The market for tools that help companies deal with sustainability regulations grows as they face mounting requirements, including the Corporate Sustainability Reporting Directive.
As organizations try to get a handle on carbon accounting, vendors and their partners are introducing tools to help meet reporting requirements such as those from the European Union.
Companies based in the EU or doing a significant amount of business there are now subject to Corporate Sustainability Reporting Directive (CSRD) standards that require them to publish regular reports on the social and environmental risks they face. CSRD went into effect in 2023, and large companies listed on an EU-regulated market with 500 or more employees are required to start reporting in 2025.
Among the most complex aspects of the CSRD standards is the requirement that companies track and report their total carbon emissions footprint for products and services -- from start to finish. Tracking internal emissions, Scope 1 and Scope 2, is relatively straightforward, but reporting on Scope 3 emissions -- which are the result of activities from outside a company including third-party supply chains -- is more challenging.
"It's complicated because if you want to understand your company's Scope 3 emissions, you have to track your emissions, but you also have to combine that with data from your suppliers and customers to get transparency across your value chain," said Ina Sebastian, research scientist at MIT Sloan Center For Information Systems Research.
Today, enterprises are introducing initiatives to track carbon emissions as part of their overall digital business transformation efforts, she said. The CSRD regulations are spurring actions by European enterprises.
"Companies in Europe are interesting because they have had to move forward with their sustainability efforts, using more and more digital technologies to help them do that, at least with the tracking and the optimizing," Sebastian said.
Carbon accounting tools ease complexity
While some companies are building their own, vendors and their partners are also rolling out carbon tracking or ESG risk management tools for customers.
One example comes from Normative, a carbon accounting platform as a service. Normative is designed to track greenhouse gas emissions, but it also includes a dedicated climate strategy adviser for each license issued, according to Alexander Schmidt, head of research and sustainability at Normative.
"[Carbon accounting] is new for most companies, and they might not have expertise in-house," Schmidt said. "Now they don't need to have it because we have our strategy advisers that guide them through the entire net-zero journey."
The Normative platform has been available for 10 years, and the company recently added a module to help customers meet CSRD standards, he said.
CSRD for most companies means complexity, and they are overwhelmed.
Alexander SchmidtHead of research and sustainability, Normative
"CSRD for most companies means complexity, and they are overwhelmed," Schmidt said. "They are asked to gather thousands of data points across all three areas of environmental, social and governance, with focus on the environment."
Manufacturers aren't the only ones affected by CSRD, he said. Companies that enable those manufacturers or distribution and logistics firms have to include their emissions in their own reports.
"The logic is, what do you enable in terms of emissions through your activities," Schmidt said. "If you're a finance or insurance company that invests in or insures certain companies, that's emissions you enable."
Implementing CSRD reporting programs can be challenging for organizations. One complex aspect to CSRD reporting is double materiality, which assesses how a company's actions affect the environment and society, as well as the company's finances. Normative's tools look to address that complexity, he said.
"The sustainability tools are almost like a Trojan Horse. Once you start to use them, it can trigger change even if there's a bit of pain," he said. "For something like the double materiality assessment, suddenly you have an idea of what's impactful for you and what your risks and opportunities are."
The EU's Corporate Sustainability Reporting Directive is forcing companies to get a good grasp on their carbon accounting, which includes tracking Scope 1, 2 and 3 emissions.
Bringing financial accounting to sustainability
SAP, the German-based ERP giant, unveiled a sustainability tool of its own in 2023. The Green Ledger, which became generally available in December, introduces established financial accounting principles into the carbon accounting process.
"The Green Ledger is very straightforward," said Gunther Rothermel, co-general manager and chief product officer for SAP Sustainability. "It's like a ledger like we all know from finance, but in the Green Ledger you are able to record and keep a book of the corresponding CO2 emissions."
Green Ledger is complementary to other SAP sustainability products. That includes its Sustainability Footprint Management tool, which calculates the carbon footprint of producing goods but can be used with other carbon accounting tools, Rothermel said.
"You can use the Green Ledger together with an SAP finance system, and we have integrated the Sustainability Footprint Management from the start," he said. "But customers can use it if they have any other system or even if they have carbon accounting data in Excel spreadsheets."
Having a good grasp on carbon accounting data matters because it provides insights on all sustainability related activities that have cost implications, such as moving to more sustainability-focused materials or using more green energy, Rothermel said.
"This always has cost implications, as this material is typically more expensive, so you need to know how it affects your top line and bottom line," he said. "This -- bringing together finance and sustainability information to make these decisions -- is highly relevant for many organizations."
Workiva also brings financial accounting principles to its ESG reporting platform. The global consulting firm Deloitte recently unveiled four new extensions to Workiva's platform that are designed to help customers meet CSRD compliance.
Workiva's core ESG platform capabilities are around data collection, data organization, disclosure and reporting, according to Paul Volpe, senior vice president of growth and platform solutions at Workiva. Deloitte developed the extensions based on its processes around CSRD reporting.
"Deloitte has refined those based on their experience in the market for some of the regulations, based on industry-specific requirements," Volpe said. "Workiva is very configurable, and a company like Deloitte can embed their intellectual property and their experience in the platform to help customers move forward faster."
Workiva's platform was originally designed for financial reporting, and it has also brought those principles over to its ESG reporting functionality. The integration of finance and sustainability teams within organizations is becoming increasingly common, he said.
"Finance leaders now are spending more time with sustainability leaders trying to understand the data and the impact that they have," he said. "The sustainability people are bringing new ideas about cost savings, new product innovations and new ways to engage customers based on the demands and what customers want."
Two of the Deloitte extensions are designed to help companies deal with some of the most complex aspects of CSRD reporting, according to Dina Trainor, ESG controllership leader at Deloitte.
One is the CSRD Double Materiality Accelerator, which builds Deloitte's double materiality methodology on top of Workiva to enable a faster and more efficient implementation of double materiality assessments. The second is the Financed Emissions Calculator, a Deloitte-built calculator accelerator that sits on the Workiva platform and helps organizations streamline Scope 3 greenhouse gas-financed emissions. This is particularly relevant for financial or investment institutions that must provide data on the emissions their finances enable, Trainor said.
Accelerators such as those from Deloitte helps to address the challenge of automating sustainability reporting, , Trainor said.
"Each organization has to do its own analysis of applicability of the regulations and their related requirements," she said. "There's always information that needs to go out somewhere publicly, so this is a continuing challenge that many especially global organizations will have."
Jim O'Donnell is a senior news writer for TechTarget Editorial who covers ERP and other enterprise applications.
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