While 76% of finance leaders in companies around the world now back the need for globally consistent ESG standards, obstacles remain on the way to improved reporting, said EY recently when releasing its 2021 EY Global Corporate Reporting Survey.
The report, now in its eighth year, canvasses the views of more than 1,000 finance leaders from companies spanning 14 sectors and 26 countries, according to EY.
- 74% believe globally consistent ESG standards must be mandatory.
- 74% of finance leaders say they believe that the move toward better nonfinancial reporting is gaining momentum, and many cited the COVID-19 pandemic as a key factor in this acceleration.
- There is also a strengthening view among finance leaders that ESG is a significant part of their role – 70% of those surveyed believe this to be the case now, up from 63% last year.
- 39% say there is a disconnect between ESG reporting and mainstream financial reporting
- 38% pointed to a lack of focus on material issues; and the same proportion observed that there is a lack of information on long-term value.
- 33% said they believe that a lack of real time information is an obstacle, while 32% highlighted the absence of any forward-looking disclosure.
The No.1 barrier
Finance leaders say that the No. 1 barrier to producing useful ESG disclosures is “getting clarity from investors on what they want from ESG reporting.”, according to EY.
In addition, the survey exposes 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, EY said.
For example, 50% of investors surveyed in the EY organization’s recent Institutional Investor Survey are worried about the lack of focus on material issues, and 51% worry about the level of information available on long-term value, the firm added.
Investors are also more likely than corporations to want mandatory global standards – 89% compared to 74%, according to the same study.
The 2021 EY Global Corporate Reporting Survey also highlights an urgent need for companies’ finance teams to address major obstacles to improved reporting.
Asked to name the primary challenges to producing useful and effective ESG data and disclosures, 31% mentioned a lack of reliable systems for aggregating and analysing ESG data, EY pointed out.
Talent and skill issues
There is also a clear need to address issues with talent and skills, EY advised.
Survey results indicate that 17% of the leaders said that the main problem they face is that that finance professionals appear 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 prioritising 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%), EY noted.
“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,” said Tim Gordon, EY Global Financial Accounting Advisory Services Leader.
Finance functions and their leaders have a critical role to play in advancing this change, he noted.
“The COVID-19 pandemic has been unsettling in many ways, not in least in terms of the impact it has had on working patterns,” Gordon said. “It has also shown finance leaders how agile their teams can be in responding to major disruption. There’s a real chance now for finance leaders to harness that momentum to engage on the ESG agenda across their organisations including their C-suite peers while building out the skills and technology they need to deliver enhanced reporting.”