Top 5 Challenges in Aligning ESG with ISSB Standards

Aligning ESG reporting with ISSB standards is a complex but necessary shift for organisations. The ISSB's IFRS S1 and S2 standards require integrating sustainability data with financial reporting, a process that presents five key challenges:

1. Combining financial and sustainability data: Organisations struggle to link ESG metrics like Scope 3 emissions to financial transactions, often leading to inconsistent data and audit failures.

2. Keeping up with evolving regulations: Navigating overlapping frameworks like ISSB, CSRD, and TCFD is challenging, especially with regional variations.

3. Ensuring data accuracy and audit readiness: ESG reporting now demands the same rigour as financial data, requiring verifiable sources and clear audit trails.

4. Balancing double materiality: Addressing both financial impacts and broader societal effects, particularly for Scope 3 emissions, requires detailed and consistent data.

5. Breaking down silos and skill gaps: Finance and sustainability teams often work in isolation, with limited understanding of each other's priorities.

Key solutions include:

• Using unified platforms that integrate ESG metrics into financial systems for real-time, accurate reporting.

• Employing automated tools to stay updated with regulatory changes and ensure compliance.

• Adopting double-entry ESG accounting for precise, audit-ready data.

• Leveraging Life Cycle Assessment (LCA) tools for detailed impact tracking.

• Encouraging collaboration and cross-training between finance and sustainability teams to bridge knowledge gaps.

Navigating Sustainability Reporting: ESRS and ISSB Explained

Challenge 1: Combining Financial and Sustainability Data

One of the biggest challenges organisations face with ISSB standards is dealing with separated financial and ESG data. For years, these two data streams have existed in isolation, making it tough to meet the ISSB requirement of linking sustainability metrics directly to financial performance and business value.

Creating audit-ready disclosures becomes a daunting task when there’s no clear connection between sustainability data and financial transactions. Take Scope 3 emissions, for instance. Tracking emissions across an entire supply chain is already complex. But linking these emissions to purchase orders, supplier invoices, or cost centres? That’s another level of difficulty. Without proper integration, finance teams struggle to validate sustainability metrics, and sustainability professionals can’t access the granular financial data they need for accurate assessments. This disconnect often leads to inconsistent data that fails audits and erodes trust among stakeholders.

The issue isn’t just technical. Departments often operate on different timelines, methodologies, and standards for data quality. These misalignments make it nearly impossible to produce the real-time, financially-integrated disclosures that ISSB standards demand. Solving this requires a unified strategy to bring financial and ESG data together.

Solution: Unified Data Platforms

The answer lies in platforms that embed ESG metrics directly into financial transactions. FiSM platforms, for example, treat sustainability data with the same precision as financial accounting, applying double-entry principles to ensure accuracy and auditability.

Take neoeco as an example. Their FiS Ledger system incorporates over 90 ESG impact factors into financial transactions. Every purchase order, invoice, and expense automatically generates corresponding sustainability metrics, creating an audit trail that meets both financial and ESG reporting needs.

These platforms also automate data collection and integration. Instead of manually entering data into multiple systems, they connect with tools like Xero, QuickBooks, ERP systems, energy metres, and HR platforms. This seamless integration reduces the time spent on reconciliation and lowers the risk of human error, aligning perfectly with the rigorous audit and disclosure requirements of ISSB standards.

AI-powered automation takes it a step further by identifying patterns and assigning ESG impact factors. For instance, when processing a supplier invoice, the system can automatically calculate carbon emissions based on factors like the supplier’s location, product category, and transport methods. This transforms ESG data collection from a laborious, error-prone task into a streamlined, dependable process.

Best Practices for Data Integration

While unified platforms lay the groundwork, a structured approach to data mapping and standardisation is key to ISSB compliance. Here’s how organisations can tackle integration effectively:

• Map existing data sources: Begin by identifying overlaps, gaps, and inconsistencies between financial and sustainability systems. This should cover everything from energy usage and waste metrics to supplier diversity and employee satisfaction data.

• Agree on common data definitions: Finance and sustainability teams must align on how to measure, categorise, and report key metrics. For example, using a shared supplier classification system ensures financial transactions link accurately to environmental and social impact data.

• Automate workflows: Real-time data capture and processing reduce manual errors and improve quality. This proactive approach resolves issues as they arise, rather than during year-end reporting.

• Foster cross-functional collaboration: Regular meetings between finance and sustainability teams ensure alignment on data validation, compliance, and process improvements. Finance teams bring expertise in accuracy and audits, while sustainability professionals provide insights into impact measurement and regulations.

• Establish governance structures: Define clear roles for data collection, validation, and reporting. Regular quality checks and standardised documentation ensure audit trails remain clear and reliable.

For organisations ready to take the next step, understanding how Scope 3 emissions tracking integrates with financial systems can offer practical insights into managing complex data while maintaining financial accuracy and audit readiness.

Challenge 2: Staying Current with Changing Regulations

Organisations face mounting pressure to keep up with the fast-evolving regulatory environment around ESG reporting. The rules are shifting quickly, especially for those aiming to align with ISSB standards. ISSB itself must navigate a maze of overlapping frameworks like CSRD, TCFD, GRI, and SASB - each with its own timelines, requirements, and updates.

This complexity is further intensified by differences in how countries implement these standards. While ISSB aims to create global consistency, local adaptations mean the UK's approach to ISSB might look very different from how the EU implements CSRD or how the United States enforces SEC climate disclosure rules. The result? Compliance becomes a moving target, and organisations must constantly adapt their strategies to meet changing regional requirements.

For many finance and sustainability teams, keeping up with these rapid changes is a major challenge. Without proper systems in place, they often resort to reactive compliance measures, which can drive up costs and increase audit risks.

Solution: Automated Compliance Tools

To tackle this, organisations need systems that embed compliance intelligence directly into their ESG workflows. Modern FiSM platforms offer a way forward by staying connected to regulatory bodies in real time and automatically updating reporting templates as standards evolve.

Take neoeco as an example. This platform supports compliance with a wide range of standards, including ISSB (IFRS S1 & S2), CSRD, GHGP, TCFD, SDG, SBTi, SASB, CDP, and GRI. When new guidance or technical updates are issued, the system seamlessly integrates these changes into existing workflows, ensuring organisations stay ahead of the curve.

But it doesn’t stop at template updates. AI-powered compliance tools can analyse an organisation’s current data against updated requirements, flagging gaps and suggesting corrective actions. For instance, if ISSB introduces new disclosure rules for transition risks, the system can identify the relevant data points and align them with existing financial records.

This multi-framework approach is especially beneficial for UK organisations with global operations. Rather than juggling separate compliance processes for each jurisdiction, these platforms allow for unified workflows that meet multiple standards at once. This not only reduces administrative overhead but also ensures nothing is overlooked as regulations evolve - building on the integrated data strategies discussed in Challenge 1.

Additionally, cross-referencing capabilities in these tools help organisations see how changes in one framework might affect another. For example, if CSRD updates its double materiality requirements, automated systems can quickly show how this impacts ISSB climate disclosures, enabling proactive adjustments instead of last-minute fixes.

Comparison of Major ESG Frameworks

Understanding the connections between major ESG frameworks can help organisations navigate this regulatory complexity more effectively. While each framework has its own focus, there are key overlaps that smart compliance strategies can leverage.

A clear trend is emerging: frameworks are converging. ISSB builds on TCFD recommendations, while CSRD incorporates many ISSB principles alongside its broader stakeholder focus. This convergence offers organisations a chance to develop integrated compliance strategies that address multiple frameworks simultaneously.

For UK companies, aligning with ISSB while keeping an eye on CSRD is particularly important, especially for those with EU operations or supply chains. The ISSB reporting framework provides a strong foundation that can be adapted to meet other regulatory demands as they evolve.

Challenge 3: Meeting Data Quality and Assurance Requirements

The ISSB sets a high bar for data accuracy, requiring auditor-grade precision, verifiable sources, and clear audit trails. This marks a sharp departure from older ESG practices, which often relied on estimates and lacked the rigour of financial reporting. For many companies, this shift is a major hurdle, especially if they’ve been operating with less stringent ESG data standards.

This challenge isn’t just about gathering data - it’s about connecting sustainability metrics directly to financial performance. Traditional ESG reporting often pulled data from various sources and relied on manual processes, leading to errors and inconsistencies that wouldn’t hold up to financial audit standards.

Take Scope 3 emissions and supply chain data, for instance. These rely heavily on third-party inputs, meaning organisations must adopt robust verification processes to meet ISSB's expectations. To tackle this, companies need to embrace systems designed for audit-ready, systematic data management.

Solution: Using Double-Entry ESG Accounting

Double-entry ESG accounting offers a way to meet ISSB’s strict data quality requirements. Borrowing from the principles of financial accounting, this method ensures that every sustainability-related transaction is recorded with matching entries that must balance. This built-in system of checks and controls makes it easier to maintain data accuracy and reliability.

For instance, neoeco demonstrates this approach with its FiS Ledger. This system integrates over 90 ESG impact factors directly into financial transactions. When a company records a purchase, it simultaneously logs the financial cost alongside associated environmental impacts like carbon emissions, water usage, and waste generation. Any mismatches are flagged immediately, helping to resolve issues before they become larger problems.

This method also creates a natural audit trail. Every ESG metric can be traced back to its original transaction, complete with documentation showing how the data was collected, processed, and verified. Such transparency is critical for meeting ISSB standards and satisfying auditors.

By integrating ESG and financial data into unified workflows, organisations can also reduce administrative burdens. Instead of juggling separate systems, they can maintain consistent data quality across all records. This approach is particularly useful for complex tasks like calculating supply chain emissions, where the system applies industry benchmarks, geographical factors, and supplier-specific data to ensure accurate and well-documented calculations.

Methods for ESG Data Assurance

Organisations can choose from several methods to ensure their ESG data aligns with ISSB’s quality standards. Each approach varies in terms of reliability, scalability, and resource requirements:

• Manual Assurance: This involves human-led audits to verify data quality. While thorough, it’s labour-intensive and costly.

• Semi-Automated Assurance: A combination of automated data collection and human oversight, this strikes a balance between efficiency and accuracy, reducing dependency on fully manual processes.

• Fully Automated Assurance: Using AI-powered systems, this approach continuously monitors data quality, flags anomalies in real time, and generates audit-ready documentation. It’s highly efficient and scalable, making it ideal for organisations with complex operations.

The choice of method often depends on an organisation’s maturity and appetite for risk. Many companies start with semi-automated systems and gradually move to full automation as they refine their processes. Fully automated systems, for instance, are particularly effective for monitoring Scope 3 emissions, enabling organisations to address potential issues before they affect regulatory filings.

Regardless of the approach, the key is ensuring clear data lineage. Organisations must be able to trace every ESG metric back to its source and show how it was processed. This level of transparency is not just essential for meeting ISSB standards - it also builds trust with stakeholders, reinforcing confidence in sustainability disclosures.

Challenge 4: Managing Double Materiality and Detailed Impact Tracking

Navigating the intricacies of double materiality is no small feat in ESG reporting. This concept requires organisations to evaluate two key dimensions: how sustainability issues influence financial performance and how their operations impact society and the environment. This dual lens is essential for aligning with ISSB and CSRD standards but presents a significant challenge for companies aiming to create a unified ESG strategy. The goal is to achieve a balanced assessment of financial and broader social-environmental impacts.

The ISSB framework focuses on financial materiality, prioritising how climate risks and opportunities affect enterprise value. On the other hand, the CSRD takes a broader approach, demanding a thorough assessment of an organisation's impact on people and the planet. For multinational corporations operating in diverse jurisdictions, this means juggling both frameworks while ensuring consistent and accurate reporting.

The difficulty intensifies when addressing Scope 3 emissions and supply chain impacts. These indirect emissions often form the largest share of a company’s environmental footprint, yet they are notoriously tricky to measure and verify. Traditional methods often rely on industry averages and estimates, which lack the precision needed for effective materiality assessments. For example, tracking Scope 3 emissions across a complex global supply chain requires granular, consistent data that traditional systems struggle to provide.

Solution: Using Life Cycle Assessment (LCA) Tools

Life Cycle Assessment (LCA) tools offer a science-driven way to tackle the complexities of double materiality. By examining a product or service's entire lifecycle - from raw material extraction to disposal - LCA tools provide the detailed insights needed for comprehensive materiality assessments.

Modern LCA platforms are designed to integrate with financial systems, enabling real-time tracking of environmental and social impacts alongside economic transactions. A great example of this is neoeco, which incorporates over 90 ESG impact factors into financial workflows. This platform calculates carbon emissions, water usage, waste generation, and social impacts, drawing on supplier-specific data and geographical factors. Its lifecycle analysis capabilities make it particularly effective for tackling Scope 3 emissions.

This approach allows organisations to move beyond annual estimates. Instead, they can monitor supply chain impacts as they happen. For instance, when sourcing materials from a new supplier, the system can immediately highlight potential issues, such as high carbon intensity or water scarcity in the supplier’s region. This empowers procurement teams to make decisions that align with both financial goals and sustainability targets.

LCA tools also enable dynamic materiality assessments. As regulations, market conditions, or stakeholder expectations evolve, organisations can quickly reassess which impacts are most relevant to their operations. This flexibility is invaluable for meeting the ever-changing demands of ISSB and CSRD standards.

By leveraging AI-driven automation, advanced LCA tools refine impact calculations and flag anomalies, reducing the need for manual intervention. This not only improves the accuracy of materiality assessments but also lightens the administrative load.

Benefits of Detailed Data for Compliance

LCA tools don’t just solve measurement challenges - they also provide a host of compliance-related advantages. First and foremost, they enhance the accuracy of ESG reporting. Detailed tracking eliminates the reliance on rough estimates and provides auditable evidence to support materiality decisions.

This level of detail also helps organisations take a proactive approach to risk management. Instead of waiting for issues to surface during annual reporting, companies can identify and address risks in real time. This is especially beneficial in supply chain management, where early action can prevent financial losses and reputational harm.

From a regulatory standpoint, detailed data simplifies compliance. A unified dataset can generate reports that meet both ISSB's financial materiality requirements and CSRD's broader impact assessments. This not only ensures consistency across frameworks but also reduces reporting costs.

Beyond compliance, robust data collection builds trust with stakeholders. Investors, customers, and regulators increasingly expect precision and transparency in ESG reporting. Demonstrating a rigorous approach to data collection and analysis bolsters credibility and strengthens sustainability commitments.

Detailed impact tracking can also reveal opportunities for efficiency and innovation. For instance, granular carbon data might show that switching to a local supplier reduces emissions and transportation costs, benefiting both financial and environmental objectives.

Finally, comprehensive data equips leadership teams with the insights needed for strategic decision-making. With a clear view of trade-offs and synergies across sustainability goals, organisations can make informed choices that balance short-term priorities with long-term impacts. This kind of visibility ensures that decisions support both financial health and broader societal objectives.

Challenge 5: Breaking Down Team Silos and Building Skills

One of the toughest hurdles in aligning ESG reporting with ISSB standards isn't about the technicalities - it’s about organisational structure. Traditional team setups often create silos between finance, sustainability, and compliance departments, making it hard to achieve the seamless integration ISSB standards demand. These silos can lead to fragmented workflows, especially when trying to combine financial and sustainability data into cohesive reports.

Take the typical setup: finance teams prioritise accuracy and compliance with regulations, sustainability teams focus on environmental metrics and stakeholder engagement, and compliance teams work to reconcile these differing approaches. The cracks start to show when organisations attempt to produce ISSB-compliant reports. Finance teams might question the precision of sustainability data, while sustainability experts may feel constrained by financial reporting frameworks that seem to oversimplify complex environmental and social impacts. This disconnect can lead to delays, inconsistent data quality, and missed opportunities for strategic insights.

Adding to the challenge, communication barriers often arise because each team operates on different timelines, uses distinct terminology, and relies on separate systems. For instance, finance teams typically work on quarterly cycles, while sustainability assessments might only happen annually. These misaligned schedules further mirror the earlier issues of disjointed data flows between financial and ESG systems.

Another major issue is the skills gap. Finance professionals often lack expertise in sustainability metrics, while sustainability teams may not fully understand financial materiality - both of which are central to ISSB standards. Without bridging this knowledge divide, creating cohesive reports that meet both financial and sustainability requirements becomes a daunting task.

Solution: Centralised ESG Management

Breaking down these silos requires more than just good intentions - it needs robust technology to foster collaboration. Centralised ESG management platforms can solve this by creating a single source of truth that all teams can access and update in real time.

Modern platforms integrate directly with existing financial systems, ensuring sustainability data flows through the same channels as financial data. This alignment automatically applies the same governance standards, audit trails, and quality controls that finance teams expect. The result? Greater trust between departments and consistent reporting outputs.

A great example of this is neoeco and its Financially-integrated Sustainability Management (FiSM) platform. This system embeds over 90 ESG impact factors into transactions, creating a unified source of data. For instance, when a procurement transaction is logged, it captures not only the financial details but also metrics like carbon emissions, water usage, and social factors. Finance teams can view these sustainability impacts within their familiar accounting framework, while sustainability teams gain access to granular, transaction-level data for their assessments. This eliminates the need for manual handoffs and ensures consistent, audit-ready data across teams.

This approach is particularly effective for ISSB reporting, where financial materiality and sustainability impacts need to be presented as a cohesive whole. Instead of requiring teams to coordinate manually, a centralised system captures all relevant data points consistently and makes them accessible to authorised users across departments.

Additionally, centralised platforms standardise reporting workflows, cutting through the confusion caused by differing templates, timelines, and approval processes. With everyone working from the same system, organisations can establish clear roles and responsibilities while allowing teams the flexibility to focus on their specific tasks.

Building Internal Skills and Teamwork

While technology provides the backbone, fostering collaboration between teams is just as important. Aligning with ISSB standards requires investing in team skills and cross-functional understanding.

For finance teams, this means training on sustainability concepts like materiality assessments and the financial risks associated with environmental and social factors. Understanding the business case for ESG investments helps finance professionals value sustainability data on equal footing with traditional financial metrics. This knowledge is essential when reviewing sustainability-related financial disclosures under ISSB standards.

On the flip side, sustainability teams need to grasp financial reporting principles, audit requirements, and the concept of financial materiality. Learning how to present environmental and social data in ways that meet financial reporting standards makes it easier for sustainability professionals to communicate with finance teams and external auditors.

Cross-functional workshops can accelerate this learning process. Bringing teams together to tackle actual ISSB reporting challenges not only builds mutual understanding but also generates practical solutions to real-world problems. These sessions often uncover insights that wouldn’t emerge in siloed departmental meetings.

Unified data governance policies also play a critical role. When all teams follow the same standards for data collection, validation, and reporting, it eliminates many of the quality concerns that cause friction. These policies work hand-in-hand with centralised platforms, ensuring continuity and clarity across systems. Clear governance also helps onboard new team members, giving them a solid understanding of their role in the broader ESG reporting process.

Creating shared performance metrics can further encourage collaboration. When finance, sustainability, and compliance teams share responsibility for the quality and timeliness of ISSB reporting, they naturally develop more cooperative working relationships. Regular cross-departmental performance reviews can reinforce this shared accountability.

Mentoring programmes offer another effective way to bridge knowledge gaps. Pairing finance professionals with sustainability team members - and vice versa - provides personalised learning opportunities. These relationships often extend beyond formal programmes, fostering long-term collaboration and understanding.

Finally, short-term staff rotations can be invaluable. For example, a three-month assignment could give a sustainability professional insight into audit requirements, while a finance professional gains hands-on experience with environmental and social impact metrics. These rotations create internal champions who can act as bridges between departments, improving communication and collaboration across the organisation.

Conclusion

This article has explored the key challenges businesses face when aligning ESG reporting with ISSB standards. These include combining financial and sustainability data, adjusting to evolving regulations, ensuring high-quality data, addressing double materiality, and fostering collaboration across teams. Tackling these hurdles requires a unified, technology-driven approach.

Integrated platforms play a central role here, offering tools that manage sustainability data with the same precision as financial data. For instance, platforms like neoeco showcase how embedding ESG impact factors directly into financial transactions can create audit-ready data. This approach not only meets ISSB standards but also aligns seamlessly with traditional accounting practices.

For organisations in the UK, the urgency is even greater, as regulatory demands continue to grow. Delivering consistent, auditable ESG disclosures goes beyond mere compliance - it’s about safeguarding investor trust and ensuring operational effectiveness. Companies that prioritise robust ISSB reporting systems today will be better equipped to navigate future regulatory shifts and meet stakeholder expectations.

The path forward lies in adopting solutions that integrate data systems, simplify processes, and close gaps between departments. This strategy not only addresses current ISSB standards but also lays the groundwork for adapting to the regulatory landscape of tomorrow.

FAQs

What are the best ways for organisations to align financial and sustainability data with ISSB standards?

To meet ISSB standards, organisations need to bring financial and sustainability data together in a way that ensures consistency and comparability. A good starting point is to pinpoint overlapping reporting requirements and encourage teamwork between finance and sustainability departments. This can help simplify and streamline the entire process.

Leveraging modern tools can make this task much easier. For instance, platforms like neoeco allow organisations to integrate finance and sustainability data seamlessly. With features like automated data collection, these tools deliver real-time, audit-ready disclosures. The result? Reports that not only meet ISSB standards but are also more accurate and efficient to produce.

What are the advantages of using automated tools to stay compliant with evolving ESG regulations?

Automated compliance tools offer a range of benefits when it comes to managing ESG regulations. One of their standout features is the ability to monitor regulatory changes in real time. This ensures organisations remain aligned with the latest standards, helping to avoid potential legal troubles or damage to their reputation. By automating processes like data collection and reporting, these tools not only reduce the likelihood of human error but also enhance accuracy and free up valuable time - leading to lower administrative costs.

What’s more, automation allows businesses to respond swiftly to shifting regulatory landscapes, handle compliance risks with greater efficiency, and generate audit-ready reports with ease. This not only simplifies the reporting process but also underscores a commitment to transparency, bolstering trust among stakeholders. For companies working within frameworks such as ISSB standards, automated tools can play a crucial role in making complex requirements more manageable while ensuring consistent and reliable reporting.

Why is collaboration between finance and sustainability teams essential for effective ESG reporting?

Collaboration between finance and sustainability teams plays a key role in ensuring effective ESG reporting. When these teams join forces, they can gather accurate and thorough data while aligning sustainability initiatives with financial goals. This teamwork helps improve transparency, meet regulatory standards such as ISSB requirements, and foster trust among stakeholders.

By integrating their efforts, organisations can simplify compliance processes and make better-informed decisions. This approach allows them to strategically balance environmental, social, and governance priorities with financial performance. Tools like neoeco, which combine finance and sustainability data, make this process even smoother, providing audit-ready disclosures with ease.

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