Analyst Insight: Organizations face multiple obstacles in meeting stakeholder demands for ESG reporting, including the wide scope of required metrics, internal and external barriers to accessing and managing data, and challenges around setting and reaching sustainability targets. Those who can find ways to become more effective at providing transparency and executing ESG initiatives will gain market differentiation while creating positive societal benefits. 

Environmental, social and governance (ESG) reporting has become increasingly complex, encompassing an ever-widening range of measures and sources. And the demand for this reporting has grown, with regulatory agencies as well as customers, investors and supply chain partners requiring not only accurate and timely data, but also evidence that organizations are making progress on their sustainability promises.

The top challenges organizations say they are facing in effective reporting include:

Size and scope of reporting requirements. Given the wide range and needs of stakeholders, the scope of ESG reporting topics is broad and the number of measures is large. At the median, organizations report 50 environmental and 60 social metrics annually, according to a recent APQC study. These numbers suggest organizations should evaluate whether stakeholder questions are being answered sufficiently, and if there might be metrics included that aren’t painting a clear picture or that are unnecessary.

Data integrity and availability. The size and scope of reporting metrics require organizations to pull data from disparate sources and systems that often lack integration. A quarter of those surveyed report difficulty finding energy and emissions data both inside and outside the organization, and 32% say they must collect their ESG data manually, requiring significant time and resources. 

Less than half say they are reporting sustainability data from their suppliers, which is surprising given the increasing public pressure for responsible sourcing. And just 30% of firms believe they can rely on trustworthy ESG data, underscoring the need for technological and process innovations to enhance data accuracy and availability.

Setting and implementing targets. Only 19% of organizations report successfully integrating ESG considerations into their daily operations. And, despite the time and resources spent gathering and collecting data, at the median, organizations report that only 50% of their reporting measures include corresponding targets. In some cases, this may be intentional, such as where planned targets are not intended for public disclosure. But without a goal, a measure has little impact on performance. Organizations should ensure they are setting targets, at least internally, and monitoring progress on their highest-priority ESG goals.

Additionally, many report a lack of education and understanding among employees about sustainability measures and their importance — fully 76% report a significant gap in knowledge among their staff about how to implement ESG strategies. To empower their employees to effect change, organizations that wish to go beyond mere compliance are investing in education to impart skills and share knowledge of how ESG efforts can provide a competitive advantage and positive global impact. 

Outlook: The demands of ESG reporting and the overall scarcity of high-quality data will require organizations to rely on emerging technologies and enterprise applications that allow them to enhance transparency and accountability along the supply chain. In addition, the current gap between intention and execution highlights the need to foster a corporate culture of responsibility, and to incorporate sustainability into everyday business processes. 

Resource Link: www.apqc.org