It wasn’t long ago that a company’s financial performance in the market used to be the sole metric that mattered to investors. However, that perspective changed dramatically following the publication of an IFC report in 2005 entitled “Who Cares Wins” which brought to light the impact ESG had on a company’s long-term sustainability. These non-financial standards can be used to quantify a company’s behaviour in the market by assessing their impact on various Environmental, Social, and Governance issues.
A company’s environmental standards include its policies on the usage of clean energy, conscious waste management, efforts towards achieving net-zero emission norms and promoting sustainable development. The social aspect focuses on a company’s social relationships including its management, human rights standards, work environment, employee health, and diversity, equity, and inclusivity (DEI). Finally, the governance criteria encompass corporate accountability, compliance, and relationships with stakeholders.
The COVID-19 pandemic brought with it a resurgence of sustainable investing when it was observed that high-rated ESG funds fared surprisingly well amidst the global market crash and a marked increase in the S&P 500’s total percentage of intangible assets in 2020. Intangible assets are much more resilient towards environmental and social risks than tangible ones. Therefore, we can observe a clear trend in the confluence of financial and sustainable goals of companies in the post-pandemic era and this is why ESG software has become more important than ever.
The role of ESG software
Data analytics are imperative to maintaining a strong ESG performance. This includes data collection, tracking, analysis, and reporting which are not only tedious tasks but are also prone to human error. This is where ESG software can make a significant difference by:
- Automating most of the data analytics process. This itself can save countless man-hours for a company and also reduce the chances of human error to a large extent.
- Streamlining the data collection process and presenting reports in a simplified manner. The data can either directly be supplied to the software or it can be collected through advanced technologies like distributed sensors, the Internet of Things, or drones.
- Ensuring that the collected data is traceable and auditable and enforcing compliance in case of discrepancies.
- Providing insights into various ESG risk factors and trends and suggesting corrective measures to protect brand image and reputation.
Despite the clear advantages that software can bring to the table, many enterprises (in the US) still prefer collecting ESG data manually, as inferred from a recent Ernst & Young survey.
Choosing ESG software for your family office
The ESG software market is expected to grow at a compound annual growth rate(CAGR) of 15.7% between 2021-2031. This means that there is plenty of ESG software in the market to choose from today. Here are some of the key features that you should look out for while choosing the right fit for your own company:
- In-depth analytical capabilities – Your underlying software must be able to analyse your company’s performance across a wide range of ESG parameters. It must also be able to provide in-depth insights for compliance assessments and corrective measures.
- Compatibility with existing API – Integration with your company’s existing and third-party systems, like emissions calculators and logistics management software, should be high on your priority list while selecting ESG software. Incompatible software can cause various issues like data corruption and erroneous reporting.
- Customisable reporting – Your software should have flexible parameters for customisable reporting that will allow you to optimise your ESG disclosures with adherence to the highest standards of regulatory and stakeholder expectations.
Data privacy and protection
ESG software is designed to automate extremely sensitive corporate data. Therefore, they should come equipped with the highest levels of cybersecurity standards that can not only detect and prevent potential data breaches but also facilitate seamless and transparent communication with stakeholders at all times.