Environmental, social, and governance (ESG) reporting represents the lowest-priority capability in enterprise performance management (EPM), with 25 percent of respondents viewing ESG reporting as unimportant. However, organizations that consider ESG reporting potentially important also tend to defer addressing it. Different approaches taken by regulators around the world and the varying timeframes for implementation of these standards strongly contribute to this general lack of urgency regarding ESG reporting. Many data leaders understandably remain confused about ESG reporting and hesitate to allocate their often-scarce budget resources to ESG reporting projects until the regulatory landscape becomes clearer.
However, many organizations may face the need to comply with ESG reporting requirements sooner than expected. Although the ESG reporting requirements proposed by the U.S. Securities and Exchange Commission (SEC) are on hold pending legal challenges, the first mandatory ESG reporting standards come into effect in the European Union (EU) in 2025. These rules apply not only to organizations based in the EU, but also non-EU organizations that have their securities traded on a regulated EU exchange. Also, from fiscal year 2028, non-EU organizations with a net turnover in the EU greater than €150 million may have to provide EU ESG reporting.
Although other jurisdictions lag the EU regarding ESG reporting standards, many are close to introducing them. For example:
- In March 2024, the Canadian Sustainability Standards Board issued Exposure Drafts of the proposed CSDS 1 and CSDS 2 regulations—based on International Financial Reporting Standards (IFRS) S1 and IFRS S2—with proposed adoption starting January 1, 2025
- The U.K. government plans to finalize U.K. Sustainability Reporting Standards (also based upon IFRS S1 and IFRS S2) by 1Q25
Despite a looming slew of ESG regulations, a concerning 56 percent of organizations worldwide do not know how they will source ESG reporting capabilities. This perception shows a level of unpreparedness that could create challenges for data leaders because ESG reporting fundamentally is a business intelligence (BI) issue. Data leaders will not be able to leave ESG reporting to the finance and / or compliance functions to sort out. ESG reporting is complex, requiring a combination of data-capture capabilities, data management and aggregation capabilities, and modeling and reporting tools that can address ESG regulations.
Organizations can address ESG reporting using different approaches. Building ESG reporting capabilities in house represents an obvious option. However, our data show organizations increasingly prefer packaged solutions from EPM vendors, specialist ESG / compliance vendors, and even will consider using BI / analytics vendors. However, vendor hype abounds and identifying how to source the right mix of ESG capabilities remains challenging for many organizations.
Data leaders therefore need to define their sourcing strategies for ESG reporting so they do not get caught off balance when the business “wakes up” to the need to address ESG reporting (most likely in response to an externally imposed deadline). They should not wait for such a trigger event, and can start working on strategies proactively without first needing to dedicate significant resources.
In organizations whose management teams view ESG reporting negatively, data leaders can leave their initial ESG sourcing strategy work “on the shelf” until needed. Taking such a proactive approach ensures the organization can move quickly regarding ESG reporting when forced to comply. In organizations whose management teams take a more positive stance toward ESG reporting, data leaders should consider this perception as an opportunity to include ESG reporting in a broader EPM strategy so that ESG reporting complements and leverages existing EPM capabilities.
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