How to Build Traceable ESG Data Systems

Traceable ESG data systems are essential for meeting compliance requirements, improving reporting accuracy, and building trust with stakeholders. These systems integrate financial and ESG metrics, ensuring transparency, accuracy, and accountability. Here's what you need to know:

• What is ESG data traceability? It tracks and verifies ESG metrics from their source to final reporting, ensuring accuracy and compliance.

• Why is this important? Regulations like the EU’s CSRD and CSDDD mandate rigorous ESG reporting. Failure to comply can lead to penalties.

• Key components of a traceable ESG system:

  • Centralised data platforms to unify and organise ESG data.

  • Audit trails and immutable records for transparency and accountability.

  • Automation and AI tools to reduce manual errors and handle complex reporting.

Organisations like Walmart and Dominion have significantly improved their ESG reporting by adopting centralised platforms and automation tools. Platforms like neoeco integrate ESG data with financial systems, simplifying compliance and ensuring audit readiness. As regulations tighten, investing in integrated ESG systems ensures both compliance and improved decision-making.

Sustainability data solutions in Fabric - Technical Summit November 2024

Core Components of a Traceable ESG Data System

Creating a reliable ESG data system requires three essential elements to ensure the integrity, clarity, and regulatory compliance of the data. Together, these components form the backbone of effective ESG reporting.

Centralised Data Platforms

Centralised data platforms are the cornerstone of any traceable ESG system. They bring together information from various sources into one organised repository. Why is this important? Because errors in spreadsheets are alarmingly common – around 88% of them contain mistakes that could disrupt reporting and compliance processes. Add to this the fragmented nature of ESG data, often spread across multiple software tools, and it’s clear why a unified system is crucial.

To be effective, these platforms must include safeguards for accurate and up-to-date data entry. Features like dashboard overviews, data visualisation tools, and comprehensive metric libraries allow for real-time tracking and analysis. This centralisation isn’t just about organisation – it saves time. Employees reportedly spend 3.6 hours a day searching for information. Imagine what could be achieved if that time were spent on strategy instead.

A prime example is Walmart México & Centroamérica. By adopting APLANET, they cut their sustainability data collection time from six months to just two. Edgar Hoth, ESG Manager at Walmart Mexico, shared:

"The truth is that it has helped us to increase our time, be more agile and improve many processes with the information. We have a better level of control and a correct administration of the information."

Once data is centralised, the next step is ensuring its security and accountability through audit trails.

Audit Trails and Immutable Records

Audit trails and immutable records are vital for maintaining accountability. They enable every data point to be traced back to its origin, creating a clear and verifiable chain of evidence for regulatory and auditing purposes.

These records are unalterable, with permanent, timestamped entries that prevent tampering. Version control systems further enhance transparency by documenting every change – who made it, when, and why. This is especially important given the complexity of ESG metrics, which often require multiple revisions.

Dominion provides a great example of this in action. Using APLANET, they unified non-financial data across divisions, reducing errors and improving compliance. The platform also streamlined the calculation of Scope 1, 2, and 3 emissions, boosting the accuracy of their ESG disclosures. Gabriela Martin, Global Risk and Compliance at Dominion, noted:

"The amount of information we are able to manage and report at any given time has increased significantly. The platform has allowed us to unify concepts and permeate them from the top-down."

With only 8% of organisations having fully developed procedures for consistent ESG data management, robust audit trails are essential. For companies dealing with ISSB reporting requirements, these trails provide the documentation needed to back up their claims and stay compliant.

Once data is centralised and secured, the final piece of the puzzle is leveraging automation and AI to handle the scale and complexity of ESG reporting.

Automation and AI-Powered Tools

Automation and AI tools are game-changers for tackling the intricate demands of ESG reporting. They minimise manual errors while ensuring a complete view of ESG data across all categories.

Manual processes often leave significant gaps. For instance, only 9% of companies measure their total emissions comprehensively, and 81% admit to leaving out some internal emissions. AI-powered automation helps bridge these gaps by continuously monitoring data sources and identifying missing pieces.

These tools are indispensable for transparency and audit readiness. They can process data from hundreds of sources, addressing challenges like the fact that 75% of data leaders lack end-to-end management systems, and 79% rely on over 100 data sources.

Banco Caminos is a great case study here. By using APLANET, they simplified compliance with Spain's Non-Financial Reporting Law 11/2018. The platform’s automated features made sustainability reporting easier and ensured full compliance. Carmen Agenjo, Head of Communication at Banco Caminos, remarked:

"The use of the tool is intuitive for both the people who report and those who validate."

AI also plays a critical role in Scope 3 emissions tracking, often the most complex part of ESG reporting. By automating the collection and processing of supply chain data, these tools help organisations achieve a thorough understanding of their environmental impact while reducing the manual workload involved in data verification.

Best Practices for Data Quality and Traceability

Creating a traceable ESG data system isn’t just about picking the right technology - it’s about adopting disciplined practices to ensure data remains accurate, accessible, and ready for audits. With 94% of executives under pressure to prioritise ESG initiatives, getting these basics right is more important than ever.

Implement Clear Data Governance Policies

Strong data governance is the backbone of effective ESG reporting. Yet, 75% of data leaders admit they lack end-to-end data management systems. This gap poses significant risks for organisations trying to meet strict reporting standards.

To address this, set up a cross-functional governance council, assign clear roles like data owners and stewards, and document standardised procedures for monitoring data quality and resolving issues. Effective governance ensures consistency in data definitions and aligns priorities across departments, making system integration smoother.

PepsiCo provides a great example of this in action. The company uses a five-step verification process for ESG data - covering collection, validation, review, approval, and external verification - before it’s included in reporting. This approach builds accountability and fosters stakeholder confidence.

Different ESG frameworks also highlight specific governance mechanisms:

Integrate ESG Data with Core Business Systems

Breaking down data silos is crucial for accurate and traceable ESG reporting. When ESG data operates separately from financial and operational systems, errors can occur, and traceability becomes a challenge.

Start by identifying all ESG and financial data sources. Then, design ETL (Extract, Transform, Load) pipelines to normalise inputs and set up automated workflows to maintain consistency at every transactional level. This approach helps uncover gaps and inconsistencies that could compromise reporting. Remember, 79% of data leaders depend on more than 100 data sources.

Integrating ESG data with financial systems ensures metrics align at the transaction level, meeting ISSB reporting requirements [https://neo.eco/issb-reporting]. The benefits go beyond compliance - ESG-focused institutional investments are expected to reach approximately £26.8 trillion by 2026, representing 21.5% of assets under management. Investors increasingly expect integrated reporting that ties sustainability efforts to financial outcomes.

Iyngaran Panchacharam, a Sustainability Tech and AI expert, explains:

"ESG data should be considered a data 'ecosystem.'"

This mindset acknowledges the interconnected nature of financial, sustainability, and operational management. Treating them as separate silos diminishes the strategic value of ESG reporting. Integrated systems also make routine audits more effective, reinforcing data reliability and compliance.

Regular Data Audits and Validations

Once data is centralised and audit trails are in place, regular validations are essential to maintain integrity. Consistent auditing ensures data remains aligned with evolving compliance standards. With 85% of investors wanting ESG disclosures to be assured at the same level as financial statements, robust validation processes are non-negotiable.

Use a combination of automated and manual checks to validate data. Automated systems can handle completeness and consistency, while manual reviews focus on accuracy. Align these steps with your risk management and compliance plans to ensure a thorough approach.

Prepare for external scrutiny by conducting internal audits regularly and engaging stakeholders to address their concerns. This proactive strategy helps identify and resolve issues before they escalate during formal audits.

Daan Smulders, PARTNER TECHNOLOGY RISK EV, notes that relying on temporary fixes won’t suffice as assurance standards continue to rise. Leveraging technology can further enhance auditing capabilities. Tools like advanced analytics, blockchain, and AI streamline data collection, reduce errors, and improve transparency. Real-time tracking of ESG metrics through automated systems adds another layer of validation.

With 94% of investors believing corporate reports contain unsupported sustainability claims, regular audits are key to addressing such concerns and building trust. This is especially important for tracking Scope 3 emissions, one of the most complex aspects of ESG reporting. These indirect emissions require extensive supply chain data validation, making systematic audits essential for accuracy and completeness.

Tools and Platforms Supporting Traceable ESG Systems

Traceable ESG systems rely on audit-ready platforms that seamlessly merge sustainability and financial data to meet compliance needs and build trust. Let’s delve into how neoeco exemplifies this integrated approach with its advanced technology.

Overview of neoeco

neoeco is a Financially-integrated Sustainability Management (FiSM) platform designed to unify sustainability, finance, and operations, delivering real-time, audit-grade ESG reporting.

At the heart of neoeco is its Sustainability Ledger, which connects ESG and Life Cycle Assessment (LCA) data directly to financial transactions. By embedding over 90 ESG impact factors into these transactions using double-entry principles, the platform ensures accuracy and transparency right from the source.

Here’s what sets neoeco apart:

• AI-Powered Automation: The platform automates ESG data collection and classification, reducing errors and speeding up reporting. Using LCA methodology, it provides detailed insights across 96 ESG impact categories.

• Multi-Framework Compliance: neoeco integrates with standards like ISSB, CSRD, and GHGP, ensuring organisations meet diverse regulatory requirements without juggling multiple systems.

• Real-Time Integration: The platform connects with accounting software (e.g., Xero, QuickBooks), ERP systems, energy metres, and HR platforms. This creates a unified ecosystem where ESG metrics stay aligned with operational and financial data.

For example, Kreston Reeves, an accounting firm, reported sharper insights, reduced manual data collection, and improved assurance readiness thanks to neoeco’s financially-integrated approach. By shifting from spend-based to activity-based metrics, the platform achieved a 10x improvement in data granularity, significantly boosting reporting accuracy.

neoeco’s recognition in the Xero App Store, where it holds a 5-star rating, further underscores its value. Users have praised it as an “end-to-end reporting solution built for accountants that seamlessly integrates with Xero”.

Comparison of neoeco with Generic Platforms

To understand how neoeco’s FiSM approach stands out, here’s a comparison with generic ESG platforms:

This financially-integrated approach addresses critical challenges in ESG reporting. As Maria Bautista, Global Head of Internal Control at Philips, explains:

"Rushing data collection for CSRD deadlines without clear definitions risks inconsistent interpretations and unreliable information. Even simple terms need careful, shared definitions to ensure data integrity."

neoeco resolves this by anchoring ESG definitions directly to financial transactions, ensuring consistent and traceable data. This is particularly valuable for complex areas like Scope 3 emissions tracking, where supply chain validation depends on systematic integration with procurement and finance systems.

In contrast, many generic platforms struggle to meet assurance requirements. As Wim Bartels, European Sustainability Senior Partner, notes:

"CSRD once more calls for a good dialogue with the auditor. One should be aware that the regime of limited assurance does not mean that companies can lower the standards for the information quality for now and invest in this quality later when reasonable assurance is required. In both cases, quality and reliability of the information must be in order."

neoeco’s transaction-level data structures are built to meet these quality standards from the ground up, supporting both current limited assurance demands and future requirements for reasonable assurance without the need for system overhauls.

For organisations exploring ESG platforms, the choice often comes down to audit readiness, data precision, and compliance strategies. As ISSB reporting standards evolve, platforms like neoeco that integrate sustainability with financial data offer a strong foundation for navigating these changes.

Establishing and Maintaining Audit Trails

Building on our earlier discussion about audit trails, this section focuses on creating unchangeable records and ensuring their credibility through independent verification. A well-designed audit trail should document every data change, transformation, and validation step, providing auditors with clear evidence of data integrity.

Creating Immutable Records

Immutable records are essential for ensuring data remains unaltered, preserving its integrity throughout the reporting process. The best way to achieve this is through data versioning and immutable logging, which create tamper-evident records of all data activities. These methods ensure that the data stays in its original form.

"Immutable data ensures that the records remain in their original state, allowing for complete traceability." - Toshendra Sharma, Founder, RecordsKeeper.AI

Blockchain technology is particularly effective in creating tamper-proof records for ESG data. Distributed ledger technology (DLT) offers a similar advantage by establishing shared, unchangeable records of critical data points. This is especially useful for tracking carbon emissions, social impact metrics, and governance indicators, ensuring their accuracy from collection to reporting.

When selecting platforms for ESG reporting, prioritise those that incorporate blockchain to guarantee data immutability. Such records also support compliance with regulations like GDPR, HIPAA, and SOX. Once immutable records are in place, the next step is to validate their reliability through independent verification.

Third-Party Verification and Assurance

After securing data integrity, independent verification plays a key role in reinforcing trust and regulatory compliance. External verification ensures that ESG disclosures align with established standards.

Efficient verification relies on well-organised, vetted documentation. For example, BDO noted in July 2025 that verifying vehicle fuel data from global locations can be challenging due to inconsistent units and dispersed records. This highlights the importance of clear and well-prepared documentation.

To streamline the assurance process, organisations should collaborate closely with auditors. Agreeing on detailed project plans - including timelines, inputs, and expected deliverables - helps ensure that audit trails meet professional standards right from the start.

Audit trail systems should also be designed for continuous improvement. Instead of treating compliance as a one-time task, organisations should regularly re-evaluate and refine their systems. Integrating ESG controls into existing frameworks, such as Sarbanes-Oxley (SOX) and ISO standards, can further simplify verification by eliminating redundancies.

For more complex areas, like Scope 3 emissions tracking, independent verification is particularly valuable. Supply chain data often spans multiple jurisdictions and systems, making external validation crucial for credibility.

Maintaining a centralised risk register that includes ESG risks is another useful strategy. By adopting an Integrated Risk Management (IRM) approach, organisations can align ESG risk management with broader business strategies. This provides auditors with a clearer view of how ESG risks relate to overall operations.

Finally, staying informed about new ESG reporting standards and regulations is critical. Monitoring these changes and implementing improvements based on audit findings ensures that audit trails remain effective and that continuous progress becomes part of everyday operations.

Conclusion

Traceable ESG systems thrive on unified data, automation, and robust governance. The secret to their success? Bringing financial and sustainability data together on a single platform. This eliminates the fragmentation that often weakens data quality and hinders compliance.

When ESG data is centralised, it reduces inconsistencies, ensures uniformity, and makes reporting more efficient. A unified foundation like this creates a seamless connection between financial and sustainability metrics.

By integrating financial and sustainability data, ESG reporting becomes both audit-ready and compliant. Instead of treating sustainability metrics as a separate entity, modern ESG systems embed environmental, social, and governance factors directly into financial processes. This approach holds ESG data to the same high standards as financial information, ensuring alignment with global frameworks like ISSB, CSRD, and GHGP.

Automation and AI play a crucial role by streamlining data collection and analysis. These technologies provide real-time insights, reduce errors, and enhance traceability by keeping detailed records of every data transformation and validation.

Platforms such as neoeco illustrate the power of integrating ESG data with financial transactions. By embedding over 90 ESG impact factors into financial operations using double-entry principles, these platforms deliver audit-grade accuracy while supporting compliance with global standards like ISSB (IFRS S1 & S2), CSRD, GHGP, TCFD, SDG, SBTi, SASB, CDP, and GRI. This not only simplifies compliance but also equips organisations to tackle future ESG challenges with confidence.

Strong data governance and integrated systems are the backbone of reliable ESG reporting. Accurate data requires multi-step verification and validation processes, clear roles and responsibilities, regular audits, and continuous monitoring. These frameworks help maintain data accuracy and accountability throughout the reporting lifecycle.

As regulatory requirements and stakeholder expectations grow, the shift towards centralised, automated ESG data systems is set to accelerate. Organisations that invest in these comprehensive systems now will not only meet future compliance demands but also gain valuable insights to drive strategic decisions.

For those ready to embrace ISSB reporting within a financially-integrated framework, the time to act is now. The regulatory landscape is evolving rapidly, and businesses with reliable, traceable ESG data systems will stand out, showcasing their commitment to sustainable and responsible practices.

FAQs

How can companies keep their ESG data systems compliant with changing regulations like the EU CSRD and CSDDD?

To keep up with changing regulations like the EU CSRD and CSDDD, businesses need to set up dynamic ESG data systems that can adjust to new regulatory demands. This involves a few critical steps: adopting robust data governance practices, automating the processes for collecting and reporting data, and regularly seeking expert advice to stay on top of regulatory developments.

Platforms such as neoeco offer a practical way to manage this. They combine financial and sustainability data while adhering to frameworks like ISSB and CSRD. These tools make use of automation and advanced techniques to ensure organisations can produce audit-ready ESG reports, even in a fast-evolving regulatory landscape.

How do automation and AI enhance the accuracy and efficiency of ESG reporting systems?

Automation and AI have transformed ESG reporting by cutting down on manual tasks and reducing the likelihood of errors. These technologies handle data collection, processing, and analysis, ensuring reports are more accurate and consistent.

With AI-powered tools, organisations gain real-time insights into their environmental, social, and governance metrics. This allows them to make better decisions and adhere to global standards such as ISSB, CSRD, and GHGP. By enhancing efficiency and offering detailed data visibility, automation and AI make it simpler for companies to create audit-ready disclosures without unnecessary hassle.

How does integrating ESG data with financial systems improve organisational decision-making?

Integrating ESG data into financial systems enables organisations to align their financial strategies with environmental, social, and governance considerations. This approach not only supports more informed decision-making but also strengthens risk management by identifying and addressing potential challenges that could impact long-term stability and growth.

Beyond risk, this integration can lead to tangible benefits like reducing the cost of capital, improving portfolio performance, and ensuring adherence to regulatory standards. By presenting ESG impacts alongside financial metrics, organisations gain the ability to allocate resources more effectively, attract top talent, and establish themselves as frontrunners in sustainability efforts.

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