ESG reporting: Challenges as well as opportunities

Many organizations believe they will face an uphill climb to meet their environmental, social and governance (ESG) goals and regulatory reporting mandates.

A new global survey released by Workiva found that there is a lack of trust in ESG reporting among senior decision-makers, though they also find positive business value in ESG reporting and recognize that it continues to evolve. The survey also revealed that companies so far are placing a particular emphasis on the “E” in ESG. Coleman Parkes conducted the survey.

Reporting requirements “constantly evolving”

“ESG reporting requirements are constantly evolving and businesses are faced with increasing complexity and risk when consolidating disparate financial and non-financial data to cohesively report on their ESG performance to stakeholders,” said Julie Iskow, president & COO at Workiva, in a press release. “The survey results indicate how ESG practitioners from a range of industries across North America, Europe, and APAC are tackling the challenges and opportunities around ESG reporting.”

Among the key findings of the survey is that nearly two-thirds of senior decision-makers believe their organization is underprepared to meet ESG goals and regulatory reporting mandates. In addition, 72% of them lack confidence in the ESG data being reported to stakeholders – though 68% of businesses represented in the survey of 1,300 respondents have appointed an ESG-specific role to oversee reporting.

Uncharted territory

Among respondents, 58% only began reporting ESG, climate/sustainability or corporate social responsibility data in the past one to three years, and 14% said their organization still has not released a formal report. There is no consensus on who handles reporting within organizations, but the work often is the result of a collaboration across teams. Thirty-five percent of respondents said an ESG/chief sustainability officer at least shared responsibility, while another 35% said it fell at least in part under the umbrella of operations and facilities. Other common participants include finance (30%) and human resources (28%).

The “E” in ESG

The environmental component of ESG is receiving the most focus at the moment. In the next year to 18 months, respondents expect 43% of their internal ESG budget will go to environmental efforts while 29% will go to social and 28% to governance. Reporting around environmental issues carries clear challenges, and those surveyed point to calculating greenhouse gas protocols to measure scope 1, 2 and 3 emissions and achieving investor-grade carbon disclosures as two particularly difficult ones.

Technology concerns

Despite widespread acknowledgement of the critical nature of technology in ESG reporting – approximately 75% said technology was important for compiling and collaborating on ESG data and 80% believe technology is important for validating data for accuracy – half of respondents believe departments within their organization lack the systems to provide the data needed for ESG reporting.

Just a third of respondents reported that their organization employs technology and data very well to advance ESG strategy. Other technology concerns include that legacy IT systems are incompatible with new required technology (30%) and that the respondent’s organization doesn’t understand what technology is available or needed (27%).

“To navigate this era of change in ESG, businesses must be forward-looking and flexible in their planning. Regulators, investors, customers, and other stakeholders have identified what’s essential now, but this is only part of what will be essential for tomorrow’s reporting,” Iskow said. “Technology, which enables seamless integration between teams in one centralized platform, will be key to streamlining the reporting process long term and delivering transparent reports that can meet these evolving demands to further boost employee, investor, and wider stakeholder trust.”

Positive impact

Despite the challenges, ESG reporting provides clear business value. In fact, seven in 10 survey respondents said their organization’s ESG report has made a positive impact in customer retention and recruitment (72%), cost savings (71%), insurance/credit agency engagement (71%), and a reduction of long-term risk (71%). Other benefits of ESG reporting include employee morale (71%), investor and stakeholder relationships (70%) and employee recruitment efforts (69%).

“While challenges around communicating ESG corporate value to stakeholders still exist, the findings show clear positive outcomes for businesses who prioritize ESG reporting,” Iskow said. “Organizations must implement actions that allow them to keep pace with the current and future demands from regulators, investors, and other stakeholders for trusted, transparent data and ESG forward-looking business goals.”