Buy or build? Selecting the right ESG data platform for you

Corporate Environmental, Social, and Governance (ESG) management currently stands at a crucial juncture. As regulations, data analytics and solutions continue to evolve rapidly, companies are encountering a myriad of new challenges and opportunities in their ESG journey – of which the first step is usually data management and roadmap implementation.

This shift underscores the importance of selecting the right ESG data platform, whether through internal development or third-party software, to address emerging needs and compliance requirements.

Let’s weigh up the advantages and disadvantages of each approach.

Building an internal ESG data platform

Customization

Tailoring the platform to specific business needs allows for flexibility in methodologies and reporting formats, ensuring relevance to company operations. This bespoke solution enables companies to address unique challenges and align with internal processes seamlessly.

Adaptability

Internal teams can modify the tool as the company evolves, accommodating changes to services, partnerships, and customers. This inherent flexibility enables companies to stay agile and responsive to evolving business needs, ensuring continuous improvement in ESG management practices.

Business-specific compliance considerations

Building an internal platform allows companies to incorporate compliance requirements which are directly relevant to their operations directly into the tool, ensuring adherence to regulatory standards. This integrated approach simplifies compliance efforts and reduces the risk of non-compliance penalties, providing peace of mind to companies navigating complex regulatory landscapes.

Disadvantages

However, building an internal ESG data platform comes with drawbacks.

Inflexibility in adapting to evolving standards 

Internal platforms may struggle to keep pace with the rapidly changing landscape of ESG reporting standards and regulations. As regulations evolve and reporting requirements shift, companies relying on internally-built systems can find themselves scrambling to update their platforms to remain compliant. This lack of agility can lead to inefficiencies and potentially expose companies to compliance risks or missed opportunities for improvement.

Limited scalability 

Internal platforms may lack the scalability needed to accommodate the growing volume and complexity of ESG data. As companies expand or undergo organizational changes, their ESG management needs evolve, requiring additional functionalities or capacity. Internal platforms may struggle to scale up or adapt to these changing demands, resulting in operational bottlenecks or limitations in data analysis capabilities.

Dependency on internal resources 

Maintaining and updating an internal ESG management platform requires ongoing investment of time, resources, and expertise from internal IT and sustainability teams. This dependency on internal resources can strain already-stretched teams and divert attention away from other strategic initiatives. Additionally, reliance on internal expertise alone may limit access to specialized knowledge or best practices available from external vendors or consultants.

Using a software solution for ESG management

Alternatively, companies can opt for third-party software solutions, offering benefits like:

Benefits

Cost-effectiveness

Software solutions are typically more affordable than consultancy services, providing a budget-friendly option for ESG management. This cost-effective solution allows companies to allocate resources strategically, maximizing the value derived from ESG management investments.

Time efficiency

Self-serve functionalities enable quick and transparent ESG calculations, allowing for immediate insights and action. This streamlined approach accelerates time-to-value, empowering companies to make data-driven decisions and take proactive steps towards meeting their ESG targets.

Transparency 

Software providers often disclose calculation methodologies, promoting transparency and trust among stakeholders. This transparency enhances stakeholder confidence in reported emissions data, fostering greater accountability and credibility in sustainability reporting efforts.

Integrated services including compliance

Some software solutions offer inbuilt compliance capabilities in line with changing regulations. This integrated approach simplifies ESG management efforts and empowers companies to focus on the important task of meeting their ESG goals.

Disadvantages

However, software solutions may present challenges such as:

Varying quality 

Quality levels of software providers differ, affecting the accuracy of emissions measurements. It’s crucial to thoroughly assess providers to ensure their offerings align with your measurement needs and objectives.

Limited customization 

Off-the-shelf software may lack customization options, hindering your ability to tailor measurements to your specific business requirements. If customization is key to your business, make sure you select a platform which can be configured to suit your needs.

Budget allocation challenges

Justifying the initial investment in external software requires demonstrating a direct return on investment, which may pose challenges in budget allocation.

Key business considerations to make the best decision

There are key considerations to take into account to ensure you are investing in the right approach for your business at the right time:

• Identify data management pain points: Sometimes the problems you face require internal alignment (e.g., company buy-in) and process improvement rather than new tools.
• Evaluate your internal bandwidth: Evaluate if internal resources can keep pace with evolving standards and regulations. This may involve adapting to increased reporting frequency, data accuracy, standardized collection and calculation methods.
• Determine the business value and lock down the budget: Quantify the business value of using external software.

By thoroughly evaluating software providers, you can make an informed decision on where they are providing the right solutions to meet your challenges.

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