Nearly two thirds of senior decision makers feel their organization is underprepared to meet their environmental, social, and governance (ESG) goals and regulatory reporting mandates, according to a new global survey released by Workiva Inc. (NYSE: WK). Further, 72% don’t have confidence in the data currently being reported to stakeholders, despite 68% of businesses having appointed an ESG-specific role to oversee reporting.
These and other findings of the survey examined 1,300 organizations’ current processes, collaboration and confidence in their ESG reporting. Respondents involved in their company’s ESG reporting and strategy were polled from across finance, ESG, sustainability, HR, compliance, operations, and legislative affairs.
“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. “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.”
Evolution of ESG Reporting ESG reporting was noted to be a relatively recent undertaking for most companies, with 58% of those surveyed confirming their organization began formally reporting ESG, climate/sustainability or corporate social responsibility data in the last 1-3 years, while 14% flagged that their organization had yet to release a formal report.
According to the findings, ESG reporting is being handled by a wide range of departments within organizations, signaling the need for significant cross-team collaboration. Over a third of respondents noted ESG reporting and strategy is led by the ESG/Chief Sustainability Officer (35%) and Operations & Facilities (35%), followed by Finance (30%) and Human Resources (28%). Other departments that respondents identified as playing an important role in ESG reporting included Investor Relations, Marketing/Comms, Procurement,and Legal/Compliance.
Formal ESG stakeholder engagement is an ongoing and important process for their organizations according to respondents, with almost half (49%) of respondents confirming that they review their materiality issues every 3-6 months and 29% stating it occurs annually. Almost two thirds (63%) state that formal stakeholder engagement informs ESG materiality to a significant extent.
Apprehension around the ‘E’ in ESG While progress is needed across all facets of ESG, tackling the ‘E’ is a major focus for organizations. Respondents predicted that over the next 12-18 months, 43% of their organization’s internal ESG budget will be devoted to Environmental factors, 29% to Social, and 28% in areas of Governance.
The increased proportion of budget set aside to focus on environmental factors reflects respondents’ concerns around the reporting challenges they face. Those surveyed, who hold a range of positions from C-suite, VP, Director and Manager to individual contributors at these organizations stated that two of the biggest challenges regarding ESG reporting are calculating greenhouse gas protocols to measure scope 1, 2 and 3 emissions and achieving investor-grade carbon disclosures.
“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,” said 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.”
Technology is Needed to Advance ESG Reporting is Given the increasing importance of delivering transparent, accurate data to key stakeholders, there is a clear need for ESG reporting to be simplified through technology. Globally, three out of four respondents noted that technology was important for compiling and collaborating on ESG data, as well as validating data for accuracy (80%) and mapping disclosures to regulations and framework standards (85%). Despite this, half of respondents do not feel individual departments within their organization have the systems necessary to provide data for ESG reporting. In fact, one in five reported that their organization does not employ technology suitable for managing the ESG reporting process and program initiatives. Thirty percent of those respondents noted that their legacy IT systems are incompatible with new required technology and 27% stated they don’t fully understand what technology is available or needed. Only a third of overall respondents said their organization uses technology and data very well to make decisions on advancing ESG strategy, indicating there is significant scope to improve efficiencies and performance in this area.
“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,” added Iskow. “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.”
ESG Reporting Delivers Positive Business Value given the survey revealed that companies are seeing business value in their current ESG reporting. Seven in 10 respondents stated that their organization’s ESG reporting has already generated a positive impact across customer retention and recruitment (72%), cost savings (71%), insurance/credit agency engagement (71%), and resulted in a reduction of long-term risk (71%). The majority of respondents also noted that ESG reporting has improved employee morale (71%), employee recruitment efforts (69%), as well as investor and stakeholder relationships (70%).
“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.”