Navigating Uncertainty: The State of Play in ESG Reporting

The following is an excerpt from How to Manage ESG Reporting: The Ultimate Guide. 

Environmental, social and governance (ESG) reporting is getting serious. Businesses are under increasing pressure to provide clear, consistent and comparable sustainability data—not just for their own benefit, but for that of the communities that they serve, the regulators that they answer to and the investors that they depend on for continued growth. The drive for change is clear. 

Investors lack trust in ESG reports 

From a growth perspective, the demand for greater trust in ESG reporting is painfully apparent. 90% of the 1,000+ ordinary investors who responded to a Workiva survey said that they find it hard to trust business’s ESG claims at face value. A further 62% shared that they find it challenging to assess whether companies are doing better than their peers in terms of environmental and social impacts. 

In Europe, there’s a feeling that the non-financial reporting directive (NFRD) that’s currently in place isn’t going far enough. The reality is that there is no such thing as “non-financial” sustainability data—missed targets across the board on ESG criteria have financial impact, whether that be from investors, regulators, unhappy employees adding the cost of churn, or striking employees grinding operations to a halt. While standard-setters need to step up and help with comparability, ultimately much of the onus falls on businesses to strengthen trust with investors. 

Standard setters and regulators are making ESG a priority for finance leaders 

The creation of an International Sustainability Standards Board (ISSB) at COP26, the UN’s 2021 United Nations Climate Change Conference, has drawn a clear line in the sand. By consolidating several of the diverse ESG reporting standards landscape, it will mean that businesses no longer have to navigate such a complex mesh of measurement frameworks, guidance, protocols, rankings, indices, and standards. It will simplify the reporting process—but it will also reinforce the responsibility placed on the shoulders of reporting teams to ensure the delivery of truly accurate ESG disclosures. 

At COP26, Erkki Liikanen, Chair of the International Financial Reporting Standards (IFRS) foundation emphasised that, “capital markets can have an essential role to play in reaching net zero. But that can only happen when sustainability information is produced with the same rigour, assurance of quality and global comparability as financial information." 

This global shift towards greater standardisation, and towards applying the control and rigour found in  the finance world on a much more disparate data problem, echoes developments already in motion across a relatively ESG-mature Europe. In the EU, organisations will soon need to adhere to requirements stemming from the new EU Taxonomy and the proposed Corporate Sustainability Reporting Directive (CSRD). In the UK, recommendations from the climate-focused Task Force on Climate-Related Financial Disclosures (TCFD) are being added to the existing landscape of social and governance reporting requirements. 

ESG is entering the office of the CFO. But there’s still a lack of clarity about the details. Companies know that ESG will likely end up forming part of their annual report—but they’re not clear on who needs to be involved in the process, what data needs to be collected, how to ensure data integrity, and the best way to prepare to incorporate both structured and unstructured data sources. They may also have established processes in place, or know which frameworks they want to use—but will be uncertain about how they will align with incoming standards and expectations, and how they will be sure that their process won’t introduce risk or create inefficiencies.  

Reporting teams now need to pave their own path forward  

This is an era of change that’s mired in uncertainty. To navigate it, businesses need to be prepared for the unknown. They need processes that foster harmonious collaboration between data mature finance teams and ESG teams that have likely spent less time working with the same controls systems as their counterparts in finance. They need seamless integration of people, process and data that enables them to find their north star and embed trust in the process. And they need flexibility and control that will enable them to future proof both their ESG and annual reporting processes against further inevitable change. 

We’ve put together an e-book that seeks to answer some of the biggest questions that we hear about ESG reporting. Our aim is to arm you with straightforward information that will help prepare and safeguard your business so that when change happens, you’re ready. Ready to impress investors with reports they can trust. Ready to simplify complex regulatory demands. And ready to experience all the benefits offered by robust ESG reporting practices—from employee retention and productivity uplift all the way to strong top-line growth.