Published: 29 Aug 2023 · Last updated: 30 Aug 2023
Environmental, Social, and Governance (ESG) criteria have become critical components for modern investors and companies looking to generate sustainable returns while positively impacting the environment and wider society. If you're working towards improving your ESG management processes, choosing the right software is vital. But how do you know what approach is best?
We’ve outlined some initial questions to consider below, along with an outline of three different approaches to ESG reporting and management. This blog will help ESG managers, sustainability leaders and CFOs to understand the ESG landscape and select the ESG software provider that is well-suited to their requirements. For those ready to dive into the detail, take a look at our whitepaper: “Decoding ESG management tools: A buyer’s guide for Private Equity firms.”
Before starting on ESG software comparison, it’s important to clearly define your ESG goals. Are you aiming to comply with specific standards or regulations such as EDCI, SFDR or CSRD? Do you have specific metrics which are more meaningful for your fund versus a one-size-fits-all approach? How much autonomy and control does your firm want to have over its ESG narrative?
Read on to learn more about the ESG landscape and find out which approach is best suited to address your specific needs.
Specialized consultancy firms, such as Anthesis and Xynteo, offer tailored ESG solutions in the form of expert guidance and strategy formulation. An ESG consultant will examine your portfolio and develop bespoke solutions tailored to your fund or company’s regulatory requirements and ESG ambitions. Gaining consultancy advice on ESG best-practice is highly recommended for firms which are setting out a long-term ESG strategy, embarking on a new set of regulations, or bringing on new stakeholders or investors. KEY ESG works very closely with numerous ESG consultancies to ensure that the external guidance delivered by the consultant can be put into practice effectively. We streamline and automate the data collection process and remove the practical challenges of data siloes, so that ESG consultants can implement best-practices quickly and effortlessly with their clients.
Depending on a fund or company’s ESG maturity, we frequently speak to CFO’s, COO’s or Compliance Managers who are managing their firm’s ESG reporting using a manual approach like Excel or online accounting platforms. The benefits of this approach are that it offers full control and customization of reporting metrics with a low initial cost. Teams also have the flexibility to change metrics as fund’s goals or regulatory requirements evolve.
The main issues fund managers encounter when managing ESG in-house via manual systems is that the data collection process can become complex and unmanageable as a firm grows and the regulatory requirements change. The risk of error is high, and a significant amount of in-house expertise and capacity is required to maintain it.
The risk to companies and fund managers of inaccuracies and incomplete data is not to be underestimated, both from a regulatory and a funding perspective. In the wake of the recent regulatory changes such as CSRD and IFRS, and with the SEC and SDR timelines still up in the air, it’s not surprising that more and more companies are seeking to future-proof themselves against regulatory changes and lay strong foundations with an automated and adjustable data collection platform.
Selecting the right ESG approach for your fund requires knowledge of your fund's goals, diligent market research, and an understanding of the rapidly evolving ESG landscape. However, with the right tools in place, not only can you make more informed investment decisions, but you can also better communicate your commitment to sustainable and responsible investing and ESG improvement to stakeholders.
Unsure about the next steps? Get in touch with our ESG experts for guidance tailored to your firm's needs. Alternatively, download our buyer’s guide to gain access to over 50 questions which should be considered in the ESG software comparison process.