With the increasing ESG reporting requirements due to emerging national and international standards, companies face the challenge of meeting varying disclosure obligations. This can expose organizations to compliance risks, drive up operational costs, and overburden staff responsible for reporting, explained the Conference Board in a new report.
“International ESG disclosure will continue gaining momentum—and many companies are not fully prepared to successfully navigate its unique complexities," said Anuj Saush, coauthor of the report and leader of The Conference Board EU ESG Center, in a statement. "Effective reporting and compliance require a multi-layered governance structure, entailing internal groups that are accountable to each other and coordinate across the company.”
The challenges posed by this regulatory landscape can be broadly categorized into three areas:
1—Rapidly Evolving Regulations and a Variety of Reporting Frameworks/Initiatives
The landscape of ESG disclosure regulations is constantly changing, with new requirements and standards emerging at both the national and international levels:
- Despite efforts to harmonize or ensure interoperability between various ESG reporting frameworks and initiatives, differences still exist. These differences lead to a lack of comparability between reports, double reporting, and higher workloads.
“Companies that proactively track evolving regulations will be better positioned to adapt and comply," said Rebecca Grapsas, partner and co-leader of the ESG & Sustainability practice at Weil, Gotshal & Manges LLP, in a statement.
" To meet future requirements, firms must identify the necessary team skills and capabilities, and allocate the right resources to manage compliance effectively. Assessing global trends, business requirements, and best practices will also help consolidate information, track the status of disclosures, and identify implementation gaps.”
2—Internal and External Alignment
ESG reporting requires involving the entire organization, as cross-functional data is crucial for compliance. It also requires alignment beyond company walls, extending to suppliers:
- Ensuring all departments meet ESG reporting standards can be challenging, as many may not have previously been subjected to the same strict data collection and/or reporting requirements.
- Moreover, cross-functional collaboration requires breaking down departmental silos and fostering collaborative efforts.
- Companies are increasingly required to assess material sustainability impact throughout their supply chain and ensure reliable disclosures. For example, the European Union Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) call for a significant uplift in supplier due diligence.
“To achieve internal and external alignment on sustainability reporting, bridging the ESG knowledge gap is essential," said Merel Spierings, coauthor of the report and senior researcher at The Conference Board ESG Center, in a statement. "Stakeholders hold diverse viewpoints on ESG definitions, practices, regulations, and reporting. Companies must proactively foster ESG knowledge and proficiency across all organizational levels to establish a common language and terminology to avoid potential confusion.
3—Complex Data and Resource Management
Fragmented data collection and reporting processes can create delays and inconsistencies when adapting to new ESG disclosure requirements, including international ones:
- Managing the extensive data required for ESG reporting involves assessing data availability and quality against disclosure requirements, identifying new data and data owners within the organization, building data exchange systems, and ensuring accuracy of disclosed information.
