By Mandi McReynolds, Global Head of ESG at Workiva
Pressures are mounting from regulations like the Corporate Sustainability Reporting Directive (CSRD) to meet the growing demand from investors and other stakeholders to provide high quality, transparent, reliable and comparable reporting on climate and other environmental, social and governance (ESG) matters.
However, there seems to be a growing confidence crisis amongst UK organisations. A 2022 ESG survey research by Workiva, has revealed that nearly two-thirds (63%) of senior decision makers in the UK feel their organisations are underprepared to meet their ESG goals and regulatory reporting mandates. Despite the current lack of confidence in tackling these reports, there are significant positives to getting ESG reporting right – such as attracting investment and better alignment with customers, and other stakeholders.
Perfecting ESG reporting will not happen overnight but there is no better time than now to begin this journey. As such, this article will discuss the existing steps businesses can take to improve their confidence in the ESG data they report.
Building the foundation for ESG reporting
Despite evidence that over half of UK organisations (59%) are addressing the issue, having appointed an ESG-specific role to oversee reporting, 73% still do not have confidence in the data being reported to stakeholders. This may simply be down to time, as organisations have not been required to produce ESG reports long enough to have real confidence in their processes.
The current goal is to have those in non-financial roles produce reports with the same rigour as financial controls in the next three years; however, this may be unrealistic considering that financial reporting took significantly longer than a few years to get right. In order for organisations to achieve this goal they must assemble a cross-function team. Bringing teams together from both financial and non-financial roles enables organsiations to produce the best, most collaborative assurance and board-ready reporting that is investor grade.
Meanwhile, among expectations that are concerning businesses are stakeholders who are calling for more detailed and uniform data related to ESG. Despite progress needed across all facets of ESG, tackling the environmental or ‘E’ element is clearly the current major focus.
Included in this data gathered, reporters are expected to calculate greenhouse gas emissions and provide carbon accounting details which are currently the areas that decision-makers are most concerned about reporting on. In fact, for almost half (43%), these were cited as priority concerns.
While identifying the areas where major focus is needed is evidence that businesses are taking steps in the right direction, being prepared does not stop there. Organisations also need to understand existing and upcoming regulatory demands and determine how these will impact ESG strategy.
Keeping up with policies and standard initiatives
The lack of preparedness by decision makers can be strongly tied to the lack of clarity around the future ESG expectations that might lie ahead.
In efforts to improve this issue, government and industry regulators are currently rolling out a range of regulatory reporting requirements to provide constant standards across the globe. These range from the recent Sustainable Finance Disclosure Regulation (SFDR) directive in Europe, to the ESG disclosure rule proposed by the SEC in the U.S. and the Singapore Exchange’s recommended 27 core ESG metrics. Meanwhile, the Task Force on Climate-Related Financial Disclosures (TCFD) has outlined the most effective principles for companies to analyse, understand and ultimately disclose climate-related financial information.
Government regulators and internal policymakers are needed to communicate requirements clearly and work closely with reporting teams as well as their technology providers to ensure that these initiatives bring about the change they envision. Having the right controls in place ultimately makes processes more robust and repeatable, ensuring that the resulting metrics stand up to scrutiny. In particular this process applies to materiality assessments, which illustrate which ESG issues matter the most to an organisation’s stakeholders.
More regulatory requirements are still needed and these can come into place over time. As regulations, frameworks and stakeholders’ demands evolve, the key to maintaining confidence in reports will be to stay committed to regularly reassessing the processes organisations have in place. This will ensure they are equipped and ready to meet ever-evolving ESG standards.
Technology as the enabler to advance ESG reporting
Organisations are calling out for solutions to navigate the challenging ESG landscape. Meanwhile, financial reporting is in the middle of a digital revolution, focused on re-architecting and modernising systems. By taking lessons learned from finance and applying them to ESG reporting, businesses do not need to reinvent the wheel. Moreover, there are existing solutions that account for both financial and ESG reporting, which should encourage collaboration between the teams. The key outcome is to ultimately produce decision-useful data.
Desirable solutions should unite teams and workflows, and simplify the process of gathering data from across the organisation. Survey respondents also see these as being important for validating data for accuracy (80%) and mapping disclosures to regulations and framework standards (85%).
For example, automation is critical to ensuring consistently accurate results. Where data is input manually, the risk of calculation error is significant. Automating processes has been proven to remove additional steps that offer an invitation for human error. Where uniformity is needed across different reports and where data input is usually a repetitive task, automation offers a time efficient solution.
Similarly, through real-time collaboration, financial and non-financial reporters can ensure that when a data point is updated in one place, it is updated in every relevant analysis and report. Since data needs to be consistently merged in real-time to produce fully transparent, trustworthy ESG sustainability reports which can easily be integrated with financial data, there really is zero margin for error. Uniform, accurate reporting can be produced most effectively when combined with a platform that centralises related teams and integrates the full reporting process.
Taking the steps to prepare as much as possible
To navigate this era of change in ESG, organisations must be forward-looking and flexible in their planning. Regulators, investors, customers, and other stakeholders have identified what’s essential in today’s reporting, but this is only part of what will be essential for tomorrow.
Looking ahead, organisations are planning to dedicate more resources to improving their ESG reporting, with the ‘E’ becoming more of a priority. This renewed focus will ultimately help drive tangible change to improve the business impact on the environment and society at large.
Technology which enables seamless integration between teams in one centralised platform will be key to streamlining the reporting process in the long term. This will also support in delivering transparent reports that are critical to meeting evolving demands as well as attracting investors and wider stakeholders. Ultimately, smart preparatory efforts that take advantage of innovation will enable organisations to feel more confident in their current reporting now and when facing future ESG mandates.