Critical Need to Align HSE and ESG Reporting

Over the last decade, the importance of environmental, social, and governance (ESG) issues has significantly increased among businesses and other organizations, reflecting a broader societal shift toward sustainable and ethical practices.

Key trends have emerged in response to growing regulatory frameworks and heightened investor expectations. Many companies are actively seeking to integrate comprehensive reporting systems and cross-functional teams dedicated to ESG efforts. This also involves expanding the scope of emission coverage to meet stricter guidelines, enhancing assurance confidence to foster stakeholder trust, and leveraging artificial intelligence (AI) technologies to optimize and streamline processes that support their ESG commitments. Understanding these dynamics is crucial for organizations aiming to navigate the evolving landscape of corporate responsibility and sustainability.

Integrating the Principles of ESG into Business

Recent findings highlight the following trends:

Integrated Reporting and EHS Evolution: A majority of surveyed companies now produce combined financial and ESG reports, underscoring sustainability as a core business value. This shift is significantly impacting the Environmental, Health, and Safety (EHS) function, which serves as the foundation for ESG data collection and operational transformation. EHS has evolved considerably in recent years, transitioning from manual, paper-based systems to leveraging information technology, mobility, and automation to drive digital transformation.
Regulatory Drivers: New international regulatory standards, such as the EU’s Corporate Sustainability Reporting Directive (CSRD), disclosures aligned with the International Sustainability Standards Board (ISSB), are propelling the evolution of EHS and ESG practices. These regulations are pushing companies to adopt more robust sustainability practices and reporting frameworks.
Investor Demand for Transparency: Heightened regulatory pressure is amplifying investor expectations for improved sustainability performance and disclosures. A global survey of 150 HSE decision-makers across 27 countries and 10 industries revealed that 85% of companies have experienced increased investor demand for ESG compliance. This has led to greater scrutiny of ESG and EHS processes and the accuracy of sustainability data and claims.
Data Integration and Collaboration: As regulatory and investor scrutiny intensifies, companies are striving to integrate EHS, ESG, and financial data to ensure consistent reporting and demonstrate their commitment to corporate sustainability. Achieving this requires rigorous data collection, oversight, and governance, as well as enhanced internal collaboration, communication, and alignment on ESG and sustainability priorities across departments.

Overconfidence Issues

As ESG and sustainability regulations continue to lack international standardization, organizations are striving to collect consistent, reliable, and assured ESG and EHS data to meet both mandatory and voluntary sustainability reporting requirements. While ambition and confidence in achieving high levels of assurance are strong, the full scale of the challenge ahead remains underestimated.

This gap between ambition and reality stems from several key factors:

Increasing Demand for ESG Data Assurance: Regulatory and market scrutiny is intensifying the need for assured ESG data. For instance, the EU’s Corporate Sustainability Reporting Directive (CSRD) mandates assurance for all sustainability information reflecting ESG performance. This has led 75% of surveyed firms to aim for reasonable assurance of their ESG and sustainability disclosures. Notably, 50% of European firms aspire to achieve reasonable assurance for all metrics to ensure consistency in sustainability performance and mitigate risks across their value chains.
Overconfidence in Assurance Goals: While confidence in meeting assurance standards is high, many organizations underestimate the necessary controls and governance structures required to achieve these goals. In our survey, only one respondent highlighted the importance of these critical steps to attain ESG assurance, indicating a widespread lack of awareness.
Evolving Assurance Standards: Sustainability assurance standards, such as the forthcoming IAASB sustainability assurance standard expected in late 2024, are still developing. Organizations with ambitious goals but underdeveloped data management practices risk falling short of their assurance objectives. This could undermine the quality and credibility of their sustainability reporting, leading to financial penalties, such as fines, and causing investors to favor competitors with more robust and reliable reporting practices.

The disconnect between ambition and capability underscores the need for organizations to strengthen their data management, governance, and control frameworks to meet evolving ESG assurance requirements effectively. Without these improvements, the credibility of sustainability reporting and the trust of stakeholders may be compromised.

Integrated Software: A Single Source of Truth for EHS and ESG

Integrated systems are rapidly becoming indispensable for Environmental, Health, and Safety (EHS) and Environmental, Social, and Governance (ESG) operations. By streamlining communication, delivering deeper insights, and boosting efficiency, these solutions offer a unified data source crucial for integrated reporting, as well as for meeting auditability and governance needs. Recent findings highlight why many organizations now prioritize integrated software solutions:

Growing Commitment to ESG: According to research, 77% of organizations have mature ESG strategies and are producing combined financial and non-financial ESG reports. This convergence requires a strong grasp of how ESG and EHS data intersect, emphasizing the importance of robust data management and a single source of truth.
Balancing EHS and ESG Tools: Of the firms surveyed, 80% utilize both EHS and ESG software for corporate performance tracking and financial reporting on sustainability-related issues. However, these tools often function as standalone systems, leading most companies to depend on cross-functional teams for communication. While effective in some respects, this approach increases the risk of human error and complicates data traceability.
Lessons from Asset-Intensive Industries: Sectors like oil and gas or industrial manufacturing illustrate the value of fully integrated software for ESG reporting. Operating under multiple regulations across global sites necessitates juggling numerous point solutions. Many organizations in these industries, however, are well advanced in merging these systems and have plans to accelerate their progress further.
Emergence of the ESG Controller: To ensure cohesive sustainability data management and reporting, organizations are introducing an ESG controller role. This individual oversees ESG data flows across departments and is empowered by digital solutions. When granted decision-making authority, ESG controllers can enact meaningful operational changes.

As regulatory and investor focus on sustainability intensifies, adopting integrated software and centralized data management is quickly moving from a strategic advantage to an operational necessity. By unifying EHS and ESG data, companies can bolster accountability, streamline reporting, and support more informed decision-making throughout the organization.

Revamping EHS Processes and Systems for Long-Term ESG Success

As organizations expand their planning horizons to account for ESG risks and sustainability, they are making significant changes to software selection, operations, and resource allocation. Collaboration between ESG and EHS teams is driving the adoption of new best practices while evolving reporting standards, advanced climate science, and enhanced software tools are prompting businesses to re-evaluate their long-term strategies. At the heart of these strategies lie data integrity, emissions tracking, and climate scenario planning—all of which rely on robust EHS systems and specialized ESG expertise. Below are some key considerations shaping this new landscape:

Embracing the Climate Timeframe: Climate change and its associated ESG risks require companies to look beyond typical business and financial cycles. In fact, 99% of surveyed businesses report developing clear action plans that integrate climate change scenario planning, adaptation and mitigation strategies, and targets aligned with 2030 or 2050 sustainability objectives.
EHS as a Catalyst for Change: While finance departments tend to focus on two- to three-year timeframes, EHS teams can drive broader ESG data management efforts by implementing sustainable and safe strategies for the future. By championing longer-term approaches, EHS helps ensure new solutions and initiatives are effectively adopted throughout the organization.
Building Resilience Through Data Management: Most organizations (92%) have already taken steps to strengthen their data collection and transfer capabilities, while 86% have refined their performance tracking by consolidating broad KPIs into more targeted goals. These adjustments reinforce the need for reliable, transparent, and actionable ESG data.

As the ESG landscape continues to evolve, businesses that prioritize accurate data, climate scenario planning, and cross-functional collaboration will be best equipped to meet tomorrow’s demands. Revamping EHS processes and systems today sets a solid foundation for long-term sustainability success.

Leveraging Tools and Technology from HSE to Strengthen ESG Performance

While many industry leaders have already elevated their EHS (Environmental, Health, and Safety) operations to bolster their ESG (Environmental, Social, and Governance) functions, future frontrunners will need to push further, leveraging EHS capabilities to deliver even stronger results. Success in an increasingly complex climate and regulatory environment will depend on forging strategic partnerships, integrating advanced solutions, and pioneering best practices. To stay ahead, organizations should focus on the following key actions:

Bridging the EHS-ESG Data Gap: The emerging connection between EHS and ESG data is evident in digital strategies. While 76% of surveyed businesses have implemented dedicated EHS software to manage ESG data, only 20% have adopted specialized ESG software. This lack of interoperability at the ESG and integrated reporting stage creates a disconnect that must be addressed in the coming year to ensure continued progress.
Integrated Data Management and Reporting: To achieve targeted levels of assurance, businesses must adopt integrated data management and reporting systems that span finance, ESG, and EHS functions.
Leveraging AI for ESG Performance: AI-enabled solutions are transforming data aggregation, analysis, and performance monitoring, enabling better short- and long-term decision-making. Early adopters are already using AI to automate data collection from sensors and devices, generate real-time performance reports, and identify trends in ESG data. However, most organizations have yet to fully embrace this technology, leaving significant untapped potential for improving ESG strategies.
Addressing Scope 3 Emissions and Climate Challenges: Survey respondents identified Scope 3 and carbon-related emissions tracking as their most pressing challenges in the coming years. Many emphasized the need for improved digital tools to monitor and disclose indirect greenhouse gas (GHG) emissions. Additionally, organizations face challenges in understanding and applying climate change scenarios, compounded by issues such as talent shortages and the complexity of available options.

By taking these steps, organizations can strengthen their ESG and EHS functions, improve reporting accuracy, and build resilience to evolving regulatory and climate-related demands.

Conclusion – Future Direction

The emergence of ESG principles is not just a trend; it represents a fundamental shift that is shaping the evolution of EHS practices. However, to truly seize this moment and drive sustainable success, companies must take bold steps towards a future that is intricately connected through data and applications. As we move into 2024 and beyond, businesses face an urgent call to action. This report highlights that those who embrace modern solutions and innovative processes will not only fulfill compliance obligations but will also secure a competitive edge in an increasingly complex marketplace. By prioritizing optimization, organizations will not only bolster their operations but also fortify their resilience against the looming challenges of climate change, regulatory transformations, and dynamic market conditions.