Consistent environmental, social and governance standards are gaining support internationally, according to a new poll.
The EY Global Corporate Reporting Survey of 1,000 finance leaders found that 76% of finance leaders now back globally consistent standards for ESG reporting, and 74% want the standards to be mandatory. In addition, 74% of finance leaders agree that the drive toward. better nonfinancial reporting is accelerating, and that it has accelerated since the COVID-19 pandemic.
The survey comes as the International Financial Reporting Standards Foundation is in the process of setting up an International Sustainability Standards Board that will include some of the existing standard-setters, including the Value Reporting Foundation (itself a combination of the Sustainability Accounting Standards Board and the International Integrated Reporting Council) and the Climate Disclosure Standards Board.
The survey found that 30% of finance leaders say the volume of data is a major challenge, and 26% worry about data quality, but 16% don’t believe their business has the necessary skills to address these issues.
There is also a growing view among finance leaders that ESG has become a significant part of their role, with 70% of respondents believing this to be the case now, up from 63% in the same survey last year.
“It decreases by the day,” said Marie-Laure Delarue, EY global vice chair of assurance. “The investors really need to decrease the gap on materiality. There is a gap between what the investors feel is useful and what the finance organization is producing. There is a need for much more data. I think we need to extract the best information both internally and externally because the finance organization is eventually going to be the custodian of all the ESG metrics, progress and targets. The skills and also the data and the whole infrastructure that is producing nonfinancial information is as complex as producing financial information, and for the moment the data collection, controls, the way you consolidate, receive and review information, is kind of a blank sheet of paper."
"There is no doubt that the drive toward improved sustainability reporting is gaining momentum in businesses around the world," she continued. "Companies increasingly recognize the crucial need for globally consistent standards, and they can see the benefits of making the rules compulsory. But there is a steep mountain to climb. If businesses are going to meet the needs of investors and other key stakeholders, and if they are going to build real trust in the data, they need to give ESG reporting the same prominence as financial reporting. There is a vital role for finance teams to play here, but it’s no mean feat and will need a much more acute focus on material issues.”
The survey found a number of challenges faced by companies in providing useful ESG reporting. While over one-third of the respondents (39%) say there is a disconnect between ESG reporting and mainstream financial reporting, 38% perceive a lack of focus on material issues. The same proportion see a lack of information on long-term value.
One-third (33%) of the respondents view a lack of real-time information as an obstacle, while 32% cited the absence of any forward-looking disclosure. Finance leaders believe the No. 1 barrier to producing useful ESG disclosures is “getting clarity from investors on what they want from ESG reporting.”
The survey identified a gap between the views of companies on the usefulness of their reporting and the perspective of investors, who use the information from companies to make decisions on their portfolios. For example, 50% of investors surveyed in EY’s recent
“Companies are clearly starting to address the challenges that they face on sustainability reporting, but there is an urgent need for them to do more,” said EY global financial accounting advisory services leader Tim Gordon in a statement. “Finance leaders need to be clear on the role they and their teams can play within their organizations. They should also look at how they can drive transformation and collaborate more effectively across their organizations from board members to chief sustainability officers to demonstrate how long-term value is being created.”
The 2021 EY Global Corporate Reporting Survey found an immediate need for companies’ finance teams to address major obstacles to improve reporting. When asked to name the main challenges to producing useful and effective ESG data and disclosures, 31% cited a lack of reliable systems for aggregating and analyzing ESG data. They also see a clear need to address issues with talent and skills, with 17% of the finance leaders who responded to the survey noting that the main problem they see is that finance professionals seem to be unwilling to adapt to changing needs, while 16% pointed to a skills shortage in relation to data, and 12% were concerned about a lack of technology to address current and future challenges.
To address their data needs, businesses are prioritizing investment in analytics, with planned spending across several key areas including advanced and predictive analytics (39%), cloud-based tools (38%), AI (36%), robotics/automation (29%) and blockchain (25%).
“The skills gap in relation to data is clear and needs to be addressed urgently if companies are to make progress on corporate reporting,” Gordon added. “We know that finance leaders recognize the need to develop their business’ understanding of advanced technology and data analytics, but what’s needed now is action to ensure that businesses are future-proofed.”
