Organizations navigating the environmental, social, and corporate governance (ESG) reporting landscape are expressing a set of obstacles they face on their journies to create circularity and reduce environmental impact.
Workiva, a global software provider, teamed up with independent research agency Coleman Parkes to gather data and examine the pitfalls and obstacles facing companies on their sustainability journeys.
Because ESG reporting requirements are constantly shifting, "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,” commented Julie Iskow, president & COO at Workiva.
An online survey spanned across the United States, United Kingdom, Germany, France, Spain, Sweden, Netherlands, Denmark, Norway, Italy, Switzerland, Austria and Singapore, with a total of 1,300 organizations providing insight. The majority - nearly two-thirds - of decision-makers who were surveyed indicated their companies were "underprepared to meet their environmental, social, and governance (ESG) goals and regulatory reporting mandates."
Data assurance was also an issue, with 72 percent of survey takers lacking confidence about what is being reported to stakeholders even though 68 percent of organizations fill an ESG-specific reporting role.
About 58 percent of companies only recently began reporting on ESG, climate/sustainability or corporate social responsibility data in the last one to three years, with varying departments spearheading efforts, amplifying the need for "significant cross-team collaboration," stated Workiva.
While 35 percent of organizations hold an ESG/Chief Sustainability Offer position, respondents answered that ESG at their respective companies falls under operations and facilities (35 percent), finance (30 percent) and human resources (28 percent)
In the next year to 18 months, environmental budgets will focus primarily on environmental factors (43 percent) with social and governance issues falling in at 29 percent and 28 percent, respectively. Prioritizing environmental factors is largely attributed to the calculation of greenhouse gas protocols "to measure scope 1, 2 and 3 emissions and achieving investor-grade carbon disclosures," according to Workiva.
“Stakeholders are calling for more detailed and uniform data related to ESG. With the recent Sustainable Finance Disclosure Regulation (SFDR) directive in Europe, the ESG disclosure rule proposed by the SEC in the U.S., and the Singapore Exchange’s recommended 27 core ESG metrics, the ESG reporting environment is becoming more complex for organizations,” commented Mandi McReynolds, head of global ESG at Workiva. “In particular, we are seeing companies grapple with how to accurately meet these required disclosures around the ‘E’ in ESG to report GHG emissions with carbon level accounting data.”
Furthermore, technology advancements are crucial to enhancing future reporting efforts. Eighty percent of respondents indicated that tech was need not only to compile and collaborate data but also for accuracy.
About 50 percent of those surveyed did not express confidence in individual departments to sustain the systems required to gather and generate the data needed. Legacy IT systems, lack of technology and a lack of understanding around technology are causing obstacles in ESG reporting.
Despite the challenges organizations face, companies are becoming aware of the inherent value of ESG reporting. Seven out of 10 surveyed stated positive business impacts have already been recognized across customer retention and recruitment; cost savings; insurance/credit agency engagement; and reduction of long-term risk.
“While challenges around communicating ESG corporate value to stakeholders still exist, the findings show clear positive outcomes for businesses who prioritize ESG reporting,” added Iskow. “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.