Approximately three quarters of public companies report that they are likely to invest in new technology or tools to help improve their ESG disclosure capabilities over the next year, as nearly all companies are preparing to meet increased reporting requirements, yet data quality remains the top ESG challenge, according to a new survey released by global professional services company Deloitte.

For the study, “2024 Sustainability Action Report,” Deloitte surveyed 300 executives, including senior finance, accounting, sustainability, and legal executives, at publicly owned companies with revenue of at least $500 million, and across a broad range of sectors including consumer products, financial services, life sciences and health care, oil & gas, and technology, media, & telecommunications.

The report found that virtually all – 99% – of companies are preparing for increasing disclosure requirements, following the release of a series of new regulatory sustainability reporting mandates and standards, including the EU’s CSRD, the IFRS’s ISSB standards, California’s new climate reporting laws, and the SEC’s climate disclosure rule.

One of the key areas of sustainability-related development highlighted by the survey was the formation of cross-functional ESG teams at many companies, with 52% of respondents reporting already having such teams in place, and nearly all others, 46%, reporting that that they are in the process of establishing or making plans for these teams. Among companies that have already established cross-functional ESG teams, 98% report that the teams meet at least quarterly, and 43% at least monthly.

The report found that the formation of cross-functional ESG teams appears to have a significant impact on sustainability progress and preparedness. While 98% of companies report that they have made at least some progress towards their sustainability goals and targets over the past year, for example, 38% of those with a cross-functional ESG team describe their progress as “significant,” compared to only 10% of those without such teams.

Similarly, while 92% of companies report that they are taking steps to actively prepare for potential increased ESG regulatory or other disclosure requirements, 52% of those with cross-functional ESG teams said that they are “preparing extensively now,” compared to only 24% of those without the teams in place.

The report highlighted the key steps that companies are taking to prepare to meet growing ESG reporting requirements, most notably including investments in technology and human resources. The survey found that 74% of respondents believe that their companies are somewhat or very likely to invest in new technology or tools to enable more timely and higher-quality disclosure, and nearly all, 99%, have already or plan to enhance internal mechanisms to promote preparedness for future disclosure requirements. Additionally, more than three-quarters of respondents said that they have created new roles and responsibilities to prepare for increased ESG regulatory or disclosure requirements.

One of the key findings of the survey was an increase in executive responsibility in recent years in executive oversight of sustainability reporting, and a particular rise in the role of the Chief Sustainability Officer (CSO). According to the report, 55% of respondents said that the CSO has management responsibility for ESG disclosure, compared to only 42% in a similar survey in 2022. Additionally, 42% said that management responsibility for ESG disclosure includes the executive leadership team, compared with 31% prior, and 41% with general counsel, up from 26%.

Despite the increased investment in technology and tools, data quality remains the top cited challenge with respect to ESG data, reported by 88% of respondents as a top three challenge, followed by 81% citing processes and controls including documentation, review, and sign-off.

The study also found that executives anticipate a series of benefits from enhanced ESG reporting. When asked to select the top three expected business outcomes from enhanced ESG reporting, 53% of respondents cited reduced risk, followed closely by increased efficiencies and ROI at 52%, talent attraction and retention at 51% and brand reputation at 51%.

Kristen Sullivan, Audit & Assurance Partner, Sustainability and ESG Services at Deloitte & Touche LLP, said:

“The creation of dedicated ESG teams, the rise in specialized roles, and investments in sustainability reporting, all indicate a strategic shift toward embedding sustainability into their core operations. While challenges still exist, the commitment to sustainability is becoming more evident as companies continue to unlock the potential of ESG insights.”

Click here to access the survey.