Wrangling ESG data: The CIO’s next challenge

Many organizations vest responsibility for creating what are usually called environmental, social, and governance (ESG) reports in a corporate sustainability officer or similar title. But lately there has been a growing call for CIOs to play a larger role in ESG efforts, especially when it comes to meeting increasingly rigorous ESG standards and frameworks. In fact, Gartner urges CIOs to get ahead of the trend and cultivate relationships with their sustainability peers.

“This is very quickly becoming another portfolio that the CIO absolutely has to care about,” says Chris Bedi, CIO at ServiceNow, which uses its own ESG Command Center product line to create the company’s ESG report.

Measurement is technology-intensive

Part of the reason is because emissions calculations are becoming more integrated with operational systems such as enterprise resource planning and manufacturing automation. IT organizations are also driving the build-out of the edge computing networks that will be used to measure emissions in the field.

Currently, many organizations don’t measure sustainability data directly but derive it from more easily measured data such as fuel usage, says Casey Herman, a partner and U.S. ESG leader with PricewaterhouseCoopers LLP, a Big Four accounting company that also consults with non-audit clients on how to execute sustainable business initiatives.

For example, a company may determine how many therms it burned of a particular fuel and calculate its output based on the carbon content of the fuel per therm. “It’s much more computed and derived than measured,” Herman says.

That’s perfectly okay with most standards organizations, at least so far, Herman said. “The Greenhouse Gas Protocol clearly supports computed as well as direct measurement,” he said. “Is it perfect? No, but what is?”

That said, gaining a more accurate picture of the company’s total emissions involves an increasingly sophisticated array of intelligent equipment. For example, ServiceNow draws data from sensors that measure power use, temperature, and humidity in its data centers directly into the ServiceNow platform, Bedi says. Transportation companies are increasingly using GPS data to track their emissions, says Dean Emerick, vice president of communications for ESG | The Report, which advises on ESG issues.

Unilever used GreenToken, a blockchain technology product from SAP, to determine what percentage of its palm oil purchases came from sustainable origins, says Florian Roth, SAP chief digital and information officer. Agranimo—a company that helps improve profitability for farming organizations and eradicate food waste in the fresh produce supply chain—uses sensors to collect crop-specific and plant-relevant information and sends it to SAP’s Analytics Cloud, where it’s combined with data from other sources. “This allows field managers and commercial teams to work together to make decisions in a range of areas including irrigation, disease management, frost damage assessments, and harvesting forecasts,” Roth says.

Bedi views sensors as simply part of the data center. “The intersection of ESG and the long-term business goals of enterprises are, more and more, starting to intersect,” he says.

But not everyone thinks sustainability reporting should be concentrated in an already overburdened IT organization. “Budgetary responsibility for systems integration and technology solutions to support this work shouldn’t fall squarely on one department,” says Ben Kruse, director of global ESG reporting and insights at AT&T. “Companies will be best served when the commitment to ESG is shared across departments, including compliance, operations, sustainability, finance, IT, and others.”

While ESG hasn’t monopolized Bedi’s time at ServiceNow, there’s extra effort required to create “the organization and bandwidth and put the right talent in place so we treat it with the same level of maturity and seriousness,” he says. “Very quickly, ESG will become a part of everybody’s budget.”

Reporting the data

CIOs and IT teams are central to this aggregating and reporting on data in a meaningful way, Kruse says. “Key challenges include making disparate, legacy systems—which were likely never designed for ESG reporting—work together to provide reliable, auditable datasets,” he says.

Moreover, the data sources that ESG reports use can be unstructured, Emerick says. “Much of the data may sit in highly textual sources, making it difficult to extract relevant information,” he says. “ESG data is qualitative and has historically been analyst-driven, which leads to unstandardized data due to source and bias.”

But he sees that changing over time as companies become more used to ESG reporting. “Organizations with complex rating frameworks have very different data needs and processes than firms just starting on their ESG approach,” he says.

Fortunately, there’s a model to follow. CIOs encounter similar challenges in pulling together data from across large organizations and acquired companies. “It’s not an uncommon task for CIOs to say, ‘I have data silos all over the place, and I need a meaningful way to collect data, organize it, and report on it, in a way that’s auditable and conforms to the standard,’” Bedi says. “It sounds a lot like financial management.”

Herman also sees ESG reporting progressing along that path. “The technology supporting financial disclosures has evolved over many, many decades,” he said. Where manual ledgers gave way to mainframes, ERP, and the cloud, “we’ll see the same thing in nonfinancial reporting,” he says. “That is the skillset and value that the CIO organization brings. They understand how to select, design, implement, and integrate those complex data systems, just like the multiple systems that manage financial data.”

New SEC regulations

Collecting precise environmental data is likely to become more critical and technology-intensive in the near future. The U.S. Securities and Exchange Commission (SEC) in late March released a 534-page proposal to require publicly traded companies to report greenhouse-gas emissions from their own operations as well as from the energy they consume and to obtain independent certification of their estimates.

While the proposal isn’t final yet—it will be open for public comment for at least two months before work begins on a final rule—the writing appears to be on the wall for the future of ESG reporting. Large companies may need to start disclosing climate risks in fiscal 2023, while smaller firms would have until fiscal 2024, with an extra year to include supplier and customer emissions and to get emissions data audited, according to an SEC fact sheet.

Other SEC timelines are also going to pressure companies, Herman says. Currently, many companies issue ESG reports for the previous year in May, June, or July, but the proposed SEC rules would require reporting within 60 days of year’s end. “They’re going from six months to two months, and that’s going to take a lot of tech enablement,” he said.

Eventually companies may move toward making ESG reporting an all-year proposition, Kruse says. “Systems integration can pull forward data availability into near-real time—pivoting the compilation of ESG data from an annual reporting exercise to an effort that supports ongoing performance management by departments across the business.”

Sounds like a job for the CIO.