The Workiva 2023 Global ESG Practitioner Survey reveals that 90% of surveyed practitioners agree that in the next two years, having a strong ESG reporting programme will give their organisation a competitive advantage.
However, in the here and now, the same study reveals that businesses worldwide are grappling with ESG complexity, with 71% of respondents acknowledging that three or more internal teams are involved in their company’s ESG reporting processes.
With 74% anticipating the need to comply with two or more global regulations, the Workiva study reveals a disconnect between what C-suite leaders know and what down-the-line managers see. For instance, 87% of C-suites claim to have dedicated staff to oversee ESG reporting, yet only 68% of managers say this is so.
More interestingly, 62% of executives claim their companies apply the same diligence to ESG reporting as they do to financial reporting. Only 32% of managers say the same.
Asia’s ESG journey
BlackLine regional vice-president for Asia, Nikhil Parambath, says Asia's business leaders are focusing on strategic initiatives for long-term growth, with an increasing emphasis on ESG compliance to build trust among stakeholders.
He notes however that while accurate ESG reporting is essential for informed decisions that drive shareholder value, Asia's ESG compliance landscape is still nascent. According to Deloitte organisations in Asia-Pacific (APAC) struggle with non-standardized, disparate data often managed on spreadsheets, leading to errors.
Complying with an evolving regulatory landscape
Parambath says the challenge gets harder as regulators introduce stringent ESG requirements and disclosure frameworks that emphasise the need for consistency and clarity across the supply chain.
Lekshmi Nair, chief revenue officer for corporate lending & global head of strategic accounts at Finastra says stakeholders, including government bodies, regulatory authorities, and investors, are increasingly engaging in dialogue to meet evolving ESG expectations and concerns.
“Efforts to standardise reporting practices are also underway, and we see firms investing in technology to enhance their disclosure capabilities. ESG integration has transitioned into standard business practice,” she adds.
On the downside, she says: “We see a lot of collaboration within the industry between peers, regulators and the state, but I do believe achieving uniform standards remains a work in progress.”
Ensure accuracy and transparency of ESG reporting
A Deloitte report, Preparing for high-quality disclosures, reveals that data availability (access) and data quality (accuracy/completeness) remain their greatest challenges concerning environmental, social, and governance (ESG) data for disclosure.
Nair observes that organisations are increasingly focused on ensuring accurate and transparent ESG reporting, driven by government policies, regulatory pressure, investor demand, and a growing fear of being accused of greenwashing.
“They are standardising KPIs to better compare ESG performance across different organisations, leveraging technology for complex operations and supply chain visibility, and actively engaging with regulators and governments to optimise reporting practices,” she continues.
Integrating climate-related risks into financial reporting
A survey by PwC Singapore and the National University of Singapore (NUS) Business School shows that there has been an overall rise in Asia Pacific (APAC) companies participating in climate-related risks and opportunities disclosure from 2021 to 2022.
In 2022 at the start of the euphoria around ESG, FutureCFO observed that CFOs in Asia showed keen interest in leading their organisation’s sustainability initiatives. As one CFO commented: “ESG determines the success of the company and the success of the CFO, so they are intertwined.”
Parambath opined that addressing climate-related risks and opportunities during financial reporting has become an increasingly important aspect of corporate transparency and sustainability.
He added that many businesses are enhancing their disclosures to include detailed information on how these factors may affect their operations and financial performance. This includes disclosing greenhouse gas emissions, assessing physical and transition risks, and identifying opportunities for innovation and growth in a low-carbon economy.
Enhancing the accuracy of ESG reporting
Asked how organisations are leveraging technology like cloud, AI and automation to enhance audit processes particularly and perhaps even improve the accuracy of reporting, Parambath recalls that when cloud software became mainstream, this provided a centralised, unified platform for accounting teams and auditors to collaborate more efficiently. “Now, with AI and automation, this has presented even more possibilities to make the audit process less tedious,” he opines.
On the topic of AI, Nair affirms that organisations are increasingly tapping into the potential of AI across a range of audit-related processes to enhance accuracy, monitoring and efficiency.
“AI and machine learning aid in risk assessment, audit prioritisation, and fraud detection and are now being integrated into real-time monitoring, which is more effective at identifying and addressing issues than periodic audits.”
Lekshmi Nair
Getting around the mess
Asia’s diversity of culture and language aren’t the only challenges facing businesses to operate across the region. Most Asian countries have extensive, stringent regulations, and non-compliance, with strict penalties for non-compliance.
Parambath notes that in Asia, there is a lack of regulatory coherence and consistency across jurisdictions. Coupled with the uptick in new regulations, laws, and guidelines, he says it has become harder and more expensive for businesses to comply.
“Given this challenge, partnering with strong local advisory organisations often offers the best path to staying on top of the changing regulatory environment and determining the best approach to maintaining compliance,” he adds.
“It is essential for businesses to conduct thorough risk assessments to identify the specific compliance risks and requirements for each market. Businesses can also leverage regulatory technology solutions that automate compliance monitoring, identify regulatory changes, and help organisations quickly adapt to new requirements.”
Nikhil Parambath
Bringing order to chaos
One of the challenges facing finance professionals trying to tame the data deluge that comes with ESG reporting is integrating financial with non-financial information into reports. Nair says organisations are looking to adopt internationally recognised integrated reporting frameworks to offer a comprehensive view of their financial performance and include non-financial key performance indicators in their annual reports.
“This is part of a growing effort to improve stakeholder communications to meet evolving expectations for better financial and non-financial information – internally and externally,” she adds.
Parambath says organisations are increasingly adopting integrated reporting, which is a framework combining financial and non-financial information to improve corporate transparency and accountability.
“The framework provides a holistic view of a company's performance, allowing investors and stakeholders to make informed decisions about the company,” he adds. “It also allows them to embed ESG goals and performance into mainstream reporting, as well as identifying and managing sustainability-related risks and opportunities.”
He suggests that to effectively implement the framework, companies need to ensure data quality by having robust data collection and verification processes in place. “Ensuring alignment amongst key stakeholders, implementing internal controls and strong governance will be crucial so that both financial and non-financial data are reliable,” he concludes.
To this end, Nair posits that automation is replacing outdated tasks, offering opportunities for more engaging roles, and aligning with the preferences of younger professionals entering the workforce. She concedes that while automation may decrease the need for human intervention, it also opens avenues for more sophisticated and appealing job roles.
Responding to the new reality
Nair says there is a vast opportunity for meaningful progress, there is also rising pressure to accelerate efforts to address climate change.
“One key challenge that a lot of organisations face is the pace at which understanding and innovation are changing, often outpacing regulatory developments,” she adds. “Clear, standardised regulatory frameworks would ease this burden. However, regulators still often have to play catch-up.”
Nair reckons that the uncertainty surrounding forthcoming regulations poses a challenge for clients in preparing adequately.
She posits that this dynamic environment requires staying ahead of the curve without full visibility of future requirements. “Collaboration between organisations, regulators, governments, and investors is crucial to navigate these challenges and establish standardised frameworks and KPIs,” she concludes.
