A majority of company finance leaders globally say that they are concerned about perceived greenwashing risks from sustainability reporting in their industries, and most do not believe that their organizations will hit their major sustainability ambitions, as nearly all report problems with the integrity of their nonfinancial data, according to a new survey released by global professional services firm EY.
For the report, EY’s 2024 Global Corporate Reporting Survey, EY surveyed 2,000 finance leaders including CFOs and financial controllers across 30 countries globally, in addition to 815 institutional investors.
The report comes as companies are facing increasing pressure to provide high-quality sustainability reporting, both from regulators, as well as from investors, with the survey finding that more than two-thirds (69%) of finance leaders reporting that investors are asking more questions over the past two years about nonfinancial value drivers, with sustainability as the most prominent area of focus.
Investors agree that they are gearing up to increase focus on sustainability issues, with 43% now reporting that they employ full-time sustainability analysts, and 25% anticipating that the number of sustainability analysts in their organizations will be “increasing a lot” over the next 2 years.
As pressure to provide sustainability-related information to investors builds, however, the survey found that finance leaders appear to lack confidence in their organizations’ sustainability reporting capabilities, with 96% reporting some problems with the nonfinancial data that they receive for reporting, and 55% believing that their industries’ sustainability reporting lacks credibility and risks being perceived as including elements of greenwashing.
The top nonfinancial data problems reported by finance leaders include varying data formats, cited by 39%, data inconsistencies (35%), incomplete data (34%) and unclear data definitions (33%). Other challenges included incorrect and out-of-date data, with only 4% reporting not encountering any of these problems.
Additionally, less than half of finance leaders reported that they believe that their organizations are very likely to hit their major sustainability priorities and targets, such as net zero.
Matt Bell, EY Global Climate Change and Sustainability Services Leader, said:
“As CFOs become more involved in sustainability reporting, their awareness of the immaturity of the reporting mechanisms used in the nonfinancial area has grown. While it’s relatively easy for an organization to put in place an ambitious sustainability target, once finance leaders start drilling into the data — and they see how much needs to be done to bridge to a target — their conservative tendency perhaps starts to kick in, with a healthy skepticism about the organization’s ability to hit those commitments.”
While finance leaders expressed concerns about the integrity of their sustainability data, the survey found that investors expressed confidence in the ability of emerging reporting regulations and standards to help, with 78% saying that these factors could have a positive impact on the accuracy and comparability of companies’ sustainability disclosures.
Both groups also anticipate that external assurance will help improve the situation, with 76% of investors reporting that independent third party assurance would boost their confidence in companies’ nonfinancial reporting credibility and accuracy, and 78% of finance leaders saying that either reasonable or limited assurance by an independent third party would positively impact investor confidence.
Emerging technology solutions are also seen as being likely to help increase confidence, with more than half (57%) of investors reporting that AI would be “very useful” in assessing the credibility and accuracy of disclosures. While investors are looking to technology to solve reporting credibility problems, however, less than a third (32%) of finance leaders said that they currently have high-grade technology in place for managing and analyzing data, with only 43% enthusiastic about the use of AI in corporate reporting, 29% hesitant about AI until the risks are better understood, and 39% concerned with limited IT budgets.
As sustainability reporting demands increase, the survey found that companies are increasingly assigning “ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. controllers,” including 36% of finance leaders reporting that their organizations already have this role in place, and a further 58% saying that they plan to establish this role in the future, including 26% planning to do so in the next 12 months.
Dr. Velislava Ivanova, EY Global Strategy and Markets Leader, Climate Change & Sustainability Services, said:
“My experience is that finance leaders are primarily concerned about the lack of rigorous, data-enabled reporting. In the past, sustainability professionals were producing reports with a wide range of stakeholders in mind, from employees to customers, which were often narrative-based. But Finance comes at it from a different angle. Their background is generally in financial and regulatory reporting, where you report against mandatory standards and defined metrics. Finance leaders are highlighting the difficulty of producing credible reporting disclosures due to the highly complex nature of sustainability topics and the overwhelming amount of reliable data required for the new mandatory sustainability reporting.”
Click here to access the report.