Beyond Numbers: ESG Reporting as the Key to Agile and Sustainable Enterprises

Ticking the compliance box

The pressure for companies to take ESG more seriously is growing. As more governments commit to net zero targets, businesses of all sizes and from all sectors are expected to play their part. Legislative changes will make ESG reporting part of an organization’s compliance responsibilities, with hefty fines for those that do not adhere to the rules.

The EU Green Deal for example will require European companies meeting two of three conditions – €50m in net turnover, €25m in assets, and 250 or more employees – to report on their climate and environmental impact via the Corporate Sustainability Reporting Directive (CSRD). It’s a sliding participatory scale, starting from 2024, but aims to include businesses of all sizes by 2028. The rule changes will affect an estimated 49,000 EU companies, more than four times the number reporting today. The UK and US also have their own directives and are moving from voluntary reporting to regulatory-driven schemes.

It’s a marked shift in how businesses have been run, and one that has the potential to drive real change. The EU Green Deal in particular is an ambitious piece of legislation that will have a ripple effect across the globe. Currently, reporting is voluntary, which makes it difficult to assess progress. So, the question now is how are you actually doing? Where is the data coming from? Do you understand how your entire value chain works? It’s a much larger scope. And there is no room for cherry picking anymore.

More mandatory ESG reporting will fundamentally change the ecosystem businesses operate in. Beyond the penalties for non-compliance – in the EU, companies that fail to report can be fined up to €10m, or 5% of their annual revenue – those businesses that are seen to be lackluster in their ESG efforts face the prospect of reputational damage, lawsuits, and the loss of contracts that require robust ESG reporting as part of the tender. The result will have a profound impact on revenue too, as when a business scores better on sustainability, there will be easier access to capital and to subsidies.

To know, you must measure

Beyond compliance, there are other reasons to get ESG reporting right. Once the right metrics are in place, those reports will form the basis of a broader sustainability transformation strategy, capable of delivering real benefits to the business. Without accurate data, it’s impossible to track progress or prioritize the simple changes that can have the biggest impact.

Recent research conducted by Fujitsu(*1) has highlighted the benefits of operating more sustainably. It’s shown that businesses have been able to optimize their processes and find cost savings through improved resource management. They’ve launched more products onto the market. Their employee satisfaction has gone up. Their customers are happier, and they’re finding it easier to onboard new partners.

Further insights from our research have shown that 47% of businesses have increased progress towards their own environmental performance indicators, while profit has also improved in 45% of respondents. It’s clear from the research that sustainability is not a business expense. It’s a value-driver.

My colleague, Vanessa Santos, Head of Marketing at Fujitsu Enterprise Blockchain Track and Trust Solution Center agrees, “ESG is a strategic imperative that aligns with broader social expectations and contributes to building resilient businesses. Organizations can create sustainable value, reputation, operational efficiency, cost saving, and resilience too. We also have employee engagement, customer loyalty and stakeholder trust and engagement. And there are opportunities to collaborate on strategic partnerships with other stakeholders.”

(*1) Based on a Fujitsu survey of 600 C-suite executives in 15 countries on their attitudes toward sustainability management. The responses were captured in November and December 2023, full results to be published in April 2024.

It starts with data

There are big questions asked about how to measure ESG. As a framework, it covers a broad range of business practices and performance – from energy usage, climate change strategy and waste reduction (environmental); and fair pay, equal employment opportunities, and responsible supply chain integrity and transparency (governance). There is currently no universal standard, which makes it difficult to know what metrics to measure and how to benchmark progress against others. Trust is a real issue, and greenwashing is prolific.

The main challenge underpinning all of this is access to data. ESG reporting relies on accurate data that’s available in real time. But many organizations do not have the right foundations in place. Data is often spread across siloed legacy systems. It may not be accessible across the supply chain, or be out of date. Leaders may be uncertain about whether they can still trust the data that’s been collected, or how to manage it, particularly if there’s an abundant supply.

Manual processes, spreadsheets and informal disclosure can no longer be relied upon. It’ll be down to new technologies, such as artificial intelligence and blockchain, combined with proper data-driven management to help business leaders make informed decisions, build resilience and evolve for the future.

A major challenge is knowing where to focus your efforts. But with more data – from competitors, from industry – it’s easier to figure out what you can do as an organization, or alongside the wider industry, to substantially contribute to the fight against climate change.

A springboard for a new era

Our research has shown that business leaders are facing real urgency to act on ESG. It’s the number one priority for 70% of them over the next five years. And more than half believe they’re currently below expectations, meaning the pressure is on. That’s not just because of the regulatory demand for reporting. We need to change the way we fundamentally do business, with ESG prioritized alongside financial performance.

To make progress, businesses need the right data on hand. Leaders need to understand their current position and be able to measure and verify progress once new measures have been implemented. Beyond reporting, having access to those insights will also drive a new era of transformation, with leaders able to spot efficiency savings and opportunities for innovation.

When ESG reporting is done right, organizations are able to question how they’re really doing, understand their entire value chain, and see where technology can empower their people to add value.

To gain more understanding how blockchain is powering sustainability transformation through trusted ESG reporting read our latest article now.