Understanding ESG reporting

ESG regulations are shaping the future of corporate transparency, making compliance essential.

In this section we will delve into the myriad of mandates that organizations must comply with, and why legacy systems make this a challenge.

Key ESG reporting frameworks and regulations

Organizations must align with major frameworks to meet compliance requirements. These include but are not limited to:

^✓	GRI (Global Reporting Initiative) A global standard for sustainability reporting, helping organizations disclose their environmental, social, and governance (ESG) impacts in a transparent and consistent way.
^✓	Corporate Sustainability Reporting Directive (CSRD) Applies to large companies meeting tow of the following criteria – 250 employees, €50M+ net turnover and/or €25M+ assets. This directive requires double materiality assessments and comprehensive ESG disclosures aligned with European Sustainability Standards (ESRS). First reports were due by 31 March 2025 for first wave companies.
^✓	EU Taxonomy Reporting This taxonomy regulation has been in force for over 4 years, and establishes a tracking and reporting mechanism related to any economic activity must be classified as to whether it is environmentally sustainable. This includes voluntary taxonomy reporting for companies that will be subject to the CSRD in the future, particularly large companies with more than 1,000 employees and a turnover of up to €450 million.

^✓

International Sustainability Standards Board (ISSB)
A framework that provides industry-specific standards to help companies disclose financially material sustainability information to investors. As of December 31, 2024, 13 jurisdictions have adopted the International Sustainability Standards Board (ISSB) standards on a voluntary or mandatory basis, with reporting starting as of January 1, 2024, or January 1, 2025. An additional 22 jurisdictions are planning to adopt these standards in the future.

Collectively, these jurisdictions represent nearly 55% of global GDP, more than 40% of global market capitalization, and over half of global greenhouse gas emissions.

^✓

IFRS S1 and IFRS S2 Standards
International standards from the International Financial Reporting Standards Foundation, focusing on sustainability-related disclosures (S1) and climate-related disclosures (S2) to provide investors with consistent and comparable information.

Taking steps towards compliance today

With deadlines fast approaching, enterprises need Cloud-based solutions capable of supporting data collection and producing compliance-ready reports for various frameworks.

Here’s some steps to take towards compliance, today.

To comply with these standards, companies must:

Disclose sustainability-related risks and opportunities – Provide details on risks and opportunities impacting cash flows, access to finance, or cost of capital.
Governance – Describe governance processes, controls, and procedures related to sustainability risks.
Strategy – Explain integration of sustainability risks into corporate strategy.
Risk Management – Detail processes for identifying, assessing, and managing sustainability risks.
Report on:
• Scope 1, Scope 2, and Scope 3 Greenhouse Gas (GHG) Emissions
• Climate-related targets, including scope, timeframe, and base year progress measurement

As the ISSB aims to establish a global baseline, jurisdictions may adapt these standards to fit local contexts, leading to variations in implementation timelines, scope, and specific requirements.

Why organizations are unprepared

Many organizations still rely on legacy systems ill-equipped to handle the dynamic, cross-functional requirements of ESG reporting. Challenges include fragmented data sources, inconsistent methodologies, and manual processes prone to error.

Limitations of Legacy Systems in ESG Reporting

These systems don't support effective data integration, making it difficult to manage dynamic ESG datasets.
Fragmented data silos hinder efficient data consolidation and analysis.
Manual workflows in legacy systems increase the risk of errors in data input, processing, and reporting.
Generating compliance-ready ESG reports with legacy systems takes more time and resources.
Legacy systems struggle to adapt to evolving regulations and lack advanced analytics tools like AI or machine learning.
Organizations relying on legacy systems risk falling behind in compliance and sustainability goals.

Non-compliance risks include regulatory penalties and reputational damage. To mitigate these issues, organizations must transition to digital reporting tools with advanced Cloud and data consolidation capabilities, such as those offered by Unit4.