With the preservation of our planet becoming an urgent global priority, businesses and organisations worldwide have started to acknowledge the significance of sustainable practices. Governments and stakeholders alike are now closely monitoring sustainability targets, creating a growing demand for transparent and accurate sustainability reporting.
In such an era, data analytics have evolved from being a useful tool to a transformative technology – with the potential to revolutionise how businesses measure, manage and report on environmental and social impacts.
“In today’s financial and product markets, stakeholder confidence is critical for success, and even survival,” says Lee Kong Chian Professor of Accounting Liandong Zhang, whose research interests include financial reporting quality, corporate governance, and taxation.
To understand the impact of data analytics on sustainability reporting in accounting, we delve into the topic with Prof Zhang from the SMU School of Accountancy. Leveraging his extensive experience and deep knowledge in accountancy research, Prof Zhang offers insights into how data analytics can help companies not only meet compliance requirements but also improve the accuracy, transparency and credibility of their sustainability reports.
Overcoming limitations of traditional reporting
As they stand, traditional reporting methods require substantial human resources for data collection, validation, and analysis.
“This is costly, time-consuming, and prone to errors, and often leads to less timely and less reliable information, which can contribute to bad decision-making,” Prof Zhang explains.
Another drawback of traditional reports is their static nature. Beyond what has been generated in the prepared report, users may find it challenging to engage with the data for deeper insights.
Data analytics tools have the potential to overcome these limitations by enabling more timely and accurate information gathering and reporting. When used in conjunction with technologies like Internet of Things (IoT) devices and sensors that facilitate real-time data collection, organisations can even track data in real-time – a far cry from the manual process of data collection, analysis and visualisation.
Even without the integration of these tools, the ever-advancing data analysis and visualisation tools offer more intuitive interpretations of complex data.
“More timely and accurate information also boosts stakeholders’ confidence in the organisation,” Prof Zhang elaborates.
In some cases, data analytics tools offer a twofold advantage. Besides bolstering stakeholder confidence, they also equip business leaders with more timely and precise information, enabling them to make better decisions. This, in turn, can lead to long-term financial gains.
Navigating the challenges of implementing data analytics tools
While data analytics brings clear advantages to the table for sustainability reporting, there are factors that may hinder the adoption of such tools. One obstacle is the potentially high initial cost of implementing the technology. Moreover, organisations will need to recruit or train talent to maximise the tools’ full potential.
In addition to these challenges, data analytics requires the storage and management of large datasets, which can pose a security risk.
Nevertheless, Prof Zhang firmly believes that it is both feasible and advisable for organisations of all sizes to integrate data analytics tools into their sustainability reporting processes.
“Many analytics tools are scalable, which allows small businesses to start with the basic features at a lower cost, and upgrade later as needed,” he shares, adding that since small businesses tend to have less complex operations and requirements, this scalability allows them to pay for what they currently need.
“And while large firms often have in-house experts, smaller businesses can outsource some functions, although additional data security concerns need to be taken into consideration. The key is to carefully evaluate needs, costs, and potential returns to determine the most suitable approach.”
At the end of the day, the long-term benefits from implementing data analytics tools – cost savings, more effective sustainability initiatives and enhanced stakeholder relations – far outweighs the negatives.
As Prof Zhang asserts: “In an increasingly data-driven world, leveraging advanced data analytics can give you a competitive advantage, and ignoring this trend puts you at risk of falling behind.”
The inevitable adoption of data analytics tools
While exploring the topic with Prof Zhang, it becomes evident that the role of data analytics in reporting processes was poised for growth long before today.
For instance, in 2017, the US Securities and Exchange Commission (SEC) pressed insider trading charges against a research scientist after picking up on suspicious trades through data analysis. In 2018, the SEC Market Abuse Unit’s Analysis and Detection Centre identified irregular patterns, such as unusually successful trading before earnings announcements.
“Because regulators are also adopting these tools to facilitate their own job, the reporters are compelled to report more and more data, and even provide real-time data to be analysed,” Prof Zhang observes.
“There may be an increasing demand for reporting, including ESG reports, and their requirements with time.”
With regulators adopting data analytics to enhance oversight and real-time monitoring, the future of sustainability reporting extends beyond mere compliance. It now involves harnessing technology to deliver precision, clarity, and trust to all stakeholders. As the landscape evolves, those prepared to fully utilise data analytics will not only set the gold standard in reporting, but also lead the charge in sustainable business practices for generations to come.
