An ESG Report provides information for stakeholders about the impact of a company’s activities on the environment, social issues, and governance. Previously it needed to have the right balance of information to meet all the requirements of its users; now, however, it must also meet the ever-expanding list of regulation and compliance rules. Keeping up with this dynamic environment is a major burden on the resources of any enterprise.
A major hurdle to implementing an ESG reporting pack is the lack of consistent regulations across various jurisdictions. We discussed in an earlier blog some of the new and emerging regulations and how various countries differ in their reporting requirements. Regulatory bodies are not only pushing for new disclosure requirements; investors need consistency and comparability to appraise investment selections and conduct their due diligence.
ESG investors are looking for companies that provide positive returns in financial metrics and provide additional benefits to society at large, the environment, their employees, and communities. The demand for these types of returns is increasing exponentially. According to Morning Star, the growth in U.S. sustainable assets in 2021 was an increase over 2020 (when U.S. sustainable funds attracted $51.1 billion in assets), 2019 ($21.4 billion), and 2018 ($5.4 billion in assets).
Growth in ESG Assets
Until there is a unified global reporting framework ESG financial and sustainability reporting will be problematic.
Source: Morning Star
Data Poses the Biggest Hurdle to ESG Disclosure
ESG data management is perhaps the biggest challenge for an organisation trying to get to grips with a new ESG reporting regime.
In a survey by Deloitte, 57% of CFOs and senior executives said securing high-quality data was the number one challenge in meeting the rising demand for disclosure on business sustainability.
While many companies have already implemented some kind of reporting system, it is most likely to be siloed throughout the business and manually recorded in spreadsheets. This makes it laborious to update and monitor. Because ESG risks are not always quantifiable with a value, they can be especially difficult to monitor. Sustainability targets themselves may be a risk to the enterprise because they drain resources and reduce profits. While most enterprises can identify specific sustainability risks, they may not yet have developed KPIs and are thus unable to monitor them.
A centralised database for financial and sustainability data can navigate these issues and ESG reporting software solutions are available. The Deloitte survey found that Nine out of 10 (92%) of executives say their companies need to increase spending on technology to ensure reliable ESG measurement, reporting and disclosure.
Technology can facilitate all aspects of ESG reporting, including:
- The control, validation, and reporting of data and ESG KPIs
- Automating disclosure requirements
- Provide clear insights on the impact of ESG activities across the entire organisation in real time and its impact on financial and operational plans
Conclusion
As well as increasing regulatory requirements, investor demand is compelling companies to include ESG reporting in their corporate reporting pack. Despite the various hurdles to adopting and reporting ESG, the process does not have to be onerous or require large teams of personnel because there are technology solutions available to help.
If you would like more information on how software can help your organisation streamline ESG reporting, call us or click here for information on a webinar about the subject.
Sources and references: Bloomberg Finance and IMF Connecting the Dots Between Sustainable Finance and Financial Stability – IMF Blog
30 ESG And Sustainable Investing Statistics (April 2022 Update) – SustainFi
Data pose biggest hurdle to ESG disclosure: Deloitte | CFO Dive
Assessing perceptions: ESG preparedness, disclosures, and reporting, requirements (deloitte.com)