides a broader perspective on how the software performs in real-world scenarios, including its reliability, customer support, and overall user satisfaction. This research can help confirm your decision or steer you toward a more suitable option.
Conclusion
Choosing the right ESG software is crucial for firms aiming to achieve sustainability goals and enhance business performance in a landscape where ESG issues impact consumer preferences, investor decisions, and regulatory frameworks. To make an informed decision, firms should approach the selection process diligently by assessing current needs, future growth potential, and changes in the ESG landscape. By identifying business objectives, evaluating software capabilities, understanding pricing models, reviewing security features, and leveraging demos and peer insights, organizations can choose software that meets immediate needs and supports long-term sustainability efforts effectively. Evaluate ESG software options with a focus on organizational requirements and sustainability aspirations to transform challenges into growth opportunities and position your organization as a leader in corporate responsibility.
