The Challenges of ESG Reporting

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Introduction

Many businesses recognize the competitive advantage in disclosing their progress on environmental, social, and governance (ESG) issues. However, a recent survey reveals the difficulties companies face in creating ESG reports.

Quantifying Factors: A Challenge

According to the survey, 40% of polled ESG practitioners find it challenging to quantify factors such as diversity, equity, and inclusion. These metrics are crucial for companies aiming to demonstrate their commitment to sustainable practices and social responsibility.

Complying with Diverse Frameworks and Standards

Another significant hurdle highlighted in the survey is the complexity of navigating through the various ESG frameworks and standards. For 39% of ESG practitioners, compliance with this hodgepodge of guidelines adds an additional layer of difficulty to the reporting process.

The Role of Technology

Paul Volpe, head of ESG solutions at financial-reporting software company Workiva, emphasizes the importance of technology in streamlining the ESG reporting process. He believes that equipping businesses with the right tools is crucial for unlocking the true value of ESG.

Understanding the Survey

The survey was conducted in collaboration with Alex Edmans, a finance professor at London Business School. It involved more than 900 professionals worldwide who possess knowledge of ESG reporting within their respective organizations.

Human Resource Allocation

According to the survey findings, ESG reporting requires a significant allocation of human resources due to its complexity. Approximately three-fourths of respondents state that their companies employ at least one dedicated employee to oversee ESG reporting and initiatives. Additionally, 71% mention that at least three internal teams are involved in this work.

Perception Gap

Interestingly, there seems to be a disparity between the perceptions of executives and employees regarding the company’s approach to ESG reporting. While 62% of C-level executives strongly agree that their companies apply the same level of diligence to ESG reporting as they do to financial reporting, only 32% of managers and senior managers share the same sentiment.

In conclusion, this survey sheds light on the challenges faced by businesses when it comes to ESG reporting. The complexity of quantifying factors and compliance with diverse frameworks underscores the need for technological solutions. Furthermore, companies must ensure that their commitment to ESG reporting is communicated consistently throughout all levels of the organization.

The Importance of Standardized ESG Reporting

As the value of Environmental, Social, and Governance (ESG) data continues to rise among investors, the need for standardized reporting has become increasingly apparent. Companies have been voluntarily disclosing ESG data for years, but the lack of reporting standards and verifiable data has led to some businesses inflating their claims to boost their reputation, resulting in a backlash.

To address this issue, the International Sustainability Standards Board recently issued its first set of standards on sustainability-related disclosures for corporations and financial institutions worldwide. However, it is important to note that these standards will not be automatically imposed on companies. Each country will have the option to decide whether to require companies within its jurisdiction to adopt these standards.

This shift toward standardized ESG reporting means that businesses may have to comply with different regional regulations, necessitating the reporting of multiple versions of their ESG data. According to a survey, 74% of companies expect to be required to comply with two or more global regulations, while nearly half anticipate having to comply with three or more. For instance, the European Union’s Corporate Sustainability Reporting Directive is likely to impact many American companies operating in the region.

Just as companies currently have to disclose their financial information according to various Generally Accepted Accounting Principles (GAAP) around the world, it is expected that non-financial data will follow a similar path.

In conclusion, standardized ESG reporting is crucial in ensuring transparency and credibility in sustainability-related disclosures. By implementing these reporting standards, companies can provide accurate and reliable data that investors can trust.

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