New Deloitte survey of 300 senior finance, legal and sustainability leaders shows companies are working toward more reliable — and timely — data, with investments in technology, controls design and implementation resources, and a robust, integrated strategy to meet the growing expectation for high quality ESG reporting information
Key takeaways
- While the market continues to demand transparency, more than half of senior executives (57% of survey respondents) indicated that data availability (access) and data quality (accuracy/completeness) remain their greatest challenges with respect to environmental, social, and governance (ESG) data for disclosure. At the same time, senior executives are proactively taking action to ensure they are presenting reliable ESG data with almost 9 in 10 (89% of survey respondents) noting a likelihood that their organization will enhance its ESG control environment.
- Despite increased focus on ESG matters from stakeholders and the need to internally mobilize to create a robust ESG strategy and governance structure, less than a quarter (21% of survey respondents) currently have an ESG council or working group in place to drive strategic attention to ESG topics; however, more than half (57% of survey respondents) are actively working to establish one. A strong majority of senior executives (82% of survey respondents) also believe they will need additional resources to generate ESG disclosures that meet the information needs of critical stakeholders.
- Accurate ESG reporting requires effective use of technology, yet more than 9 in 10 (92% of survey respondents) believe that their organization needs to invest more in technology to address demand for consistent and reliable measurement, reporting and disclosures.
- Three in 4 executives plan to obtain assurance over ESG disclosures in the next reporting cycle, indicating the importance of applying independence and objectivity to enhancing the reliability of this information.
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Why this matters
The business landscape today has been transformed by environmental and social concerns. As understanding grows about the risk and value creation opportunities that ESG presents, the demand for ESG disclosure has accelerated. The companies that hold themselves accountable to their stakeholders by increasing transparency will be more viable — and valuable — in the long term.
While companies are setting ambitious climate and ESG goals, leaders remain cautious about their ability to deliver on rising disclosure requirements in a consistent and timely way. Companies are actively working toward enhancing governance over ESG disclosure, including oversight, controls and processes, to meet the growing need for transparency and high-quality ESG information.
Current ESG maturity and disclosure preparedness
Similar to financial reporting, effective ESG disclosure requires intentional planning, prioritization and established governance. Since ESG information can come from many parts of the organization — from operations to human resources to legal — creating a cross-functional council or working group to drive strategic action and attention to topics important to stakeholders is a leading practice. Underscoring that companies are in varying stages of their ESG preparedness journey, only 21% of companies surveyed currently have an ESG council or working group to drive strategic action in ESG performance areas; however, more than half (57% of survey respondents) are actively working to establish one.
ESG assurance represents an important tool to drive ESG governance, risk and reporting maturity, and overall preparedness, and companies are currently obtaining assurance on subject matter across different ESG performance categories. Diversity, equity and inclusion (DEI) (53%) and greenhouse gas (GHG) emissions (49%) are among the most common subject matter respondents cite.
Efforts to establish ESG disclosure standards have contributed to the quality, transparency, relevance and comparability of ESG disclosures. However, in some cases they have not resulted in the level of consistency in reporting across companies that many stakeholders would like to see.
Companies are currently providing ESG disclosures in accordance with multiple standards and frameworks. On average, companies report using two standards or frameworks, with the Sustainability Accounting Standards Board (SASB) (43%), the Task Force for Climate-Related Financial Disclosures (TCFD) (40%), and the Global Reporting Initiative (GRI) (35%) among those most frequently cited. More than one-third are using three or more reporting standards or frameworks.
ESG reporting challenges
The U.S. regulatory agenda includes rulemaking priorities in four key ESG-related areas. In considering potential enhanced ESG disclosures, respondents are most confident about their company’s ability to address human capital management (30%), climate change (24%), board diversity (24%), and cyber risk governance (22%), respectively.
Preparedness for GHG emissions disclosure varies dramatically. While 58% of respondents note they are currently prepared to disclose Scope 1 GHG emissions and 47% are prepared to disclose Scope 2 emissions, only 31% are prepared to disclose Scope 3 emissions. In general, Scope 3 emissions present a challenge to nearly all companies, with end-of-life treatment of sold products (45%) representing the top emissions category that companies struggle to measure, followed by fuel- and energy-related activities not included in Scope 1 or Scope 2 (40%).
Senior executives know the importance of ESG data management practices across the enterprise — from availability, to aggregation and review of this company-wide data. The technology needed to enable complete and accurate ESG disclosures is a key item on the minds for nine in ten senior executives.
Key quote
“As companies rise to meet the moment, they will need the right mix of skilled professionals, streamlined processes, and dynamic technology to address stakeholder expectations for high-quality ESG disclosures that instill trust.”
— Jon Raphael, national managing partner – transformation and assurance (ESG), Deloitte & Touche LLP
ESG planning and action
As U.S. companies look to meet increasing stakeholder expectations, more work will be needed to address and integrate new policies, procedures, and controls.
Senior executives are taking action to ensure they are presenting reliable data, both by enhancing the control environment for ESG data and by obtaining assurance on the data reported. In fact, 89% noted a likelihood that their organization will enhance their ESG control environment. In addition, 3 in 4 executives plan to obtain assurance over ESG disclosures in the next reporting cycle, validating the importance of applying independence and objectivity to enhancing the reliability of this information. And of course, it is important that there is consistency between key assumptions used in financial reporting and related disclosures and the assumptions used in any ESG commitments and disclosures, which will require close coordination with the finance, tax, internal audit, forecasting and budgeting teams.
Finally, executives acknowledged staffing will need to be addressed to meet the expectations of their stakeholders: 8 in 10 senior executives are not completely confident that their current staffing levels are sufficient. These concerns are higher among non-C-suite executives (91% to 77%).
Key quote
“With increasing calls for higher quality ESG disclosures, organizations need a robust, integrated strategy that weaves ESG into their DNA. Done right, the integrated approach can be a tool to promote resilience and adaptability — and drive greater overall value for the business.”
– Kristen Sullivan, partner, Deloitte & Touche LLP, and U.S. sustainability and ESG services leader and global audit & assurance climate services leader
Methodology
Deloitte commissioned an online survey in the fourth quarter of 2021 of 300 finance, accounting, sustainability and legal executives. “Executives” are defined as senior finance and accounting executives with a minimum seniority of director or chief risk officers, general counsels, chief legal officers and chief sustainability officers. Respondents reflect a cross-industry representation of U.S. public companies with revenues greater than $500 million (75% of respondents represented companies with revenues exceeding $1 billion).
Source: Deloitte