WHITE PAPER
ESG Reporting – Getting 
clever with “Smart 
Compliance” 
August 2023
By Lorenzo Fantini, Jannik Leiendecker, Tim Mohin, Hardik Sheth, Marianna Leoni, and Nicolas Hunke

1 
ESG REPORTING – GETTING CLEVER WITH “SMART COMPLIANCE” 
Faced with new and rapidly approaching compliance obligations, companies often settle for a 
short-term firefighting approach, which at first glance implies a low-cost solution. However, 
this course of action - dealing with new requirements as they arise - has a major drawback. It 
lacks an overarching vision, neglecting the opportunities for value creation from adopting a 
more holistic and long-term view. By limiting themselves to the task of meeting immediate 
compliance obligations, companies will find themselves constantly trying to keep up with 
fast-moving, ever-changing sustainability regulations. Rather than planning efficiently and 
strategically, they will be burdened with an increasing reliance on short-term, costly
reporting solutions.
Addressing this matter is therefore not merely an avoidance of censure from regulators and investors 
but should rather be viewed as a strategic exercise that pays commercial dividends, offering a competi­
tive advantage through sustainable value creation. Thus, we believe ESG reporting should be on every 
CEO’s agenda.
This paper outlines an alternative, strategic approach to all the new ESG disclosure regula­
tions and standards emerging around the world.  It explains how an institutionalized and 
automated system ensures compliance with all ongoing requirements, while at the same 
time minimizing risk and maximizing opportunities.  We call this approach “Smart Compliance”.
Section 1 – Why companies must pay heed to sustainability reporting 
Sustainability reporting is by no means a recent innovation. However, investors and other 
capital market players have been increasingly calling for reliable and comparable ESG re­
porting which can aid decision making and is integrated into the financial reporting process. 
The financial risks and opportunities brought about by ESG topics such as climate impact 
have fueled this demand. Investors crave the transparency vital for navigating the green 
transition and helping to build sustainable value creation.
Regulators and standards organizations have responded accordingly, and new mandates for 
finance-related ESG information are appearing all over the world (Exhibit 1).  Most regula­
tions focus on climate-related financial disclosures. The notable exception is the European 
Union’s Corporate Sustainability Reporting Directive (CSRD), which includes not only cli­
mate reporting but covers several ESG topics, and furthermore adopts a multi-stakeholder 
perspective beyond financial reporting.
Standards organizations have also acted.  The newly formed International Sustainability 
Standard’s Board (ISSB) is a division of the International Financial Reporting Standards 
(IFRS) Foundation, whose standards are used in 168 jurisdictions for the purposes of finan­
cial disclosure. In June 2023, the ISSB finalized its first two standards for general disclosure 
(S1) and climate-related financial disclosure (S2). Many jurisdictions, including Australia, 
United Kingdom, Canada, and Japan, have already indicated that they will also adopt
these standards.
Because it has taken a different approach with regards to scope and impacted stakeholders, 
the European Union (EU) has appointed its own standard-setting body, the European Finan­
cial Reporting Advisory Group (EFRAG). 
ESG Reporting – Getting clever with 
“Smart Compliance”

BOSTON CONSULTING GROUP     +    CENTER FOR CLIMATE & SUSTAINABILITY POLICY AND REGULATION  
2
In the United States, the Securities and Exchange Commission (SEC) issued a proposed rule 
in 2022 on climate-related financial disclosures, set to be finalized in October 2023. The 
proposed rule did not authorize any specific ESG disclosure standards, but its provisions are 
generally aligned with the standards of the Task Force on Climate-related Financial Disclo­
sures (TCFD) as are the climate standards in the EU and ISSB. 
These new developments have a significant and immediate impact on companies across all 
sectors and jurisdictions.  Although many companies already report ESG information volun­
tarily, the level of rigor needed to handle the controls and schedules for financial disclosure is 
much more onerous. Organizations must gauge their current ability to handle these rapidly 
expanding requirements, identify and prioritize the major structural gaps, and then establish 
a holistic transformation strategy that will respond smoothly and efficiently to all these 
issues.  
Drawing up an effective and inclusive plan from the outset, integrated to the company’s 
overall strategy, is essential. The latest ESG reporting requirements go beyond compliance to 
highlight strategic topics which, if not addressed, could cause significant risk to companies. 
For example, potential constrictions in supply chains which are vulnerable to extreme weath­
er events, and reputational risk due to significant environmental impact. New business op­
portunities created by new markets in the rapidly advancing green economy may also be­
come evident in the new ESG reporting process. While each company’s circumstances are 
different, this transition should be viewed as an overarching strategic project that can unlock 
long-term value.
With ESG reporting timelines fast approaching and requirements continuing to evolve,
companies must be proactive to create efficient compliance systems that produce lasting 
business value.
Exhibit 1 - The Development of Mandatory Regulations
Regulations
(hard law)
Companies are facing a shift towards mandatory ESG reporting requirements...
Standards
(soft law)
Contributions
(exemplary)
Financial Materiality
Double Materiality
Voluntary Sustainability
Reports
Financial Materiality 
ESG Disclosure
Adopting Jurisdictions
Other Cap. Mrkt. Regs
Financial Statements
Double Materiality ESG Disclosure
Source: BCG.

BOSTON CONSULTING GROUP     +    CENTER FOR CLIMATE & SUSTAINABILITY POLICY AND REGULATION  
4
Section 2 – The Challenge: A strategy for the long term
As ESG regulatory reporting requirements develop, companies must remain simultaneously 
compliant and competitive. Many companies have voluntarily issued their own sustainability 
reports, and some of them have done so for a considerable period.  Most of these reports 
have utilized the disclosure standards issued by the Global Reporting Initiative (GRI). More 
recently, companies have incorporated industry specific disclosures based on the standards 
from the Sustainability Accounting Standards Board (SASB), and some have aligned with the 
Sustainable Development Goals (SDGs) or other standards.  In addition, almost 20,000 
companies voluntarily disclose their climate-related information to the Climate Disclosure 
Project (CDP) each year. 
However, for any company that has issued these voluntary sustainability reports, moving to 
the new mandatory regime will entail important actions - including:
•	 Gap Analysis: Companies must first assess their current disclosures, governance struc­
tures, and management systems against the new requirements. This step should involve 
more than a simple comparison of the information to be reported. As many of the new 
requirements are related to governance and management systems, the analysis must look 
more deeply into the company’s management systems, governance structures, and capa­
bilities. The outcome should be a roadmap of what needs to be done, a practical basis for 
formulating a strategic plan. 
•	 Schedule: Voluntary reports are typically issued many months after the deadline for 
mandatory financial disclosures. The new requirements will require ESG disclosures to 
be issued in the same timeframe as financial reports, accelerating the previous schedule 
considerably. 
•	 Assurance: All the new mandates require some form of third-party assurance for ESG 
disclosure. For many companies, assurance of these disclosures is a new process that will 
take some time and effort to incorporate. Moreover, the standards and process for assur­
ance are also undergoing major changes.  
•	 Data presence & quality: New requirements may require companies to increase their 
data capabilities, as the data needed for disclosure may not currently be collected.  In 
addition, data integrity relies on robust control systems to ensure data quality. Although 
these systems are more mature for financial reporting, they are still developing for ESG 
disclosure. 
•	 Automation of accounting and disclosure: In the voluntary reporting model, many 
companies have not integrated their ESG accounting and reporting systems. However, to 
report climate disclosures, for example, companies will need to source information from 
all major business units and regions, as well as from the value chain. The automation and 
systems integration of these processes will be essential elements of success.
•	 Future proofing: The ESG disclosure landscape is moving rapidly, and requirements are 
still maturing. Moreover, there are regional differences and evolving linkages with volun­
tary disclosure programs (such as CDP) that must be taken into consideration. To derive 
long-term business value, organizations must establish systems that anticipate change 
and can be incorporated into planning processes.

5 
ESG REPORTING – GETTING CLEVER WITH “SMART COMPLIANCE” 
Section 3 – The “Smart Compliance” Approach
“Smart Compliance” is the intelligent approach to meeting the forthcoming ESG disclosure 
requirements. It goes beyond compliance and leads to sustainable value through an institu­
tionalized approach that both reduces risk and creates opportunities.  
As part of “Smart Compliance”, companies need to assess their current ESG strategy to­
wards reporting before embarking on a transformation which creates value. 
•	 Voluntary to Mandatory: Companies should evaluate their current reporting status 
and develop a perspective on how a transition should occur from any current voluntary 
reporting to the mandatory reporting requirements. It is important to acknowledge some 
voluntary disclosure commitments may go beyond mandatory reporting requirements. 
Thus, an optimized target reporting landscape should synergize both current and future 
requirements. 
•	 Materiality Assessment: Regulations have placed materiality at the heart of disclosure, 
to evaluate the scope of reporting in the most effective way. A materiality assessment, 
combined with a gap analysis, allows companies to optimize for the scope of topics to 
report on. In the case of CSRD / ESRS, this not only requires an assessment of financial 
materiality but also material impact on people or the environment via a double material­
ity assessment.  Given the number of ESG reporting requirements across different de­
partments, companies must carefully gauge materiality to ensure compliance and create 
sustainable value. 
•	 Global Reporting Requirements: The mandatory reporting landscape is continuing to 
evolve, producing different standards dependent on jurisdictions and entities. Although 
many climate-related standards are based around TCFD, the depth of reporting require­
ments will still vary. In addition, CSRD / ESRS has gone beyond climate to incorporate ad­
ditional environmental, social and governance requirements. Hence, we encourage compa­
nies to take a balanced approach which recognizes global operability between standards, 
while at the same time accounting for local nuances.
Once an initial “Smart Compliance” assessment has been conducted, institutional capabili­
ties must be assessed to enable a transformation: 
A.	Governance. 
B.	Business Process Excellence. 
C.	Data Quality and Controls. 
D.	Information Systems.

7 
ESG REPORTING – GETTING CLEVER WITH “SMART COMPLIANCE” 
A	GOVERNANCE
The new climate standards call for disclosure of board-level competence and roles in re­
lation to climate-related risks. Companies and their directors will therefore have to define 
and disclose competencies, structures, and individual roles and responsibilities for the 
purposes of climate-related strategy. 
Beyond reporting, the relevant board directors should also oversee the overall sustainabili­
ty strategy, with a focus on business value creation. To be successful in this endeavor, direc­
tors will need to develop their knowledge of sustainability and its business implications. In 
this way, they will be able to appraise any related opportunities and actions to mitigate risk 
in an informed way.
In addition to governance, executive management teams must organize themselves to 
devote the requisite strategic consideration of climate risks and opportunities. Coordina­
tion and implementation at the operational level requires multi-discipline management 
systems to monitor program effectiveness, progress against goals, and efficient reporting.
B	BUSINESS PROCESS EXCELLENCE
Regulators require that a company’s ESG reporting will be integrated with its current 
financial reporting process and subject to, at least partial, auditing. Hence, qualitative, and 
quantitative key performance indicators (KPIs) provided in the ESG report will need to be 
traceable and verifiable across the organization.  However, many companies currently rely 
on manual processes for ESG data acquisition and disclosure which are not fit for financial 
reporting. Both finance and ESG reporting processes require inputs from all business oper­
ations; thus, integrating ESG reporting with the financial process can optimize synergies.
The aim of the ESG reporting transition should be to build an efficient, in-house, sustain­
able process. This strategic approach brings five major benefits:
1.	Reducing compliance risk 
2.	Increased investor confidence (lower volatility, increased investment)
3.	Lowering the cost of capital by boosting credit ratings 
4.	Strengthening recruitment, retention, and engagement of the most talented
employees
5.	Developing a positive brand reputation 
C	DATA QUALITY AND CONTROLS 
The new ESG reporting regime entails the identification, quality control, and assurance of 
hundreds of KPIs. The underlying data must also be accountable and reliable; a complex­
ity especially apparent in the Scope 3 emission disclosure which requires quantitative ac­
counting upstream and downstream of the value chain. Consequently, building a network 
of dependable data exchanges that extend to a company’s supplier network will be crucial 
to reporting success. To accomplish this, establishment of robust data controls that lead to 
quality assured results is a vital element of the transformation.

9 
ESG REPORTING – GETTING CLEVER WITH “SMART COMPLIANCE” 
Key steps in the transformation for ESG data management:
•	Assess existing structures and processes for company-wide data management and 
build a roadmap to automate and integrate ESG information into company enterprise 
resource planning (ERP) software. 
•	Establish data control systems for quality, reliability, assurance, and security.
•	Providing dashboards, forecasts, and other reports to facilitate decision making and 
oversight.
As reporting regulations continue to evolve, the task of generating data that is reliable, 
replicable, and decision-useful is key to compliance and generating business value. 
D	INFORMATION SYSTEMS
Selecting the appropriate data collection, accounting, storage, and analysis platforms will 
significantly improve the ESG reporting process. Automating and integrating the ESG dis­
closure system within the existing ERP environment is essential for efficient and effective 
management.
ESG accounting and reporting platforms are mushrooming, with a variety of established 
players and start-ups offering solutions. The information technology department will need 
to develop a deep understanding of all the stages in the reporting process so that they 
can select, acquire, and integrate the relevant systems. This entire exercise represents an 
opportunity to connect and streamline data platforms across the organization.
The ideal solution should be tailored to each individual company’s needs based on its 
current data and systems architecture. 
Carefully working through these four areas will enable structures and systems that ensure 
compliance today and future resilience against a rapidly changing ESG compliance land­
scape.  By managing these changes as a wholistic transformation, companies will identify 
areas to cut costs, avoid risk, and even discover new business opportunities. 
Conclusion – Getting started now
Mandatory ESG reporting is here to stay. As the sustainability landscape develops, compa­
nies will need to integrate ESG topics into their financial reporting structures. Similarly, as 
financial targets & metrics have long been an inherent part of board level discussions, ESG 
equivalents will become a cornerstone of company strategy. Boards who treat their ESG 
reporting with the same significance as their financials will not only minimize risk but pro­
duce significant long-term gain.
Preparing for this exercise requires an extensive transformation of governance, process, 
systems, and data, driven by board-level strategic integration. Failure to take appropriate 
action will leave companies behind the curve and trapped in a cycle of costly, manual disclo­
sure. Instead, taking the “Smart Compliance” approach to ESG reporting readiness allows 
companies to unlock business value that more passive rivals will fail to capitalize on.
ESG disclosure regulations are driving towards intelligent strategies – are you?

BOSTON CONSULTING GROUP     +    CENTER FOR CLIMATE & SUSTAINABILITY POLICY AND REGULATION  
10
Acknowledgments
The authors would like to thank Caroline Dunkel, Anand Kumar, Andreas Toth, Phil Palanza, 
and Rhiannon Heard for their contribution to this white paper.
For Further Contact
If you would like to discuss this report, please contact the authors.

Lorenzo Fantini is a Managing Director & Partner in our 
BCG Office in Milan. 

Tim Mohin is a Partner & Director in our BCG office in 
Pittsburgh.

Marianna Leoni is a Managing Director & Partner in our 
BCG Office in Athens.

Jannik Leiendecker is a Partner & Associate Director in 
our BCG Office in Munich.

Hardik Sheth is a Partner & Associate Director in our 
BCG Office in Philadelphia.

Nicolas Hunke is a Managing Director & Partner in our 
BCG Office in Munich.
About the Authors