Prepare for an Unwelcome Surprise as ESG Reporting Becomes More Likely

The concept of environmental, social, and governance (ESG) reporting recently gained significant traction. ESG reporting includes the data, tools, processes, and standards used in preparing non-financial reports that reflect an organization’s impact on the planet, people (both inside and outside the organization), and its approach to running and governing the organization. It also includes the potential impacts of environmental and social factors on the long-term sustainability of the organization.

Most organizations do not prepare ESG reports. Only 32 percent of organizations produce ESG reports, and 50 percent of respondents report either no plans to adopt ESG reporting or not knowing how to approach it.

Lack of adoption is understandable. ESG reporting currently is optional and confusion reigns since organizations potentially can use an alphabet soup of potential frameworks for ESG reporting. Because any one set of standards may be superseded in the future, many organizations find it hard to choose which ones to consider adopting. Also, ESG reporting does not represent a priority for most organizations. Early adopters are primarily organizations that see reputational value in producing ESG reports. However, many organizations remain skeptical that ESG reporting benefits outweigh the costs.

Data leaders in organizations that have not yet adopted ESG reporting (and have no immediate plans to do so) most likely feel it is nothing to worry about for now. However, because the regulatory landscape is changing significantly, data leaders in these organizations may soon face an unwelcome surprise in ESG reporting. Many organizations could face a regulatory requirement to produce ESG reports within the next 12 to 18 months. Many management teams likely are unaware of this.

Mandatory ESG reporting requirements could challenge many organizations because the data required to support ESG reporting is complex and not easily sourced from existing reporting systems. Successful completion of ESG reporting therefore likely would require additional investments in data management and reporting.

However, data leaders in organizations that are skeptical about ESG reporting should not immediately seek to fund and create a comprehensive ESG reporting initiative. Although the imposition of mandatory ESG reporting likely looms, mandatory ESG reporting could be further delayed or even dropped in some jurisdictions.

Consequently, data leaders in organizations that have not yet adopted ESG reporting should prepare the groundwork for an ESG reporting project without committing significant time and resources. They need to be ready to act—likely with limited notice—if regulators impose ESG reporting on them. Data leaders can do this by learning some key lessons from the early adopters of ESG reporting and by monitoring the progress of key regulatory ESG standards.

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