sustainability

Review
ESG Maturity: A Software Framework for the Challenges of
ESG Data in Investment
Carolina Almeida Cruz and Florinda Matos *

DINÂMIA’CET-Iscte, Instituto Universitário de Lisboa (ISCTE-IUL), 1649-026 Lisboa, Portugal

* Correspondence: florinda.matos@iscte-iul.pt

Abstract: Given the rising demand for more transparent, consistent, and comprehensive non-financial
information in investment, there is a need to provide more reliable, meaningful, and measurable
ESG metrics, in a way that most frameworks cannot. Most established frameworks face difficulties
and challenges in providing sustainability information to investors in a significant way, lacking
in areas such as transparency, reliability, consistency, materiality, and particularly, their focus on
the “S” dimension of ESG. The present article purposes to review the challenges associated with
several frameworks and to present a solution to overcome them, by giving an overview of a new and
innovative software as a service framework, ESG Maturity. This software presents itself as a solution
for both reporting companies and their respective investors, by providing both with an assessment
of the ESG maturity index of the companies, and delivering a report containing relevant initiatives,
strategies, and action plans tailored to each one of them, within different sectors, dimensions, and
geographic areas and consequently, their financial and non-financial implementation impact. ESG
Maturity is considered a possible answer to the challenges in ESG reporting, having the potential to
revolutionize the way companies report their non-financial information and how investors receive it.

Keywords: investment; ESG Frameworks; ESG Challenges; ESG Software

1. Introduction
Sustainable investing has gradually become an essential criterion for the investment
Citation: Cruz, C.A.; Matos, F. ESG sector, with investors searching beyond the obvious financial promise of companies, to
Maturity: A Software Framework for the Environmental, Social, and Governance [ESG] performance and responsibility of the
the Challenges of ESG Data in companies in their portfolios [1].
Investment. Sustainability 2023, 15, In fact, ESG and sustainable investment have grown so much so, that, in 2021, ESG-
2610. https://doi.org/10.3390/ focused portfolios managed close to US$40 trillion, and are expected to reach US$53 trillion,
su15032610 by 2025, representing a third of the total assets under management globally [2]. Additionally,
Academic Editor: Wen-Hsien Tsai as of 2021, sustainable funds, particularly in the United States, continue to grow steadily,
with investors allocating nearly $70 billion into open-end and exchange-traded funds,
Received: 29 December 2022 resulting in 534 sustainability funds gathering in total more than $350 billion in assets [3].
Revised: 17 January 2023
Investors are a driving force for the growing momentum of ESG investing, by demanding
Accepted: 18 January 2023
and expecting that their portfolios translate and represent their values, reflecting their
Published: 1 February 2023
concerns across a variety of environmental, social, and governance themes. Some even
adopt an impact investment approach, in which societal benefits are prioritized alongside
their financial gains [1].
Copyright: © 2023 by the authors.
Beyond this, the social and economic conjuncture, as a result of a public health crisis
Licensee MDPI, Basel, Switzerland. and the consequent need for economic recovery, emphasized the need to “build back
This article is an open access article better”, which can be translated into building more sustainably [4–7].
distributed under the terms and All these considerations help portray how relevant and significant sustainable invest-
conditions of the Creative Commons ment has become, while also providing an important background for the growing interest
Attribution (CC BY) license (https:// in ESG metrics and reporting. So, with the increasing adoption of an ESG approach to in-
creativecommons.org/licenses/by/ vestment, a demand for better ESG metrics and reporting has merged, aiming to transform
4.0/). ESG reporting into the mainstream strategy for investment [5,7].

Sustainability 2023, 15, 2610. https://doi.org/10.3390/su15032610 https://www.mdpi.com/journal/sustainability

Sustainability 2023, 15, 2610 2 of 18

However, to achieve this goal, there was a need to turn these ideals into a trustworthy
and reliable process of analysis and report of sustainability data. This is what has led to the
creation of several frameworks that pledge to provide investors with a clear, meaningful,
and measurable view of companies’ ESG performance [1,7,8].
The motivation for conducting this research was the need to de-complexify and
enlighten the ESG journey for investors and companies, who can find themselves over-
whelmed by, for example, the amount of information relating to non-financial reporting.
This paper intends to review the mainstream frameworks used today by several
companies and investors to assess ESG performance, highlighting their short-comings in
this area, and to analyze if a potential solution can be achieved through the development of
a new and improved software as service framework, by reviewing its characteristics and
features according to challenges presented by other frameworks.
The contribution of this paper is to offer investors, corporate and company top man-
agement, and academics and decision-makers, a comprehensive overview of the current
state of ESG reporting, while presenting a future direction for improvement in non-financial
reporting overall, through the adoption of ESG reporting software that congregates all
other frameworks in order to respond to their flaws.
The remainder of this paper is organized as follows: Section 2 describes multiple main-
stream frameworks, why they matter, and what they measure, providing a background
for Section 3, which analyses, in-depth, the challenges and difficulties these frameworks
present and pose to both the reporting companies and investors, ranging from overall to
specific challenges with the ESG reported data. Section 4 describes a possible framework cre-
ation theory for tackling the aforementioned challenges while Section 5 provides a proposal
to respond to and resolve these issues, by presenting a new, innovative, in-development,
software framework, ESG Maturity, and how it can respond to each one of the challenges
and add value to ESG reporting, while also pointing out potential challenges in the future
and testimonies of companies that have already used it in their daily operations. Lastly,
Section 6 concludes the paper, by highlighting a few key considerations and presenting the
study limitations.

2. ESG Frameworks: Why They Matter and What They Measure

In response to the need for more reliable, measurable, and transparent non-financial in-
formation of companies, several sustainability/ESG accounting frameworks were designed
and implemented, with the common aim of improving the standardized disclosure of
environmental, social, and governance information of companies. These allowed investors
to access more consistent, available, and easily interpreted non-financial information, that
guided and inform them about the sustainability impact of their investment choices.
The frameworks were created with the aim of offering precision, validity, consistency,
and inter-operability, with most of them remaining voluntary, while also proposing to
provide high-quality comparability, distinguishing companies that are effectively invested
in improving their sustainability performance from those involved in green- and good-
washing, that could translate into long-term financial value [1,9].

2.1. United Nations Sustainable Development Goals [UN SGDs]

One of the first frameworks to emerge was the United Nations Sustainable Develop-
ment Goals for 2030, in 2015. This was a landmark for investing in sustainability, intending
to set policy priorities for governments globally while focusing on several global challenges
such as hunger, poverty, clean water, climate change, economic growth, decent work,
and human rights. Within the 17 SDGs, 169 quantitative targets underline the needs and
respective responses to these challenges, by governments, the business community, and
non-governmental organizations [10].
The SDG compass (GRI, UN Global Compact & World Business Council for Sustain-
able Development, 2015) is the framework behind the private facet of SDGs as a framework,
although it is mostly intended for governments around the world. This is a five-step
Sustainability 2023, 15, 2610 3 of 18

approach for businesses to align their strategies with the SDGs and it was developed by
GRI, UN Global Compact, and the World Business Council for Sustainable Development
[WBCSD]. The SDG Compass integrates business toolkits, standards, and assessment frame-
works provided by other organizations, such as the Corporate Human Rights Benchmark
and the Global Protocol on Packaging Sustainability, while also providing indicators that
align with the accomplishment of the SDGs [9,10].

2.2. Global Reporting Initiative [GRI]

Another framework proposing a model for sustainability reporting is the Global Re-
porting Initiative, aiming to provide transparency on how companies and organizations
contribute to sustainable development and manage their consequent impacts, through
their GRI Sustainability reporting standards. These impacts can be related to the econ-
omy, environment, and people, including impacts on human rights, and are divided into
universal standards, sector standards, and topic standards. The standards seek to allow
companies to disclose and report information about their sustainability impacts consistently
and credibly, contributing to the worldwide comparability and quality of reported infor-
mation on such impacts, while also enhancing transparency and increasing organizational
accountability [11].
This is also a framework that can be used alongside other frameworks, since most of
the disclosed information is similar and can be used as both key performance indicators
of the GRI standards, which helps to guide companies in the voluntary preparation of
sustainability reports, alongside regulatory and financial reports [9,11].

2.3. International Integrated Reporting Council [IIRC]

The International Integrated Reporting Council [IIRC] has also developed the Inte-
grated Reporting Framework intended to “improve the quality of information available
to providers of financial capital to enable a more efficient and productive allocation of
capital”. This framework is specifically formulated for providers of financial capital, and it
is designed to consider different types of capital, namely, financial, manufactured, intellec-
tual, human, social, and relationship and natural, aiming at enhancing accountability and
stewardship for every type of capital [12].
However, this approach seems to be more difficult to apply compared to other frame-
works, since it implies a re-evaluation of the organization’s business model and how the
companies create value, given its principle-based nature and focus on the importance of
different stakeholders for the value creation process of the organizations that use it [9].

2.4. SASB Sustainability Accounting Standards Board [SASB]

Similar to IIRC, the Sustainability Accounting Standards Board targets investors as the
recipients of their offers. This foundation aims to establish and deliver disclosure standards
regarding sustainability issues that facilitate the communication of useful non-financial
information from companies to their respective investors. SASB offers its clients several
different standards that refer to the minimum sustainability requirements across industries
in 11 different sectors [13].
The great asset of the standards framework is the “SASB Materiality Map”, which
relies on the financial materiality underlining the sustainability efforts within a company,
in several sectors assessing the company’s materiality, accordingly. In this sense, this tool
provides easy and accessible information about which sustainability matters are material
in specific sectors directly to investors, relieving them from conducting extensive due
diligence to analyze a company’s financial materiality in matters relating to ESG [9,13].
Sustainability 2023, 15, 2610 4 of 18

2.5. Sustainable Finance Disclosure Regulation [SFDR]

The Sustainable Finance Disclosure Regulation is a European regulation, created
and implemented to promote and improve transparency in the market for sustainable
investments. It consists of several comprehensive disclosure requirements that should
be implemented by financial market participants when disclosing sustainability-related
information [14].
These requirements specify the content, methodology, and presentation of the in-
formation that should be provided regarding the efforts to address and reduce possible
negative impacts on the environment and other dimensions of ESG, stemming from the
investments, providing overall guidance to all financial market players. Compliance with
this regulation seeks to decrease and prevent attempts at greenwashing, specifically, while
strengthening investors’ protection and making the available information more transparent
and comparable [14].

2.6. Carbon Disclosure Protocol [CDP]

The Carbon Disclosure Protocol (formerly the Carbon Disclosure Project) is a compre-
hensive disclosure system that aims at measuring the environmental impact of corporate
activity, through questionnaire surveys, which question some of the largest publicly traded
companies regarding their carbon emissions within their operations [15].
The answers are then integrated into a database that is available to public and private
subscribers [9,15]. This initiative is considered extremely relevant in the environmental
reporting area, given that the data provided stem from a common questionnaire leading to
more consistency across the responses provided by the companies, making them also, more
accurate and detailed when compared to standard corporate sustainability reports [16].

2.7. Task Force on Climate-Related Financial Disclosures [TCFD]

The Task Force for Climate-Related Financial Disclosures is an initiative created by the
Financial Stability Board, which is a group of finance ministries and central banks from the
G20 countries, and it was created as an effort to report on the impacts and dependencies
from the companies, on the environment. The aim of this initiative is to materialize climate
change disclosures and to make financial risks and opportunities related to climate change a
central concern in companies’ risk management and strategic planning processes. However,
this initiative seems to be targeting banks, lenders, and insurance underwriters, which
means it is directed to several elements of the investment process, but not to the investors
themselves [17].
It is worth mentioning that, due to the organizations behind its creation, the TCFD is
more linked to the financial sector, which can help “overcome” its voluntary nature, given
the legitimacy behind these organizations in putting pressure towards its implementation
in day-to-day financial operations [9,17].

2.8. The Measuring Stakeholder Capitalism Initiative [MSCI]

The Measuring Stakeholder Mechanism Initiative was proposed by the World Eco-
nomic Forum [WEF] International Council, to improve the measurements and disclosure of
ESG performance indicators by companies and to monitor the contributions made by those
to the SDGs. The integrated metrics are based on previous standards identified in four key
areas: Principles of Governance, Planet, People, and Prosperity, consisting of 21 central
metrics (e.g., Health and Safety) and 34 expanded metrics (e.g., Monetized Impacts of Work-
related Incidents on Organization) distributed in these areas. It proposes to provide greater
comparability and consistency in ESG reporting metrics and disclosures, resulting also
in a greater convergence of private ESG standard setters, which ultimately should result
in consistent progress towards an international system for global non-financial reporting
standards [18].
Sustainability 2023, 15, 2610 5 of 18

Associated with this Initiative is also Morgan Stanley Capital International [MSCI],
which provides investors and issuers with the latest, transparent, and consistent data that
offer meaningful insights beyond corporate disclosure as well as industry ESG insights that
contribute to financial performance and benchmarking. Beyond this, it provides a service
of ESG Research that delivers data, ratings, research, and tools to help investors deal with
increasing regulation, respond to new client demands, and assess industry material ESG
risks and opportunities [19].

2.9. Principles for Responsible Investment [PRI]

The Principles for Responsible Investment constitute an initiative aiming at achieving
a sustainable global financial system. Through the encouragement of the adoption of their
six key principles, engagement, collaboration, and support provided during their imple-
mentation, to its signatories, the PRI is presently the beacon for responsible investment. It
targets institutional investors, while it was also created by a group of investors, due to the
growing concern around ESG issues in investment practices. Signatories of this initiative
pledge to act upon their fiduciary duties as institutional investors, which translates to
acting in the best long-term interests of the beneficiaries, and to consider environmental,
social, and governance aspects that may affect and/or stem from possible investments. [20].
The PRI offers a set of responsible investment principles for investors to follow, and each
one contemplates a range of possible actions to be integrated into investment operations
when considering the impact of those in the ESG dimensions [20].

2.10. United Nations Global Compact [UN Global Compact]

The United Nations Global Compact, like PRI, is also a corporate sustainability initia-
tive that seeks to mobilize stakeholders and companies worldwide to promote responsible
business practices and advance broader societal goals (e.g., UN SDGs). To accomplish its
goal, the UN Global Compact supports its signatory companies by collaborating with them
in the adaption and implementation of business strategies and operations that align with
the initiative principles on human rights, labor, environment, and anti-corruption. It also
provides companies with a principle-based framework and guidelines on best practices,
resources, and networking events to further their main objective [21].

2.11. Universal Declaration of Human Rights [UDHR]

Although the Universal Declaration of Human Rights is not a framework, it provides
a set of guidelines for companies and investors, regarding the “S” dimension of ESG and
the human rights it should contemplate and guarantee, advocating for the implementation
of those into their operations. Beyond this, as of July 2022, the United Nations General
Assembly has integrated another global human right: the ability to live in “a clean, healthy,
and sustainable environment”. This new action constitutes a new frontier for human rights,
as the United Nations General Assembly has appealed not only to countries but also to
companies and international organizations to improve their efforts to turn this new right
into reality [22].
A synthesis of the described frameworks is provided in Table 1.
Sustainability 2023, 15, 2610 6 of 18

Table 1. Synthesis of the described frameworks, type of framework, regulation, initiative, and/or
guideline and its respective contribution to ESG.

Framework Framework, Regulation,

Contributions to ESG
Identification Initiative or Guideline
Setting policy priorities/guidelines for
governments globally while providing private
2.1. United Nations Sustainable Framework directed at
and public businesses with strategies that are
Development Goals [UN SGDs] governments worldwide.
aligned with the SDGs (e.g., counter hunger,
poverty, and violations of human rights).
2.2. Global Reporting Framework intended for private and Providing a practical model for
Initiative [GRI] public companies. sustainability reporting.
2.3. International Integrated Framework designed for providers of Provides a value-creation approach to both
Reporting Council [IIRC] financial capital. reporting and the operations of the companies.
Establishing disclosure standards for
2.4. SASB Sustainability Accounting sustainability reporting, that facilitate the
Framework directed at investors.
Standards Board [SASB] communication of information from companies
to their investors.
Providing comprehensive disclosure
European Regulation relating to the
2.5. Sustainable Finance Disclosure requirements that should be implemented by
disclosure of sustainability and financial
Regulation [SFDR] financial market participants in the disclosure
information.
of sustainability-related information.
Framework in the form of a disclosure Helps determine the environmental impact of
2.6. Carbon Disclosure
system associated with the the corporate activity of companies, through
Protocol [CDP]
“Environment” dimension of ESG. their questionnaire surveys.
Promoting the integration of climate change
2.7. Task Force on Climate-related Initiative that targets banks, lenders, and disclosures and financial risks/opportunities
Financial Disclosures [TCFD] insurance underwriters. related to climate change into companies’ risk
management and strategic planning processes.
Improving the measurements and disclosure of
2.8. The Measuring Stakeholder Initiative to help companies in reporting
ESG performance indicators by the companies
Capitalism Initiative [MSCI] non-financial information.
and monitoring the contributions to the SDGs.
Establishing a set of responsible investment
Initiative that provides general guidelines
principles for investors to follow, as well as,
2.9. Principles for Responsible for institutional investors in
making them accountable and responsible for
Investment [PRI] sustainable-related areas, as well as
their fiduciary duty, as signatories of
reporting companies.
this initiative.
Providing companies with a principle-based
Initiative aimed at corporate framework and guidelines, while supporting
2.10. United Nations Global sustainability that intends to mobilize their signatories through collaboration in the
Compact [UN Global Compact] stakeholders and companies worldwide adaption and implementation of business
to follow responsible business practices. strategies and operations that align with the
initiative principles.
Providing guidelines regarding the “S”
dimension of ESG and the human rights it
2.11. Universal Declaration of Worldwide-accepted guideline for
should contemplate and guarantee, promoting
Human Rights [UDHR] companies and investors.
the implementation of those into
their operations.

3. ESG Frameworks: Difficulties and Challenges

Despite the vast number of frameworks and the greater quantity of data available,
this is not a synonym for confidence for investors, fund managers, or asset managers. On
the contrary, several doubts arise relating to the quality, validation, comparability, and
integrity of both the sustainability measures and the non-financial information available
and reported by companies [6–8,23].
Sustainability 2023, 15, 2610 7 of 18

This is a serious concern for actual and potential investors since much of the available
data in the financial marketplace can be viewed as “background noise” instead of a “clear
translation” of which companies are sustainably outperforming and those that are involved
in “green- and good-washing”, even when companies choose to report under frameworks
as the ones described above [1,9,23,24].

3.1. Overall Challenges of Frameworks: Diversity, Specificity, and Materiality

The first of the general challenges presented by the ESG frameworks is the diversity
they represent, sometimes causing conflicting reporting of sustainability data. Although
some of the frameworks intersect and are an opportunity for investors to gather the
information they need, it becomes an impossible task for the companies that supply such
information. This aspect of the frameworks contributes to a phenomenon that companies
refer to as “reporting fatigue” that results from the demanding task of reporting several
types of information without a set of standardized guidelines or system that structures and
synthesizes it [9,24,25].
Differences in what is valued in each framework can also become a challenge for
sustainability reporting, since some are more interested in gathering information and
providing guidelines for corporate environmental performance (e.g., TCFD) and others
prioritize governance practices of companies, as a way to assess company’s sustainability
actions and strategies, while only a few value the company’s commitment to the society’s
overall well-being, human rights defense, and other social themes (e.g., GRI) [8,23,24]. This
exigency to specify and focus most of the reporting on only one of the aspects of ESG
leads to gaps in the reports made by companies, leaving them vulnerable to, for example,
reputational risks [1,9,23].
Piling on this “negative” diversity is the difficulty in quantifying the impact of sustain-
ability on the operational success of companies [8]. Several studies have found statistically
significant relationships between corporate, environmental, and social sustainability (using
a global standard) and the financial/economic performance of companies, e.g., [26–28]
while others propose that this is a difficult association to be established given the inherent
challenges between financial and non-financial metrics and the consequent reporting diffi-
culties, e.g., [29,30]. However, most frameworks fail to provide evidence or a guideline as
to how a company can profit from being sustainable and contributing to the socio-economic
global development [24].
Another discrepancy and controversial challenge of these frameworks is to identify
which ESG metrics are material to ESG classifications. Inherently, this must be based
on a sector approach since what is material for some businesses may be irrelevant to
others [8,9,23,24]. For example, TCFD defines materiality as the company-specific dis-
closure of risks and opportunities related to climate change under national reporting
requirements that ultimately may have a short-term effect on the price of a company’s
stock. Similarly, SASB considers financial materiality as the disclosure of information that
would be considered relevant for investors when making an investment decision, which
seems like a narrow view of the concept and might fail to encapsulate the real important
questions in terms of ESG risks. Conversely, the GRI offers a more broad and long-term
view of materiality by not only integrating the immediate impact of the ESG matters but
also considering trends and issues that can influence the company’s overall market posture
and consequently their market capitalization [23].
As such, a more comprehensive approach, considering and integrating the company’s
growth, profitability, capital efficiency, and risk profile along with the reporting require-
ments integrated into an industry-by-industry basis would be a clearer way to look at
materiality in ESG [8,23].
Sustainability 2023, 15, 2610 8 of 18

3.2. Specific Challenges with ESG Data Reported by the Frameworks:

(a) Lack of consistency
This is one of the biggest difficulties identified by companies that utilize different
frameworks to report their non-financial information. This lack of consistency adopts many
forms, such as unclear ESG methodological standards, which translates to wide variations
in the companies that report on even broad ESG topics (e.g., reporting only on Scope 1
greenhouse gas emissions, or reporting on all Scopes); having different time frames for
the information required, which leads to incomplete benchmarking for instances; and not
providing a clear methodology for the reporting itself, which leads companies to report
about the same themes and issues, in different ways, resulting in conflicting information
even in companies of the same sector, hindering the comparability across sectors and
industries [9,23,31]. Additionally, incomplete reporting of some key performance indicators
and metrics or even failing to distinguish between missing data or just poor performance
hinders the quality of the reported information, since most frameworks record and code
both these types of information as zero in their classifications, resulting in companies being
either benefited or undermined [8,23,31].
(b) Lack of transparency
Failing to consider and disclose how each metric is obtained in several frameworks, by
not distinguishing the information obtained through “ground-work” investigation and due
diligence or information gathered by surveys, for example, can contribute to the feeling
that the information reported is not verifiable or trustworthy. Conversely, difficulties in
monitoring the quality of the reported information, regarding possible errors and mislabels
in the data entry, and consequent failure to alert the reporting companies can lead to
misleading analysis and wrong assessments of the companies’ ESG classification [9,23,24].
(c) Challenges in standardizing and normalizing data
Data standardization has long been a challenge for ESG reporting, making it difficult
to guarantee that a company’s classification reflects the common methodologies and bench-
marking. This difficulty refers to, for instance, differences in measuring units (e.g., tons, vs.
megaton), and difficulty in establishing a comparability analysis between companies, even
in the same sectors given that most frameworks fail to consider both scale and scope of the
reported information and the individual company’s characteristics [23,24,31].
(d) Focusing on static metrics and negative impacts
Losing the scope of analysis of a company’s progress or deterioration can only provide
investors with a small portion of a company’s sustainable efforts, rather than their perfor-
mance overall. In line with this challenge, considering and reporting only past non-financial
information, rather than analyzing the impact of strategies to be adopted by companies in
the future, is a missed opportunity for ESG frameworks [23,30]. Lastly, there is a tendency
to consider ESG reporting to disclose only negative impacts, despite the positive impacts
being also “material” and influencing a company’s financial performance, just as risks
do [1,31,32].
(e) Ignoring the “S” in ESG
Another important challenge reflects the “forgotten” side of the ESG, the “S”, which
has been largely ignored in ESG reporting. How a company delivers on society’s goals as
well as its own, meaning how it contributes not only to environmental and governance sec-
tors but to the social dimension has been a blind spot in ESG reporting and analysis in the
last years [8,33]. However, issues related to civil and human rights, health and safety, diver-
sity, equity and inclusion, equal pay, and stakeholder and community engagement, should
be considered and integrated into the company’s “S” strategy and ESG reporting [34].
These are key aspects for companies to consider due to several added values and
risks they constitute for businesses in general. One of these aspects relates to reputation
and value that it adds to the companies—for example, not addressing sexual harassment
and racial discrimination in the workplace has a negative impact on market value while
implementing ESG programs and initiatives can improve companies’ value and capture
new investments. Another relates to the productivity of the companies themselves and
Sustainability 2023, 15, 2610 9 of 18

the ability for employee retention, since workplaces that promote diversity, inclusion, and
integrate anti-discrimination policies, combat harassment, and promote equal pay and
respect have higher productivity, translating to higher revenue growth, innovation, and
employee retention rates. Another important side of investing and reporting on the “S”
dimension is associated with legal compliance, given the rapidly changing regulatory
standards and overall mandatory requirements environment. Companies that already
implement ESG, and particularly “S” policies, will be able to comply with the regulatory
developments and other mandatory requirements more rapidly, allowing them to avoid
legal and financial penalties associated with being uncompliant; for a review see [34].
Nevertheless, without clear guidelines on how to report on this important dimension,
businesses are vulnerable to legal liabilities under an increasing number of regulatory
frameworks that require the disclosure of the efforts to prevent human rights violations, as
well as reputational and financial harm, due to the lack of reporting of essential information
regarding the social aspect of their performances [32]. Another important aspect related
to this challenge is the need to assess compliance and due diligence conducted by the
companies, regarding the social aspect of ESG, which in most frameworks is not verified or
only translates to questioning companies about the existence of policies that consider social
themes, such as human rights or modern slavery, but not even verifying if the policies
themselves are compliant [8,32,33].
As such, there is a need to integrate and direct the attention to a broad sector of
stakeholders and ensure that the companies not only disclose, but actively contribute to
the customers, employees, suppliers, and communities around them as well as delivering
profits to their shareholders [23,33].

4. How to Tackle These Challenges in the Future

Given the several challenges discussed above, it can be assumed that a single individu-
alized framework cannot respond to the needs of current ESG metrics [6]. Instead, there is a
need to design an ESG data framework that can cater to both the needs of investors and the
needs of the reporting companies, as well as provide a set of sustainability standards and
requirements that can overall encapsulate decision-useful metrics, signals, and information,
through methodological rigor, consistency in standards, transparency, and integrity [23].
To tackle these challenges, it is suggested that a new ESG reporting framework should
first focus on a set of mandatory reporting requirements associated with material issues,
while also integrating industry-specific requirements, all based on specific methodological
standards for reporting on each issue and theme.
A well-designed framework should be divided into three phases of reporting require-
ments [23]:
The first phase should consist of a central set of mandatory disclosure requirements
that should address environmental (e.g., greenhouse emissions, waste management, chem-
ical safety) and social (diversity in management and workforce, human rights defense,
health, and safety) indicators that have the potential of being material in the financial or
societal perspective over the coming years [23].
The second phase should comprise industry-specific metrics relating to specific sectors
that do not need to be applied to all types of companies and businesses. This section
of the framework should allow companies to disclose, voluntarily, specific sustainability
strategies in their sector, that they believe set them apart from other companies.
The last section, the third phase, should center around governance metrics, which
should be mandatory. This should reflect the company’s good governance strategies and
internal monitoring, covering issues such as the structure of the board of directors, while
also considering and disclosing corporate transparency and reporting [23].
Beyond these future directions, standards and metrics of reporting should be rein-
forced through the verification of corporate responsibility and sustainability compliance,
based, for example, on the work of the SASB and GRI.
Sustainability 2023, 15, 2610 10 of 18

Validation is also an important question for the development of new ESG frameworks.
There is a need to develop a system that validates and verifies the data that a company
reports, and this can be achieved by, first, making the ESG framework and reporting
a mandatory standard, as it is for financial reporting, providing a legal incentive for
compliance through legal penalties when companies fail to comply with the said standards
and requirements. Second, integrating the analysis of other companies’ informants, for
example, through reputational analysis, to verify other sources of the same information [23].

5. ESG Maturity Software Framework Proposal

Within the last year, the “ESG Maturity” software framework has been in development
at C-More Sustainability, a consulting company based in Portugal, and IBM, the main
partner in the development of the software. ESG Maturity aims to support companies in
their transition to more sustainable operations, emphasizing the ESG approach in their
business models.
“ESG Maturity” is a software as a service (SaaS) framework that assesses the ESG
maturity index and delivers a set of relevant initiatives, strategies, and action plans that
impact companies, throughout different sectors. It was designed to project and transform
sustainability into business, by focusing on “E”, namely, a company’s impact on the
natural environment and the energy and resources it uses to operate, “S”, which refers
to how a company manages its relations with its employees, customers, suppliers, and
society in general, and lastly, “G”, translating how the internal policies and procedures
of a company make effective decisions for the greater good [35]. The software relies on
automated referrals based on company sector, dimension, and geographic location to help
the companies select where to spend their sustainable and financial resources, confidently,
appropriately, and assertively [35].

5.1. How Does ESG Maturity Work? An Overview

To obtain the ESG maturity index using this software, companies must first integrate
their information into it, which generates a questionnaire regarding ESG themes and issues.
This is achieved using a proprietary algorithm that assesses several ESG frameworks (GRI,
SASB, SFDR, MSCI, CSRD, WEF MSCI, etc.) and creates a questionnaire based on the
company’s traits (e.g., dimension and geographic location). This questionnaire is created
according to more than 350—450 metrics that are academically assessed and validated,
inspired by the GRI, SASB, and GIIN methodologies, amongst others.
The questionnaire is customized, simple, and direct and has several different features
to help guide companies in their progress and sustainability performance. It also allows
the user to save their progress, and include questions and attachments to each question,
which makes it more specific to each company’s needs.
After responding to the questionnaire, a menu will appear with an action plan, con-
taining several strategies and activities listed, by priority and criticality for the business
in question. This action plan also features its expected financial and sustainable impact,
while also providing a “toolkit” with strategies and concrete actions required to effectively
implement it.
Afterward, a dashboard is created for the company, with relevant information that
can be used to integrate non-financial disclosure reports. It also integrates a target section,
in which the company can select different goals to monitor its progress while attributing
deadlines and proof of said progress. It also generates reports that are customizable to the
companies, containing frameworks, data, and graphs about the most relevant indicators. A
visual example of dashboards created by ESG Maturity is presented in Figure 1.
Sustainability 2023, 15, 2610 11 of 18
Sustainability 2023, 15, x FOR PEER REVIEW 11 of 18

Figure 1. Example of Dashboards generated by ESG Maturity.

Figure 1. Example of Dashboards generated by ESG Maturity.
Data and document analysis is also an advantage of this software since it allows com-
Data and document analysis is also an advantage of this software since it allows com-
panies to validate their compliance with standards and metrics within ESG. For instance,
panies to validate their compliance with standards and metrics within ESG. For instance,
this software provides an analysis of a company’s policy (e.g., code of conduct or human
this software provides an analysis of a company’s policy (e.g., code of conduct or human
rights policy) and provides information about missing criteria in that specific document
rights policy) and provides information about missing criteria in that specific document
that is relevant or might constitute a compliance legal risk.
that is relevant or might constitute a compliance legal risk.
Another important feature is benchmarking, which allows for the comparison of the
Another important feature is benchmarking, which allows for the comparison of the
company to others in the same sector, meaning its competitors. It can be selected/filtered
company to others in the same sector, meaning its competitors. It can be selected/filtered
through year, sector, revenue, and indicators.
through year, sector, revenue, and indicators.
The reputational analysis is also an important element that translates the reputation
The reputational analysis is also an important element that translates the reputation
and perception of the company, allowing for a representation and crossover of how the
and perception of the company, allowing for a representation and crossover of how the
external public views the company. This also provides an analysis of the social media in-
external public views the company. This also provides an analysis of the social media
teractions of the companies and their respective competitors.
interactions of the companies and their respective competitors.
ESG Maturity is an ecosystem software framework, which means that it allows com-
ESG Maturity is an ecosystem software framework, which means that it allows compa-
panies to share their ESG performance and progress with relevant stakeholders (e.g., part-
nies to share their ESG performance and progress with relevant stakeholders (e.g., partners),
ners), investors, clients, and collaborators of the company (e.g., suppliers) providing an
investors, clients, and collaborators of the company (e.g., suppliers) providing an overview
overview of the company’s value chain to every element involved [35].
of the company’s value chain to every element involved [35].
5.2.Characterization
5.2. Characterization of of the
the ESG
ESG Maturity
Maturity Framework
Framework
(a) Diversity, Consistency, and Consolidation
(a) Diversity, Consistency, and Consolidation in in reporting
reporting
ESG Maturity uses a complex set of
ESG Maturity uses a complex set of algorithms that algorithms thatallow
allowforfor
thethe clustering
clustering of of
thethe
cri-
criteria of several frameworks, adding up to approximately 1500 indicators,
teria of several frameworks, adding up to approximately 1500 indicators, ranging from GRI ranging from
GRI
to to SFDR.
SFDR. This isThis is a feature
a feature that allows
that allows for consistency
for consistency and consolidation
and consolidation of theofinformation
the infor-
mation reported
reported by companies,
by companies, since, bysince, by completing
completing the questionnaire,
the questionnaire, the companies
the companies are
are respond-
responding to several indicators at the same time, without having
ing to several indicators at the same time, without having to respond to several different to respond to several
different questionnaires.
questionnaires. This is anThis is anway
efficient efficient
to notwayonlytoavoid
not only avoid duplication
duplication of infor-
of information but
also “reporting fatigue”, which is a phenomenon that most reporting companiescompa-
mation but also “reporting fatigue”, which is a phenomenon that most reporting present
nies present
while trying towhile
reporttrying
theirtonon-financial
report their non-financial
information [25].information [25].
(b) Quantifying the impact of sustainability actions by
(b) Quantifying the impact of sustainability actions by companies
companies
Another feature of this software is the possibility
Another feature of this software is the possibility of calculating of calculatingthetheexpected
expectedimpact
impactof
of the
the sustainability
sustainability actions
actions takenbybycompanies
taken companiesto tobetter
better their
their sustainability
sustainabilityperformance,
performance,
which seems to be lacking in other frameworks and has been proved
which seems to be lacking in other frameworks and has been provedrelevant
relevantby bysome
some
studies, e.g., [26–28]. ESG Maturity not only provides an action plan containing theactions
studies, e.g., [26–28]. ESG Maturity not only provides an action plan containing the actions
andstrategies
and strategiestotorespond
respondtototheirtheirsustainable
sustainableshortcomings
shortcomings but
but also
also provides
provides a report
a report of
of the
expected impact, both financially and sustainably, of the actions taken by the companies.
Sustainability 2023, 15, 2610 12 of 18

This is a clear response to the failure to quantify the impact of sustainability in business,
since the software is able, through a proprietary algorithm, to calculate where the company
will thrive when taking the necessary steps to make itself more sustainable.
(c) Assessment of materiality by sector
The proposed framework provides an assessment of the companies tailored to their
needs and sector, by defining and implementing the materiality concept in each industry.
This is a feature that allows companies to overcome the inconsistencies presented by the
previous frameworks [9,23] since it aggregates the indicators that are material for their
company, in its specific sector, industry, geography, and dimension. This is also an asset
of this software, given that it also allows smaller companies to report and analyze their
sustainability performance, according to their own personal characteristics, rather than
a general guideline or indicators that are based on criteria that only applies to higher
dimension companies.
(d) Information transparency
One of the most valuable characteristics and functions of this software relates to the
transparency it provides, not only in the reporting of the information but in the verification
of the reported data. ESG Maturity utilizes a process called “information triangulation”,
that verifies the data reported by the company. This is achieved by cross-referencing the
information provided by the company, combined with analysis, performed by using an
algorithm. This algorithm compares the reported information with a reputational analysis
of the company and also through benchmarking. This allows the company not only to
be evaluated indirectly, by cross-referencing information from other platforms and social
networks but also to compare and verify it against common standards for the characteristics
of the reporting company.
This triangulation of the information has the potential to overcome one of the largest
challenges that other frameworks face: relying only on non-financial information provided
by the reporting company, which is interested in showing its “better side” to potential
investors and society in general.
In fact, most companies that provide this non-financial information still do it voluntar-
ily [1,9], which can translate into companies only reporting what they consider is relevant,
and this functionality can revolutionize this reporting, making the information provided
more transparent, reliable, and accurate.
(e) Data standardization
Standardization of the available data is another challenge that ESG Maturity seeks
to address. This is a common difficulty in other frameworks since they provide general
guidelines and do not consider the scale and scope of the reported information, according
to the individual characteristics of the companies reporting [23,31].
This is achieved through first, aggregating more than 900 indicators, that establish
minimum and maximum criteria, according to the geography, industry, dimension, and
even number of employees assigned to companies. Second, the ability to congregate
these standards into a single software framework, which allows for the compatibility of
companies within their characteristics, instead of comparing on a general basis in which
for example, geography might not be considered. It also standardizes measuring units,
again, by geography, making the comparison of the standards themselves, easier and more
accurate when compared to other frameworks.
(f) Focus on positive impacts and dynamic metrics
The software presented in this paper is also an approach to shift the way ESG report-
ing is viewed today. As discussed above, most frameworks utilize a backward-looking
approach, in which the current state and data reported by companies are more relevant
than the steps and processes undertaken by them to ensure their good sustainability perfor-
mance [23,30,32,36]. However, ESG Maturity provides a new approach, by considering not
only dynamic metrics, likely to be changeable over time but also the possibility to report
positive impacts of the strategies undertaken by the company to “do better” sustainably. In
Sustainability 2023, 15, 2610 13 of 18

fact, the software indicates where the companies are outperforming their competitors and
where they are lacking and need to invest to become more sustainable.
(g) Value placed in each dimension of ESG: Bringing the “S” to light
This is the biggest shift that ESG Maturity has to offer, bringing the social dimension
into the analysis and reporting of ESG information. Most frameworks seem to lack the
criteria and processes to effectively analyze and report social responsibility information.
In this regard, ESG Maturity stands in the vanguard, by putting a focus on the “S”. The
software specifically asks the companies reporting to disclose their implementation of
specific processes for identifying and monitoring social risks and opportunities and to
report their corporate strategy for addressing them, as well as it requests the submission of
documents, such as the policies of human rights, the modern slavery act, and others, where
applicable. Beyond requesting this submission, the software analyses the compliance of
these documents, by analyzing the text and informing the company of criteria it lacks, for
example, a company that only contains crimes against humanity in its human rights policy,
will be flagged and informed that to be compliant it needs to address other human rights
risks and violations.
The software also provides uniform standards for reporting social data, namely the
correspondent and adequate criteria and/or frameworks and processes for collecting,
analyzing, and disclosing this type of information, to establish the expectations companies
must have for data sources, quality, and the metrics to be reported, always according to the
dimension, geography, and sector of the companies. One example of this is the request to
provide a supplier code of conduct and human rights policy for a company that utilizes a
supply chain.
Beyond these key features, ESG Maturity also educates on what social aspects might
need effective oversight and implementation, by, for instance, flagging an area in which the
company is lacking socially and providing effective strategies that can overcome that flaw.
In sum, ESG maturity can be viewed as an important tool for companies, given that
it works as an internal audit of the companies’ ESG/Sustainability reporting, enabling
the assessment of internal frameworks, validation of the completeness and accuracy of
the reported information, and providing advice and recommendations on how to make
companies more sustainable, transparent, and compliant.

5.3. Other Features of ESG Maturity That Add Value to ESG Reporting
However, the capabilities of ESG Maturity do not end in its ability to overcome the
challenges presented by other frameworks, it also provides innovative features, such as
compliance verification, which is increasingly important given the growing number of
mandatory regulations, particularly in Europe (e.g., Corporate Sustainability Reporting
Directive [CSRD]) [37]. Other regulations are embedded in the software, beyond the
questionnaire presented to the reporting companies, also integrating the document analysis
and the action plan further designed for the company. This is an important functionality,
given that not only will companies have to be compliant in the future but investors will
also need to know the risks they can expect under the requirements of legislation such
as Regulation (EU) 2019/88 (Sustainable Finance Disclosure Regulation) and Regulation
2020/852 (Taxonomy Regulation) [38].
Another function that can be an advantage for companies reporting using ESG Ma-
turity is the ability to receive an overview of the company’s sustainability performance,
progress, and strategy while being able to conduct a more granular and thorough evalu-
ation of specific indicators or to target an area of ESG performance that may be lagging.
This enables companies to focus their efforts where they effectively need to, making their
sustainability strategy more efficient, and saving time and resources that otherwise could
be conducted in an area in which the company is already thriving.
Lastly, this software provides the option to share the company’s information with
investors, shareholders, and other stakeholders, through a link that provides access to
Sustainability 2023, 15, 2610 14 of 18

the most relevant indicators of the company and/or their dashboard, facilitating the
accessibility of all interested parts to the progress and overall performance of the company.

5.4. Possible Limitations of the ESG Maturity

Even though there is the possibility of ESG Maturity becoming a solution for the
current challenges that most frameworks face, it is not without its challenges and limitations
to its development and implementation.

5.4.1. Software Still in Development and Dropout Rates

The first foreseen difficulty is associated with the fact that the software is still being
developed, which means that most companies that subscribe to this service have yet to
receive the final version with all functional features. Associated with this challenge, as well
as with the feature of information triangulation, some companies might not appreciate the
results provided by the software, regarding, for example, their reputational analysis, which
might translate, in the long run, in a higher than the expected dropout rate of companies,
since the software shows not only the “good” facet of the company but also the dimensions
in which it is lagging or even failing.

5.4.2. Constant Need for Updates

Another limitation to consider is, as with all software used as services, the constant
need to update—particularly, the legislation and regulation feature of the software. In the
current rapidly evolving regulatory environment, particularly in European companies [37],
it might be a challenge to constantly update the algorithm that provides compliance
certification to companies, leaving companies with temporarily inaccurate classifications.
However, the developers are working on integrating all regulatory and legislation available
at the current time in this software.

5.4.3. Diverting Human Resources to the Software

Another challenge relates to the need for the reporting companies to still direct re-
sources, particularly human resources, to the completion of the questionnaires, even though
this is much more limited compared to other frameworks. Even though there is an im-
provement from having a team of professionals responding to several frameworks, there is
still a need for at least one to two people to keep the company’s dashboard up-to-date and
correctly filled out.

5.4.4. Limited Inclusiveness

As of today, ESG Maturity is still limited in its inclusiveness, which can be considered
a limitation, given that it was designed and directed at people that can read and see, which
is a characteristic that needs to be adapted in the future so that people with disabilities or
learning difficulties can also utilize the software.

5.4.5. Lack of ESG Literacy

Beyond the limitations of the software itself, there is also a limitation associated with
the lack of ESG literacy, particularly in small and medium enterprises [SME], which are
pressured into providing this information rapidly, since they are mostly involved in the
value chain of larger companies or as suppliers, for instance. Although the software is
intuitive and user-friendly, it can be difficult for a person with no or only limited previous
knowledge to navigate all the dimensions of ESG in the software and to answer the
questions in, for example, the diagnostic questionnaire. To tackle this challenge, there is a
need to invest in ESG literacy and de-complexify sustainability information, so that it is
accessible to all elements of the value chain of businesses.
Sustainability 2023, 15, 2610 15 of 18

5.5. Companies’ Experiences Using ESG Maturity–Testimonies

Given that the software is still being developed, there is difficulty in providing concrete
and quantifiable information regarding its effects on the company’s ESG performance.
However, some companies that have already used the software have made available
testimonies that relate to their experience as users. The identification of the companies is
kept anonymous to protect confidentiality agreements.
One of these companies, “Company A”, highlights the benefit of using ESG Maturity
in order to evaluate, assess and monitor its investees, as an investment firm: “( . . . ) And,
we are also using the ESG Maturity tool to evaluate our potential investees in the context
of sustainability. So this tool helps us not only in this analysis, but also in the subsequent
reporting of sustainability indicators for our portfolio of investees (...)” [39] (p. 10).
Another company, Company B”, which is a worldwide organization, focused on the
utility of the software as a guideline for sustainability, as well as a tool for assessing a
company’s strengths. The same company also emphasizes the practicality and the capability
of involving all elements in the process of determining the next steps in the sustainability
journey of the company: “(...) Answering the diagnostic questionnaire allowed us to see—
even before the final result—points that we had never asked ourselves. At the same time,
we also realized how mature we already are on some fronts. The platform is simple to use,
the final results in the dashboard are also very visual and help us share with the whole
team where we are and what are the next steps. The dashboard is visual and intuitive even
for those who have not participated in the process ( . . . ) “ [39] (p. 10).
Several other companies have also used the software and have reported considering
the software relevant, useful, and easy to navigate, making their relation to ESG reporting
easier. Nevertheless, the authors would like to emphasize that the software is still in devel-
opment, so the information available from the user/reporting companies is still limited.

6. Conclusions and Study Limitations

As of today, sustainability reporting is a key process linked to the financial perfor-
mance and market value of companies [40]. However, most frameworks that seek to help
companies conduct this process present structural challenges, hindering the efficiency and
capacity of companies to deliver accurate, reliable, and consistent non-financial information
to their investors and shareholders, as well as society in general [1,9,23].
Given the challenges presented by the commonly used frameworks, the idea of a
single framework containing all criteria and capable of adapting its guidelines to the
characteristics of companies seems unlikely to produce the response needed to overcome
the difficulties ESG reporting faces at the present moment [23].
Despite the existence of possible limitations and challenges of its own, a new, ground-
breaking, sophisticated software is in development, that proposes to tackle all the challenges
while offering added value to the companies that choose to report under it, as well as in-
vestors, giving them access to the information needed to make a responsible and informed
investment decision. This new software, ESG Maturity, congregates several functionalities
that offer more reliable, measurable, transparent, and consistent non-financial information,
contributing to higher comparability among companies, and greater precision and validity
of the reported information [35].
More than reporting, this is a software framework that helps companies do better,
sustainability-wise, while not having to sacrifice time, practicality, or excessive resources,
directing them to what really matters: being sustainably responsible and proactive, con-
tributing to the socio-economic development of today’s society.
Regardless of the relevant contributions of this study to ESG reporting, especially in
the finance and investment area, there are still limitations associated with the presented
research.
One of the limitations that the authors consider relates to the quantity and type of
frameworks analyzed in this paper. As such, the frameworks described in this study are
limited, not all frameworks available for companies to report their non-financial information
Sustainability 2023, 15, 2610 16 of 18

are addressed, which would require a systemized review. The frameworks described were
selected for being the most commonly used in the investment field as well as for non-
financial reporting. In future studies, it is suggested to consider different frameworks, such
as Future Fit Business Benchmark [FFBB] and The Climate Disclosure Standards Board
[CDSB] to provide a different, and even larger overview of ESG reporting, particularly in
the “E” dimension, which was not the focus in this paper.
Another limitation relates to the fact that the software described is still in development.
Although some companies already have access to it, the data collected are still marginal,
which makes it difficult to present data about user experience and/or satisfaction, as well
as concrete indicators of improvement from companies using the software. Nevertheless,
the authors have presented the testimony of companies that already had access to earlier
versions and there is the expectation that more user experience data will be available within
the foreseeable future.
Nevertheless, this paper contributes to a comprehensive understanding of the current
state of ESG reporting, the available frameworks, and respective challenges and difficulties,
while providing a new “avenue” for future investors, top management, decision-makers,
and academics to assess ESG performance and reporting of companies, while also helping
companies become more sustainable themselves.

7. Patents
The ESG Maturity Software described in this paper is an intangible asset (nº 03052022)
liable and protected by trade secrets. The same software, along with the data are also
registered to Clarke, Modet y Cía. S.L., as Intellectual Digital Property in the Block Chain.
To have access to the identification and description of the trade secrets and the evidence
records of the digital files, please contact the authors.

Author Contributions: Conceptualization, C.A.C.; Writing—original draft, C.A.C. and F.M.; Writing,
review and editing, C.A.C. and F.M.; Methodology, C.A.C.; software, C-MORE; Formal analysis
and supervision, C.A.C. and F.M. All authors have read and agreed to the published version of
the manuscript.
Funding: This research received no external funding.
Institutional Review Board Statement: Not applicable.
Informed Consent Statement: Not applicable.
Data Availability Statement: Data available on request due to restrictions eg privacy or ethical.The
data presented in this study are available on request from the corresponding author. The data are not
publicly available due to confidentiality agreements and pending patents regarding ESG Maturity
software and algorithm.
Acknowledgments: The authors would like to acknowledge the contribution of the employees of
C-More to the development of the software, namely: Carina Abreu, Luís Coutinho, Rita Amaral and
Joana Ribeiro.
Conflicts of Interest: The authors declare no conflict of interest.

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