Since our inception, Persefoni has spoken with hundreds of large organizations around the world evaluating what to do next with their Carbon Accounting / ESG enterprise software strategy.
We have also consulted directly with numerous regulatory agencies, sharing our industry expertise on ESG data, management, software, consulting, and the global regulatory environment, along with the evolving role of the CSO. And just as importantly, what's coming next.
As the market shifts and technology catch up with data complexity and operational efficiencies, here are five key questions we often hear from customers contemplating their ESG Software strategy:
1. Why is now the time to overhaul my ESG software?
By overhaul, first, do you mean the technology or the actual strategies? On the latter, investors are quickly realizing that climate risk is financial risk, and not simply bankruptcies like PG&E in California. They want to be able to identify and compare risk between all of their assets/investments, and this cannot occur if those assets do not report to the same standard.
As Secretary Gary Gensler of the U.S. Securities and Exchange Commission has noted, more than 90% of the Fortune 500 already discloses climate data ... they just do it in ~500 different ways, making comparison exceptionally cumbersome.
This trend is not being driven by politicians, it is being driven by investors - which is why you are seeing much of the federal action from agencies that engage with investors, like the U.S. SEC, Japan's FSA, the UK's FCA, etc. It is also why anyone expecting politicians to "stop it" doesn't truly understand the trend.
As for why one should adopt purpose-built technology to modernize ESG strategies... Typically, companies have relied on costly manual processes for carbon accounting, usually engaging consultants to produce one-time snapshots of a carbon footprint/climate measurement. These are very costly and time-prohibitive, and the data collected is not dynamic to enable real-time analysis over an ongoing period. If a software product was used, it was typically built years ago to manage a regional/industry or old paradigm and on antiquated technology.
Enterprise software solutions like market leader Persefoni enable corporations, financial institutions, and government agencies to collect, manage, and disclose their carbon transactions for different stakeholders with the same rigor and confidence as they manage and forecast their financial transactions. Persefoni's partnership with Workiva streamlines the reporting process even further; with 75% of U.S. companies reporting to the SEC via Workiva, including climate data is now simply a click of a button.
2. Why are spreadsheets a poor option for managing ESG data?
Three primary reasons: cost, analysis, and transparency for auditing. ESG data, particularly Environmental data, is managed by the Greenhouse Gas Protocol (GHGP), an accounting protocol for climate activity that's similar to what GAAP is for financial transactions. The difference is that the GHGP is both less mature and exponentially more complicated than GAAP, involving a significantly larger number of calculations and environmental factors.
Nevertheless, it exists, and it is the base of several global standards. Someone must build and support all of these transactions, across Scope 1-3, and maintain them over time as they change. This is not an activity best undertaken by a single company for its own use.
Simply using consultants and/or spreadsheets for a one-time snapshot view of your carbon footprint is more than just cost-prohibitive, it fails to collect your climate data in a repository that can then be mined via data sciences for insight and decarbonization strategies. As more and more companies - and their stakeholders - demand science-based targets (The Science Based Target initiative (SBTi)) and strategies for future decarbonization efforts, those companies that prepare now will be in the best position.
To the above, add the critical issue of a single source of truth. At Persefoni, a material number of our customers selected our Climate Management and Accounting Platform (CMAP) specifically because it streamlines third-party auditing costs or Supply Chain disclosures. Persefoni's CMAP also translates the GHGP into business language, making it easier for a GM or regional executive unfamiliar with the protocol to engage in a company-wide effort.
3. What should we consider when evaluating an ESG platform?
There are a number of good things to consider when evaluating an ESG software platform, but key among them are existing feature sets, product roadmap, company leadership and funding, enterprise-grade Support, their collective of ESG-related partners, and perhaps most importantly, subject matter expertise (SME).
For example, at Persefoni, we have invested in a large team of global ESG subject matter experts, including a Sustainability Advisory Board comprising some of the world's leading ESG and Sustainability experts. Not just a figurehead, but people actively working on the shape and development of the company and its product(s).
At Persefoni, our SMEs provide advice that gets translated down into product development, market direction, and support/recommendations for customers. These include a current sitting Secretariat of the Task Force for Climate-Related Financial Disclosure (TCFD), the Founding Chairman of the Sustainability Accounting Standards Board (SASB), a Climate advisor to the Japanese Prime Minister's office and the Tokyo Stock Exchange, members influencing the direction of the Partnership for Carbon Accounting Financials (PCAF), and more.
Making an investment in any enterprise software product is as much an exercise in the future as in the now, and subject matter expertise should always be a key factor in any investment.
4. Is ESG Software valuable enough to justify the investment?
This is a difficult question. For E, or Environment, most certainly. Of the three, it is the only one managed by an international accounting protocol (GHGP) that helps establish emissions factors to coalesce standards.
To this, the massive number of calculations and data required for ESG software and carbon accounting make data management quite cumbersome without software. All the more so if one's long-term goals include leveraging that data for operational insights and efficiencies.
Moreover, the efficiencies/economies of scale for accounting software are already market-proven.
S & G, or Social & Governance, by comparison, are often subjective and heavily influenced by regional and/or company directives, minimizing the efficiencies of software beyond workflow management and simple reporting.
For many large enterprises, in-house, bespoke application development might be a better bet for S & G, and then integrate this into a climate management & accounting platform (CMAP); Persefoni's CMAP leverages Open API to streamline this integration.
5. When is the best time to invest?
Now. It's not merely about large private equity investors or listed companies seeking to identify/quantify risk; banks are starting to incorporate sustainability/environmental considerations as risk management into lending practices, as they themselves start to be held to PCAF and other standards.
Remember, banks must assume a percentage of the carbon footprint of those assets they invest in.
But access to capital is not the only factor; Supply Chain pressures will soon work their way downstream. Your products are part of your customer's supply chain, thus a portion of the emissions created by your business is assumed by your customers. This can be a major advantage in contracting and/or customer acquisition; those vendors that can share this information proactively and/or identify and thus exercise decarbonization strategies to mitigate their footprint can position themselves favorably in contract bidding situations.
Software tools like Persefoni can help them significantly streamline and automate this process, from data collection through reporting and decarbonization.