5 steps to take before buying ESG software

ESG is no longer managed solely by a corporate social responsibility or sustainability team. The evolution of ESG reporting from voluntary to mandatory has pushed organizations to develop cross-functional teams to support proper alignment and execution of ESG programs at all levels.

Why might a cross-functional team be important for software selection? A collaborative cross-functional team can provide the necessary insights for effective use case evaluation, requirement gathering, and implementation of any ESG software. 

If, for example, software measures and manages GHG emissions for the operations team but does not address needs of the finance or information technology teams, the organization might not get what it needs from its investment. Additionally, in the absence of a cross-functional team, other key elements of the software selection, such as reporting, audit controls, and security measures might not be considered. 

A cross-functional team can holistically consider use cases and key requirements for the organization. The exercise of evaluating use cases and requirements often starts with a few key questions:

• What do we need today? 
• What will we need two years from today?
• Do we need a simple reporting solution, such as a dashboard, or do we need a robust solution to manage and address specific use cases?

These questions can help determine if the need is for ESG software or if use cases can be effectively solved without software. 

If a need for software exists, then it’s time to list use cases. Use cases represent high-level topics of need such as GHG emissions management, physical climate risk assessment, or supplier risk assessment. A use case list might include:

• Greenhouse gas emission management: Measurement and reduction of GHG emissions 
• Physical climate risk assessment: Assessment of climate-related hazards on physical assets
• Peer benchmarking: Peer comparisons across a variety of ESG key performance indicators (KPI)
• Materiality assessment: Continual evaluation of stakeholder and competitor ESG needs
• ESG data management: Automation and aggregation of ESG data flows into a central repository
• Supplier risk assessment: Evaluation of suppliers through questionnaires and standard KPIs
• Diversity, equity, and inclusion (DE&I) talent attraction and management: Measurement of DE&I performance and areas of improvement
• Sustainability and ESG report development: Automated report building across frameworks

After identifying use cases, pinpointing specific requirements for each use case can further help to determine which ESG software might be best suited for the organization's needs. A list of requirements for GHG emissions management software might include:

• Scope 1, 2, and 3 GHG calculations
• Utility integration or application programming interface capabilities
• Source document tagging
• Organization structure management 
• Target setting functionality 
• Calculation transparency and audit report 
• Security infrastructure
• System certifications
• SOC 2 verification
• Third-party verified calculation methodology

After establishing the use cases and requirements that are pertinent to the organization’s ESG needs, it is important to review existing IT infrastructure to identify synergistic cost opportunities within the existing network. 

Many existing governance, risk, and compliance, enterprise resource planning, customer relationship management, and human capital management software providers have expanded their offerings into the ESG software marketplace. These options might offer an opportunity for your organization to expand existing licenses into its ESG product at a marginal cost. 

By using existing providers for ESG management needs, organizations can reduce the amount of technology debt they carry and allow for a more streamlined maintenance and implementation process. 

Building a budget is a critical step, and three key costs to consider include license fees, professional services, and team training.

One of the most important factors within the ESG software market is the cost of the software license and the resulting implementation. In our evaluation, we have seen the cost of licensing out-of-the-box software in this marketplace vary from low-five figures to mid-six figures depending on the number of use cases addressed and size of the organization.

In addition to licensing costs, organizations might need implementation or advisory services to properly configure the system and train their teams to fulfill requirements. Or they might need to build out data collection processes across the organization to feed into newly selected software.

The cost of training is also a factor – specifically the time needed to properly train system users on the new software functionality. Establishing a budget for these costs can help narrow down the list of ESG software solutions that fit organizational needs.

From point solutions addressing GHG management to enterprise-level data management platforms, the ESG software marketplace is complex and crowded. This complexity can make it difficult for organizations to understand who the leaders are for the wide range of use cases that exist.

Organizations can pursue a couple of routes to help cut through the noise and make an informed decision.

• Market intelligence agencies produce regular reports on the state of the ESG software market. These reports provide a high-level snapshot of the market but might not cover all vendors within the use cases pertinent to an organization.
• Many vendors in the market host webinars to discuss a specific use case and how their product addresses the requirements. Such presentations can be an effective method to learn more about a specific vendor’s solution.

Having a record of and access to reliable and audit-ready ESG data is increasingly vital – and software can help organizations manage information effectively. By taking proactive steps, organizations can make informed choices about which ESG software would work best and position themselves for future success.