From Guesswork To Audit Trails: Why ESG Reporting Struggled For So Long

In a recent post on the EU AI Act and ESG, I wrote one sentence that deserves a post of its own: ESG reporting struggled for years, not because the numbers were impossible to calculate, but because organizations relied too heavily on guesswork and lacked the audit trails to trace the data back to its source. Anyone who worked through the early reporting cycles knows exactly what that sentence describes. This is what it looked like from the inside, and why the era it describes is ending.

The era of the educated guess

For most of its history, sustainability reporting was voluntary. Nobody audited it the way they audit revenue, so the discipline that surrounds financial numbers never grew around ESG ones. In its place grew a culture of the educated guess.

The guesswork was rarely dishonest. It was pragmatic, and it usually wore respectable clothes:

• Spend-based estimates. No supplier data? Multiply what you paid by an industry-average factor and move on. The result is a number that reflects your procurement budget far more than your actual footprint.
• Extrapolation. Three sites report energy use; forty-seven don't. Scale up the three and call it coverage.
• Inherited assumptions. An emission factor chosen years ago by someone who has since left, reused every cycle because nobody remembers why it was picked, and nobody dares to touch it.
• The plug. A figure adjusted until the total looks plausible next to last year's, because a smooth trend raises fewer questions than an honest jump.

Each shortcut was defensible on its own. Stacked together, cycle after cycle, they produced reports that were internally consistent, professionally formatted, and impossible to trace back to reality.

The missing trail

The deeper problem was not the estimating itself. Estimation is a legitimate tool; even financial accounting depends on it. The problem was that nobody could show their work.

A number would arrive in the group template from a country office. Where did it come from? A spreadsheet. Where did the spreadsheet get it? An email. Who sent the email? Someone who left in March. The chain of custody, source document, transformation, assumption, final figure, existed only as institutional memory, and institutional memory resigns, retires, and forgets.

A guess with a documented trail can be improved. A precise number with no trail can only be believed, or not.

That is the real distinction, and it is why "guesswork" and "no audit trail" are two halves of one failure. Without a trail, you cannot even tell which numbers are guesses. Everything looks equally solid on the page, which means everything is equally fragile underneath it.

What forced the change

Two things ended the era of the educated guess. The first was regulation: the CSRD made sustainability statements subject to assurance, and an auditor's first question is never "what is the number?", it is "where did it come from?" A figure that cannot be traced to a source is, for assurance purposes, not a figure at all.

The second was quieter but just as decisive: the numbers started being used. Once emissions data feeds financing terms, executive remuneration, and procurement decisions, a wrong number stops being a reputational risk and becomes a financial one. Nobody prices a loan off a plug figure knowingly.

The way out is boring, and that's the point

The fix was never a smarter calculation. It was the unglamorous machinery I've written about before: source documents attached to figures, transformations recorded instead of remembered, assumptions written down with a name and a date next to them, estimates labelled as estimates with a plan to replace them.

None of that makes a report more impressive. It makes it defensible, and defensible turns out to be the property everything else depends on. The organizations that struggled with ESG reporting were never short of numbers. They were short of provenance. The ones pulling ahead now aren't calculating anything the others can't; they can simply answer, for every figure they publish, the only question that ever really mattered: how do you know?

Working on something in this space? I'd be glad to compare notes. Get in touch.