ESG reporting opportunities and challenges
According to a June 2022 global survey, some 60% of senior decision-makers feel that they are not prepared to meet their ESG goals and mandatory reporting requirements.
Whilst this is a significant number, many businesses, especially the ones in more mature industries, are struggling to adapt to the constantly evolving and increasing complexity of ESG performance to key stakeholders.
Globally, this constant evolution has created confusion at all levels of management. It is critically important that the standards produced around the world align, as this is key to comparability for the benefit of businesses, especially those with a global market share.
Remember, the International Sustainability Standards Board (ISSB) was only formed in November 2021 – it is just 15 months old, but has already issued two critical drafts on climate reporting and more general ESG-related disclosures.
Regulators globally are aware of this divergence in standards, and are focusing very much on achieving such alignment.
One other key challenge is that in many businesses the ESG reporting function is spread across many departments. Over a third of respondents in the survey 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 are also playing an important role in ESG reporting including Investor Relations, Marketing, Legal and Compliance, and Procurement. Aligning all of these various functions into a coherent report can result in delays and inaccuracies, thereby possibly attracting negative sentiments from investors and, possibly more importantly in the short term at least, regulators.
So, the need for clear, identifiable, easy-to-understand regulatory oversight is clearly a key objective in the coming year, along with business “buy-in” from top to bottom of the organisation.
And according to the results of the survey, 70% of respondents reported that their ESG reporting 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%).
Investors and consumers are also becoming more ESG conscious, pulling investment and consumption from businesses that have a bad ESG reputation, thereby reducing revenue and customer retention, two critical measurements of a business.
A wide array of stakeholders, from regulators and businesses, to investors, governments, and the public, have a strong interest in ESG. It matters economically, politically, and indeed emotionally to humankind.
With so much happening at such a pace, these are demanding and exciting times. Everyone is entering a brave new world in the financial reporting ecosystem. Greater collaboration amongst all parties will be key as we go through this journey together toward a better world!