In 2023 every organization needs to focus on their ESG positions. Having a clear assessment of a company’s environmental, social, and governance performance is important to consumers, employees, and investors. In fact, a recent Deloitte survey showed that 99% of public companies expect to invest in ESG reporting technology and tools in the next 12 months. In this article we’ll take you through the latest trends in ESG, key challenges, and technology solutions for your business.
Trend 1: Stakeholder Expectations Continue to Rise
Increases in socially conscious customers, investors, and other stakeholders are pushing companies to disclose their stance on environmental sustainability and social impact in order to attract customers, talent, and capital investments. Companies recognize the importance of these non-financial factors for their long-term viability and success. Data shows that 83% of consumers think companies should actively shape ESG best practices. Going further, 76% of consumers say they would discontinue their relationship with companies that “treat the environment, employees, or the community in which they operate poorly.” Another evolving factor for ESG is for companies to see employees as a major stakeholder, and when ESG is used as a workforce strategy, gains can be made. When compared to peers, top employers — as measured by employee satisfaction and attractiveness to young talent — tend to have lower carbon emissions, make a greater effort to understand employee feelings, and be more diverse, according to Marsh & McLennan.
We’re hearing from customers that there are efforts underway to meet stakeholder expectations through ESG reporting, disclosures, and commitments delivered through ESG program management. This means auditing teams are often relied on to report on ESG topics to stakeholders that include customers, employees, and investors — and they need an efficient way to manage it all and ensure data accuracy. The challenge here is that there is still a heavy reliance on spreadsheets, emails, and survey tools. There are inconsistent standards for metrics and data, and ongoing manual efforts to align to frameworks and standards.
Technology can help auditing teams find solutions to these issues by centralizing data and aligning it to business frameworks. Streamlining data around ESG topics and metrics simplifies data collection and information management. The tools also build alignment for ESG frameworks across the company.
Trend 2: New Requirements for Audit-Ready ESG Reporting
As program management evolves and reports are published to meet the expectations of stakeholders, we also need to consider the audit process. Avoiding greenwashing and complying with disclosure requirements will be key. Teams need to ensure data accuracy is in place alongside the compliance and audits that are currently in action.
There is also a coming shift from voluntary to mandatory ESG reporting and disclosures. With the final text approved in November 2022, the Corporate Sustainability Reporting Directive will require sustainability reporting beyond what is required today. Through the European Sustainability Reporting Standards (ESRS), more than 50,000 companies will need to provide more detailed sustainability reporting according to the specifications. Meanwhile, data confidence is still a risk area. In a recent Deloitte survey of 300 finance, accounting, sustainability, and legal executives at public companies with more than $500 million in revenue, 57% of respondents indicated that data availability (access) and data quality (accuracy or completeness) remain their greatest challenges with respect to ESG data for disclosure.
Teams are being asked to provide assurances that ESG data is accurate and audit-ready. Centralization, evidence collection and audit logs are critical. A challenge for teams today can be the lack of confidence in data accuracy. Manual, inconsistent evidence collection persists. Multiple requests are often sent to the same people for the same data. Questions exist regarding where data is coming from and who has vetted it, as risks of greenwashing and erroneous data reporting continue.
Technology can help teams with data accuracy by simplifying evidence collection and reporting. By using ESG data aggregation tools and simplifying data collection while maintaining records on provenance, many of these problems are solved.
Trend 3: ESG Emerging as a Key Part of Risk Management
ESG risks are included in your overall risk strategy — this is a given. It’s mission critical, and organizations are reporting globally that this is a top issue, with boards of directors responding. As Gartner reports, organizations around the globe cite ESG concerns as a top risk. In addition, board priorities are shifting to include alignment in risk strategies and ESG. Currently, 72% of boards are aligning risk, strategy, and performance to drive business resilience.
There is a lot of growth opportunity for risk professionals in this category. Your teams can drive success for the business strategy by including ESG as a part of your risk management program and advising on ESG risks and opportunities. Significant challenges remain in this arena, including resource/budget constraints, a consistent lack of enterprise-wide views on risk and mitigation plans, and a lack of materiality assessments ahead of priority setting. Teams may also be unaware if they are meeting compliance needs.
ESG technology solutions can help to evaluate materiality, risks, and business opportunities. For organizations who perform materiality assessments only once every three years due to bandwidth constraints, technology can enable much more frequent materiality assessments to help ensure you are focusing on the topics that are the highest priority to your stakeholders. Using technology, risk management team members can better identify risks and opportunities — as well as track areas of improvement — and easily share results across the organization to help build awareness.
ESG Solutions for Your Organization
Customers are telling us that centralization, evidence collection, and audit logs are important to meet the new requirements put on audit teams. As with all risks and problems, there are also opportunities and solutions. For many of you advising the business on ESG risk, having a hand in business strategy can be a newfound opportunity for growth. AuditBoard’s ESG solution streamlines your end-to-end ESG program management and ensures that data is audit-ready. Schedule a tailored product walkthrough to learn how your organization can maximize the value of your ESG data — and value for stakeholders.