Ultimate Guide to ESG Software in 2024

Businesses worldwide are under growing pressure from regulators, investors, and consumers to demonstrate sustainable practices and transparent governance. ESG software solutions have emerged as essential tools for organizations to efficiently collect, manage, and report on ESG data, enabling them to meet compliance requirements and improve their overall sustainability performance. This guide explores the importance of ESG reporting solutions, the challenges businesses face in measuring ESG data, the benefits of using ESG software, and a review of the top five ESG software platforms available in 2024.

What is ESG?

ESG stands for Environmental, Social, and Governance, three central factors used to measure the sustainability and ethical impact of a business or investment. These criteria help stakeholders evaluate how a company performs based on its sustainability, social responsibility, and corporate governance data.

• Environmental: This component assesses a company’s impact on the environment, including energy use, waste management, carbon emissions, and natural resource conservation. It also considers a company’s initiatives to mitigate climate change and manage environmental risks.
• Social: The social aspect examines a company’s relationships with its employees, customers, suppliers, and communities. This includes labor practices, diversity and inclusion, human rights, community engagement, and consumer protection.
• Governance: Governance involves the company’s leadership structure, ethical standards, transparency, and compliance with regulations. It covers issues such as executive compensation, board diversity, shareholder rights, and anti-corruption measures.

Why is measuring ESG data increasingly important for businesses?

The importance of environmental, social and governance data management is multi-faceted, reflecting both external pressures and internal benefits.

ESG reporting standards

Regulatory bodies in Europe and the UK are increasingly mandating ESG disclosures, making it essential for companies to accurately measure and report their sustainability data.

Investor demand

Investors are prioritizing ESG factors in their decision-making processes, viewing them as indicators of a company’s long-term viability and risk management. Auditable ESG data is crucial for attracting and retaining investment.

Reputation management

Companies with strong ESG performance can enhance their reputation and brand loyalty, which can translate into competitive advantages.

Risk management

Identifying and managing key ESG risks—such as those related to climate change or labor practices—can prevent costly disruptions and liabilities.

Operational efficiency

Understanding and improving on ESG risk management performance can lead to more efficient resource use, cost savings, and overall operational improvements.

Why is ESG performance increasingly important for investors? 

ESG performance is increasingly important to investors because it provides a more comprehensive view of a company’s long-term viability and risk profile. Investors are recognizing that companies with strong sustainability efforts are often better positioned to manage risks related to environmental regulations, social issues, and governance standards. 

These companies tend to demonstrate resilience in facing challenges such as climate change, regulatory changes, and reputational risks, making them more attractive for sustainable and responsible investing. Additionally, as stakeholder expectations evolve, investors are demanding greater transparency and accountability, viewing ESG performance as a critical factor in making informed investment decisions and driving long-term value creation.

What are the most important ESG frameworks?

Several key regulations and frameworks mandate or encourage the reporting of the environmental, social and governance reporting of data for businesses, particularly in Europe and the UK:

Corporate Sustainability Reporting Directive (CSRD)

This European Union directive aims to standardize sustainability reporting, requiring companies to disclose detailed ESG information. It significantly expands the scope of companies that must report, compared to the previous Non-Financial Reporting Directive (NFRD). Under the CSRD, not only large public-interest entities but also many medium-sized and smaller companies will be required to provide comprehensive ESG data. 

The directive emphasizes a more rigorous approach to reporting, incorporating detailed requirements on governance, strategy, risk management, and targets. This shift aims to enhance transparency and comparability, allowing stakeholders to better assess the sustainability performance and impacts of companies. The CSRD also introduces an audit requirement, ensuring the reliability and accuracy of the disclosed information, which reflects a broader push towards greater accountability in corporate sustainability.

Furthermore, the CSRD aligns with the EU’s broader Green Deal objectives, seeking to drive the transition to a more sustainable economy. By mandating detailed and standardized ESG disclosures, it aims to create a level playing field for businesses and foster greater investor confidence. Companies will need to integrate ESG considerations into their financial statements and strategic planning processes, making sustainability a core element of their business operations. The directive also supports the EU’s climate targets by encouraging companies to set and report on clear sustainability goals, thus driving progress towards a greener economy across various sectors.

Sustainable Finance Disclosure Regulation (SFDR)

Applicable to financial market participants, the SFDR requires detailed disclosures on how they integrate ESG factors into their investment processes and the principal adverse impacts of their investment decisions on sustainability factors. 

The regulation aims to provide transparency and comparability for investors by mandating that financial institutions disclose how their investment strategies consider ESG risks and opportunities. This includes reporting on the sustainability characteristics of their products and how they align with broader environmental and social goals. The SFDR also imposes requirements on financial advisors to provide clients with clear and concise information about the ESG aspects of their investment choices.

In addition to promoting transparency, the SFDR seeks to address greenwashing by ensuring that claims about sustainability are substantiated and verifiable. Financial institutions are required to provide regular updates on their ESG performance and the effectiveness of their strategies in mitigating adverse sustainability impacts. 

This regulation supports the EU’s broader sustainable finance agenda by directing capital towards investments that contribute to environmental and social objectives, thereby fostering a more sustainable and resilient financial system. By standardizing disclosure practices, the SFDR also enhances investor protection and facilitates informed decision-making in the investment space.

EU Taxonomy

This classification system helps investors determine whether an economic activity is environmentally sustainable. Companies must disclose how their activities align with the taxonomy criteria. The EU Taxonomy provides a clear framework for assessing the environmental performance of investments, categorizing activities based on their contribution to environmental objectives such as climate change mitigation, adaptation, and the protection of water and marine resources. The taxonomy is designed to drive investment towards activities that support the EU’s climate goals and promote sustainable development.

The EU Taxonomy also aims to improve the clarity and consistency of sustainability information available to investors, reducing the risk of misalignment between investment strategies and environmental objectives. By requiring companies to disclose how their activities meet taxonomy criteria, it enhances transparency and facilitates more informed investment decisions. This framework supports the transition to a low-carbon economy by directing capital towards activities that have a positive environmental impact. 

Additionally, the EU Taxonomy plays a crucial role in harmonizing sustainability reporting across the EU, providing a common language and set of standards for assessing the environmental sustainability of economic activities.

What are the common ESG data collection challenges?

Collecting environmental, social and governance data poses several challenges, often due to the complexity and scope of the information required.

1. Data availability and quality: Gathering reliable ESG data is a complex process, especially for indirect impacts or upstream activities. Inconsistent data quality can lead to inaccurate assessments and reporting.
2. Standardization issues: The lack of universally accepted standards for ESG reporting means that companies often struggle with the comparability and consistency of data. Different frameworks and metrics can lead to disparate reporting practices.
3. Scope 3 emissions measurement: Measuring Scope 3 emissions, which include indirect emissions in a company’s value chain, is particularly challenging due to the need for detailed data from suppliers and other third parties.
4. Resource intensity: The process of collecting, analyzing, and reporting ESG data can be resource-intensive, requiring specialized knowledge and significant time investment.
5. Data integration: Integrating ESG data across various departments and systems can be complex, especially for large organizations with diverse operations.

How can ESG software help?

ESG software solutions and reporting tools are designed to address the challenges of ESG data collection and the reporting process, offering several key benefits:

Automated data processing: ESG software can automate the collection of data from various sources, reducing the manual effort and potential for errors.

Data standardization and integration: These platforms standardize ESG data collection methods and integrate data across various systems, ensuring consistency and comparability.

Compliance and reporting: ESG software helps companies stay compliant with regulatory requirements by providing the necessary frameworks for reporting and ensuring that data is accurate and up-to-date.

Risk management and insights: Advanced analytics within ESG software can help identify risks and opportunities related to sustainability, enabling better strategic decision-making.

Transparency and communication: These platforms facilitate transparent reporting to stakeholders, including investors, customers, and regulators, enhancing the company’s credibility and reputation.

What to look for in an ESG software provider

When selecting the right ESG management solution for your business, consider the following factors:

Comprehensive data coverage: The software should cover all relevant ESG metrics and be capable of handling complex data sets, including Scope 3 emissions. It’s worth considering the specific data points that your prospective software works with. 

Ease of use: A user-friendly interface is crucial for ensuring that the software can be easily used by staff without extensive training.

Scalability: The ESG software should be scalable to accommodate the growing needs of your business, including future regulatory changes and expansions in ESG reporting requirements.

Integration capabilities: The software should integrate seamlessly with your existing systems, including ERP, CRM, and other data management tools.

Compliance management: Ensure that the ESG software supports compliance with all relevant regulations and frameworks applicable to your industry and region.

ESG reporting capabilities: Tailored solutions for customizing the reports and dashboards to meet the specific needs of your organization and stakeholders is essential.

Customer support and training: Reliable customer support and training resources can help you maximize the value of the software and ensure smooth implementation.

Top 5 ESG software platforms

Below we’ve listed seven of the top carbon accounting and ESG reporting solutions for businesses, which support not only support businesses to efficiently collect ESG data, but also ensure streamlined reporting and compliance with evolving regulations. 

1. Sweep

• Overview: Sweep is a leading platform that assists businesses in collecting, managing, and reporting ESG data. With AI-powered tools, it simplifies data collection and reporting processes, ensuring compliance with the latest ESG standards and frameworks. Sweep promotes transparency in ESG practices. 
• Website address: https://www.sweep.net
• Best for: Businesses of all sizes across various industries looking to streamline carbon and ESG data.
• Key capabilities:
  • Simplified collection and reporting of sustainability and CSR data.
  • Compliance with major ESG frameworks and regulations, including the CSRD and SFDR.
  • Customizable surveys for data collection and assurance of data accuracy.
  • Tracking and reporting corporate emissions and supply chain compliance.
  • A clear overview of your progress towards the key goals set in your ESG strategy.

2. Workiva

• Overview: Workiva is a cloud-based sustainability management platform that supports ESG reporting by offering tools for collaboration and an audit trail. The platform helps mitigate risk and improves productivity, and prides itself on simplifying the reporting process.
• Website address: https://www.workiva.com
• Best for: Accounting, finance, sustainability, audit, and risk professionals.
• Key features:
  • Supports various reports, including financial, annual, corporate sustainability, climate disclosures, and investment fund reporting.
  • pre-built ESG frameworks and standards to measure what matters
  • Assists with banking-specific reports and activities such as FERC reports, living wills (CCAR), and stress testing (DFAST).

3. Greenly

• Overview: Greenly is a centralized platform that helps companies of all sizes and sectors measure and reduce their CO2 emissions. It offers tools for real-time monitoring and setting reduction targets, and also simplifies reporting.
• Website address: https://greenly.earth
• Best for: CEOs, boards, purchasing managers, ESG & CSR managers, human resources, and marketing leaders.
• Key features:
  • Integrates your company’s physical and monetary flows into the platform for audit ready data.
  • Monitors greenhouse gas emissions in real time and defines reduction trajectories.
  • Provides personalized dashboards for emissions management.
  • Enables team collaboration, assigning tasks, and engaging everyone in the decarbonization journey.

4. Persefoni

• Overview: Persefoni is an AI-powered sustainability management and carbon accounting platform. It aids businesses in measuring their carbon footprint, developing decarbonization plans, and complying with emissions reporting standards.
• Website address: https://www.persefoni.com
• Best for: Businesses, private markets and the global investment community.
• Key features:
  • AI-powered carbon management and reporting of key ESG metrics.
  • Regulatory and investor emissions reporting.
  • Decarbonization management and strategy development.
  • Scope 3 supplier engagement and comprehensive emissions tracking.

5. Watershed

• Overview: Watershed is a sustainability management platform designed to help companies measure, report, and reduce their carbon footprint. It provides detailed insights and supports alignment with global climate goals, such as those set by the Paris Agreement.
• Website address: https://watershed.com
• Best for: Organizations aiming for deep decarbonization and alignment with science-based targets.
• Key features:
  • Helps businesses collect emissions data with ease.
  • Emissions reduction planning and strategy development.
  • Data collection from various sources for comprehensive reporting.
  • Alignment with climate action goals and regulatory compliance.

How do you measure the ROI of investing in ESG software? 

Measuring the ROI of investing in ESG software involves evaluating both quantitative and qualitative benefits. Quantitatively, ROI can be assessed by examining cost savings from streamlined data collection and reporting processes, reduced risk of regulatory fines, and increased operational efficiencies. 

Additionally, the value of improved stakeholder trust and enhanced investor confidence can be translated into financial terms through metrics such as higher stock valuations or increased investment inflows. 

Qualitatively, ROI is measured by the software’s ability to provide actionable insights that drive better decision-making, improve sustainability performance, and align with evolving regulatory requirements. Ultimately, the return on investment is reflected in the software’s contribution to long-term value creation, risk mitigation, and enhanced corporate reputation.

Combatting environmental challenges with ESG software

As ESG considerations continue to grow in importance, the need for accurate, comprehensive, and transparent sustainability management becomes ever more critical. ESG software platforms play a vital role in helping you manage all your ESG data in one handy platform. 

By automating data collection, ensuring compliance, and providing actionable insights, these platforms enable you to not only to validate data, meet regulatory requirements but also enhance your sustainability performance and have a positive impact on the economy. 

In addition, leveraging ESG reporting software allows you to make informed decisions by providing comprehensive governance metrics and enhancing investor transparency. 

Choosing the right ESG reporting software provider is a strategic decision that can significantly impact your company’s ability to manage its ESG data effectively. 

When selecting a provider, consider factors such as data coverage, ease of use, scalability, integration capabilities, and customer support. The top five platforms highlighted in this guide—Sweep, Workiva, Greenly, Persefoni, and Watershed—offer robust features and capabilities to support businesses in implementing successful ESG initiatives.