Bridging the gap: best practices for integrating ESG and financial reporting
Integrating Environmental, Social, and Governance (ESG) reporting with financial reporting is more important than ever for organisations aiming to remain competitive. Since the Paris Agreement for Climate Change in 2015, measuring sustainability performance alongside financial indicators has become integral to maintaining a robust long-term business strategy, providing a comprehensive view of performance that:
- satisfies investors;
- uncovers risks and opportunities;
- aligns with regulatory requirements; and
- demonstrates a commitment to sustainable practices.
Despite the benefits of aligning ESG and financial reporting, many businesses are struggling to meet this new imperative, especially with the mandatory 2025 reporting deadlines approaching.
According to the International Data Corporation, ESG regulations emerged as the top business risk in Europe in 2023, surpassing cybersecurity and economic concerns. Increasing regulatory pressure, investor expectations, and reputational risks demand companies react quickly to these changes. Challenges arise when organisations treat ESG reporting as a separate agenda, rather than viewing it as a set of processes to be integrated into existing business functions.
The intersection of ESG and financial reporting
Since the UK government committed to reducing greenhouse gas emissions to net zero by 2050, sustainability management has become a core aspect of business practices. Companies are embedding ESG metrics in financial reports, and voluntarily producing sustainability reports with additional disclosures. This shift is not just about complying with new frameworks and standards; businesses are recognising that sustainability directly contributes to long-term value-creation.
Financial, sustainability and operational management are intrinsically linked. Financial data drives strategic planning, resource allocation, and risk management, while operational data informs budgets, performance monitoring and workforce planning. Sustainability data, which falls under operational management reporting, provides crucial insights that shape these key financial and operational decisions. As a result, ESG reporting becomes an essential bridge, connecting sustainability initiatives with overarching business strategies.
ESG reporting now goes beyond being a tool for investors to compare companies, evaluate risks, and decide where to invest capital; it also indicates a company’s broader commitment to corporate responsibility and the long-term societal interests. This fundamental shift redefines the value chain, expanding the focus beyond profits and shareholder returns to include sustained societal value.
While some finance departments may view ESG reporting as another compliance exercise driven by evolving regulations, the reality is more nuanced. At its core, the push for detailed ESG reporting is being driven by society’s redefinition of value. Consumers increasingly demand ethical business practices, putting pressure on businesses to responsibly source raw materials, adopt sustainable production methods and ensure fair wages and labour conditions throughout the supply chain.
By disclosing ESG data, organisations not only enhance transparency, but also gain valuable insights into where they can mitigate risks that could affect financial performance. These insights aid decision-making at a strategic-level, decisions which can directly impact business models, underscoring the need to integrate ESG with financial reporting.
Best practices for integrating ESG data with financial reporting
Whether you are just beginning your ESG reporting journey, selecting a technology solution, or optimising current processes, these best practices can help achieve seamless integration between ESG and financial reporting.
Define your ‘why’ and establish clear objectives
Before choosing an ESG reporting solution or discussing how to present your ESG data, make sure your organisation can clearly define its ESG and financial reporting objectives. Ask key questions such as:
- Why is ESG important to our business?
- What factors are driving our ESG metrics?
- Who are we disclosing information to?
- What does sustainability mean to our stakeholders?
- What value will ESG reporting bring to our organisation?
Having clear answers to these questions ensures alignment and that employees can communicate why ESG is important to your organisation, securing buy-in from the business that drives ESG strategy.
Conduct a double materiality assessment
A double materiality assessment evaluates ESG issues which impact a company financially, as well as how a company’s activities impact the environment and society. Conducting a double materiality assessment is the starting point for identifying material issues to your industry, company, investors and team members. Establish metrics and KPIs for ESG and financial performance, that align with stakeholder requirements. Choose a set of standards or a framework that suits your financial reporting needs, such as the IFRS Sustainability Disclosure Standards (IFRS SDS) or Corporate Sustainability Reporting Directive (CSRD), for which a double materiality assessment is a key requirement. This foundational step is vital for aligning teams across the business and ensuring successful ESG reporting efforts. 
Dedicate the right resources
Appointing a dedicated ESG resource to act as the point of contact for all ESG-related matters, whether that be an internal sustainability team or an external advisor, will help ensure your ESG reporting project runs smoothly. This resource bridges the gap between finance and other departments, fostering collaboration and ensuring alignment on ESG goals. They also help protect the organisation from reputational damage by identifying and addressing non-compliance issues and risks. Without qualified expertise, the quality and effectiveness of your ESG reporting can suffer.
Identify data sources and prepare data in advance
ESG reporting is highly data-intensive, requiring diverse types of data to be gathered from a wide range of sources. Taking the time to prepare relevant data for capture is particularly important before implementing any ESG reporting solution as it will set a solid foundation for accurate reporting, seamless integration, and informed decision-making.
It is good practice to conduct a thorough data inventory to identify all ESG and financial data sources, then cleanse and normalise the data for consistency. The ability to populate comprehensive sets of ESG data points from source will be key to determining the optimal data architecture and model configuration when implementing any new software solutions. Ensure reliable, consistent and verifiable data sources, and have appropriate systems in place to collect, store, analyse and report ESG data.
Ensure consistent data capture processes
With so many sources of data, consistency in data collection is fundamental to credible ESG reporting. A recent BARC study highlighted that 60% of participants recognised their organisation needed better data management systems and integration capabilities, with data quality issues remaining a key challenge for 42% of respondents.
The key is to first define clear metrics aligned with industry standards, such as those from IFRS Scope 1 and 2 or the European Sustainability Reporting Standards (ESRS), to inform the format in which data will be captured. Ensure robust data collection processes are applied across subsidiaries, fostering uniformity in reporting practices and facilitating meaningful comparisons over time.
Plan for scalability and future growth
When choosing your ESG reporting solution, do so with scalability in mind to accommodate future growth and changes to reporting requirements. Ensure your system can scale to keep pace with business needs, such as accommodating mergers or acquisitions, or reporting against multiple frameworks in different geographies. Regularly review and update your system to incorporate new metrics, data sources, and functionalities, ensuring it remains robust and relevant as your business and industry landscape change.
Design robust data architecture and modelling
A robust data architecture ensures accurate data collection, storage and analysis, supporting your organisation's reporting and decision-making needs. Within your chosen ESG reporting system, create an integrated data model that aligns ESG metrics with financial data and includes:
- Dimensional modelling: Define dimensions (e.g., time, geography, business units) and measures (e.g., CO2 emissions, revenue).
- Data warehouses and data lakes: Establish a centralised data repository for storing historical data and real-time inputs.
- ETL processes: Design ETL (Extract, Transform, Load) pipelines to extract data from source systems, map transactions to a common level of detail, and load into a data model within the CPM system.
Implement metadata management
Ensure data traceability and governance by implementing comprehensive metadata management practices. Define metadata for all data elements, including definitions, sources, transformation rules, and ownership. Your ESG reporting solution should offer full drill-down/drill-through capabilities that enable report-to source line of sight, facilitating audit readiness.
Configure your solution to address specific ESG and financial reporting requirements as needed:
- Chart of accounts: Consolidate non-financial ESG data according to the same principles as financial data. Map material ESG metrics to financial accounts to support integrated reporting.
- Reporting hierarchies: Configure reporting hierarchies to align with organisational structure and reporting requirements.
- Consistent calculations: Develop standardised calculations and formulas across the organisation for comparability of ESG metrics.
Automate workflow and approval process
Implement automated workflows within your ESG reporting solution to streamline data submission, validation, and approval processes. These workflows enforce data quality checks, reducing the risk of human error and ensuring that your reports are accurate and reliable. Automated workflows also facilitate the tracking of data changes and approval histories, enhancing your organisation’s readiness for assurance audits. By establishing robust data governance practices, your organisation can respond more efficiently to audit requests and provide the necessary documentation to support ESG disclosures.
Configure tailored dashboards and visualisation
Utilise dashboards and visualisation tools to make your ESG and financial data accessible and easy to understand. Tailor these dashboards to meet stakeholders’ needs and tell a compelling story about your ESG initiatives and financial performance. For example, a CEO will want to see a different set of metrics & KPIs than an operational manager. By effectively communicating insights through data storytelling, you can make a strong impression, engage stakeholders and highlight the impact of your efforts. Moving forwards, ensure ESG metrics are visible across all levels of the organisation, so ESG performance can be routinely assessed to foster sustainable business practices.
Integrate ESG metrics into corporate reports
To effectively communicate the financial implications of ESG factors, incorporate relevant information into annual corporate reports. Under the Companies Act 2006, certain companies are required to include climate-related financial risks and opportunities in strategic reports. For example, increased severity of extreme weather events causing damage to facilities and increasing capital costs. Embedding ESG disclosures within financial reporting frameworks will provide stakeholders with a comprehensive view of the company’s resilience. Supplement financial disclosures with qualitative narratives, highlighting strategic ESG initiatives and their alignment with corporate values, offering deeper insights into the company's commitment to sustainability and long-term value creation.
Invest in training and change management
Before the solution is rolled out across the organisation, develop a robust strategy to manage the change in business processes to support implementation of the technology. Providing comprehensive technical training and creating training materials to educate end-users and administrators on the new system can make a significant difference. Put in place ongoing support to address post-implementation issues and facilitate continuous improvement, either through in-house resources or by outsourcing to a specialist managed services team.
Driving value through integrated reporting
Harmonising ESG and financial reporting is not just a necessity for regulatory compliance – it offers organisations an opportunity to drive long-term sustainable success. Aligning ESG and financial metrics provides a comprehensive view of performance that satisfies investor expectations, enhances transparency, and uncovers new opportunities.
By taking a systematic approach to disclosing ESG factors, organisations can ensure teams are prepared for the transformation of data governance processes and the implementation of new technology. Embedding ESG principles into strategic decision-making and operational processes, ensures that the organisation's vision for sustainability is understood, embraced, and executed across all levels.
Ultimately, bridging the gap between ESG and financial reporting is about redefining value, focusing not only on profitability but also on societal impact and long-term resilience. By proactively integrating these elements, businesses can lead the charge toward a sustainable future, meeting the needs of today while preparing for the challenges and opportunities of tomorrow.
Start the conversation…
Do you want to find out how to integrate ESG and financial reporting in your organisation? Find out more about how we can support you on your ESG reporting journey with a free ESG Solution Discovery!
This session involves a short collaborative workshop designed to explore your organisation’s ESG reporting needs and values:
- Scope of your ESG and sustainability information
- Applicable standards and frameworks
- ESG data collection processes
- How ESG data is controlled
- Current approaches to reporting the impact of emissions reduction initiatives
- Alignment of ESG and financial reporting
For more information, contact our expert consultants via email
