As a sustainability manager in a large European company, you're likely experiencing the rapid evolution of the sustainability landscape. Gone are the days when sustainability was primarily about CSR (corporate social responsibility) and branding. Today, it's about deep dives into data, from carbon footprint and CSRD compliance to EU Taxonomy alignment and ESG surveys. With the increasing complexity and cross-functionality of sustainability management, it's clear that relying solely on Excel and manual processes is no longer feasible. You need a robust tool to manage and consolidate. You will want to save time and money, avoid mistakes, and ensure a clear audit trail. But with so many options available on the market, how do you choose the right tool?
This articles provides you with 9 key tips to help you make the right decision.
1. Team up with your CFO
Your finance and accounting team may dislike the idea of having to collaborate on sustainability topics because of the actual workload they already have, and because of their lack of knowledge on ESG metrics. But they do have a lot of knowledge and experience to share with you. They know all about the complexity of data management, consolidation, auditability, flow automation and digital tagging. Moreover, from their knowledge of the IFRS, they will have a rapid understanding of the cross-cutting standards of the CSRD ESRS. And carbon accounting is what it says it is: accounting. So there already is a lot of transferable knowledge in your organisation, which can help you formulate the right requirements for ESG-related tooling and avoid mistakes.
2. CSRD, carbon accounting, or both?
Generating a CSRD-compliant sustainability report and calculating a Greenhouse Gas Protocol-aligned carbon footprint are distinct disciplines. While ideally, you want a single tool that handles both, few vendors offer this. Determine whether you need a tool for both, and communicate this to your CIO, who may not understand the difference between the two projects. After all, the link between your emissions report and the CSRD statements is limited to E1, so an integrated tool may only add limited value that does not justify a high additional cost. We see that most companies have started with emissions reporting already a while ago, but if CSRD compliance is approaching, it may be good to first focus on your CSRD project. Do not a assume that a single person can manage both projects at once, even in a relatively small organization.
3. Avoid vendor lock-in
The market for ESG tooling is still very immature anno 2024, with a lot of new players on the market, while traditional players have steadily been catching up. Also prices cover a broad range. Specifically for CSRD, you may have very little time at hand to select a tool and to deliver the first compliant report on time. You may also lack knowledge to know which features you really need. In such a scenario, make sure you avoid selecting a tool that is highly customizable and has very high implementation (and hence migration) costs. In your first year CSRD year, you'll want to get the job done pragmatically, without aiming for perfection. In the following years, you may need more from the tool in terms of automation, integrations and analytics, leading you to change to another CSRD tool. In such case, a migration of data and metadata from one tool to another will occur, so focus on avoiding vendor lock-in issues when you select a tool.
4. Don't run before you can walk
Understanding your organization’s data literacy and ESG maturity is crucial. If data literacy is still developing, opt for intuitive tools with strong user support, training resources, and guided workflows. For companies with advanced data and ESG capabilities, tools that offer sophisticated analytics, customizable dashboards, and seamless integration with existing data systems can add true business value and therefore justify a larger investment. However, if the main struggle of your company is the general lack of data or a too manual data collection process, it may be too soon to invest in very advanced tool. Instead, you will want a partner that can help you with data governance, gap analysis, and true expertise in ESG topics. You may want to choose a "co-creator" that helps you to embed new ESG knowledge and data literacy into your organization.
5. Consider Company Structure Complexity
The complexity of your company’s structure will influence the tool selection. For simple structures, a basic ESG tool with standard reporting templates might suffice. However, multinational companies or those with complex or decentralized corporate hierarchies need sophisticated tools capable of managing diverse reporting formats and data maturities. Ensure the tool can reflect your operational and administrative organization structure accurately, as you will need to consolidate according to the same structure of your financial reporting.
6. Evaluate Value Chain Complexity
The complexity of your value chain is another critical factor. Companies with direct and straightforward supply chains can use tools focusing on direct carbon accounting and simple ESG metrics. Organizations with complex, multi-tiered supply chains need tools offering comprehensive visibility across the entire value chain, mainly for emissions reporting.
7. Analyze the Current System Landscape
Consider how the new tool will fit into your existing system landscape. If your company uses standalone systems, look for tools that can operate independently but offer integration options for future scalability. For businesses with an integrated system landscape, select tools that easily integrate with existing ERP and other enterprise systems to ensure seamless data flow and accurate reporting. Engaging your CIO in this discussion is crucial to align the new tool with your enterprise architecture.
8. Always focus on Data Quality
The rule of thumb here is "garbage in, garbage out". No tool can produce accurate reports and analytics without reliable data. This is something that even Artificial Intelligence cannot solve. Before diving into advanced analytics, ensure that your data governance and management practices are solid. Reliable data quality will build trust in your numbers within the organization. Important here is the clear documentation of the data and process flow: this contributes to overall quality and will be required by your auditor as an audit trail.
9. Eco-Design Principles Matter
Consider the environmental impact of the tool itself. Reward suppliers that use eco-design principles, ensuring that the tool is energy efficient and powered by green energy. As your data usage grows and AI integration becomes more common, the energy consumption of your ESG tool will increase. An environmentally friendly tool helps you avoid creating new emissions problems while solving existing ones.
Conclusion: regardless the tool, regardless AI, the principle of "garbage in, garbage out" always applies.
Selecting the right ESG tool for CSRD implementation and carbon accounting is a challenging task, because of the short deadlines, the market immaturity and the general lack of expertise on ESG topics. So begin with a thorough needs assessment, considering your company’s size, structure complexity, value chain intricacy, data literacy, and current system landscape. Engage with your CFO, CIO and other internal stakeholders that bring in important knowledge. When it comes to the data you are collecting, always remember that, regardless of the tool, the principle of "garbage in, garbage out" applies, so you will need good data governance and data management. It is the only way to assure high quality and trustworthy data. No sexy AI solution can change this fundamental truth. (note: I'd love to be proven wrong on this last statement, do contact me if you can! :-).
Special credit to Barbara Corona for her expertise, input and enthusiasm on this topic!