Dive Brief:
- In a study of executives across industries conducted by reporting technology platform Workiva, 74% of respondents said they believed complying with regulatory requirements will become “significantly more challenging" in the next year. Around two-thirds of respondents (67%) said they were concerned about their company’s ability to comply with new regulatory reporting requirements.
- Executives agreed on the need to combine financial and non-financial reporting to comply with regulatory requirements, including applying the same rigor to climate-related requirements they do for financial reporting systems, according to Mark Mellen, industry principal for ESG at Workiva.
- “The leading companies are doing this already, and that's a small 20% portion or so, and there's a lot of companies maybe in the middle that are thinking about this, and a lot of companies at the back that are dragging their feet,” Mellen told ESG Dive.
Dive Insight:
Mellen suggested the new SEC climate-risk disclosure rule, California’s climate disclosure laws, along with the implementation of the European Union’s Corporate Sustainability Reporting Directive, will add pressure on companies to refine their data collection, reporting and verification systems.
The SEC voted to approve a final version of its rule Wednesday, which excluded scope 3 reporting requirements and scaled back scope 1 and scope 2 reporting requirements.
“The challenge lies in how you prepare that disclosure in accordance with whatever rule or set of standards the rule requires,” whether it’s for the EU, California or attached to a company’s 10-K report to the SEC, he said. “To top off why next year is scarier is that it’s the first year of CSRD compliance for the largest organizations. You can think of the population of companies that will be subject to CSRD compliance [and] it almost becomes a de facto standard worldwide.”
Over 3,000 U.S. companies will be subject to the CSRD’s revenue and employee threshold standards, according to a Deloitte estimate. That does not account for other companies that may be required to report as members of other organizations’ supply chains.
Though some 91% of executives surveyed by Workiva said they agreed integrated financial and ESG reporting provides a more holistic view of performance, just over half (54%) of respondents said they currently had integrated reporting systems in place.
ESG and Investment Priorities
Despite the recent backlash against ESG, 82% of institutional investors surveyed said they haven’t changed how they make investment decisions, and 92% said ESG data is important for assessing a company’s long-term financial outlook.
“Combining or integrating [ESG and other] reporting helps the investor as well, if you're thinking about the investors who access all of their financial data in XBRL format from the SEC’s electronic EDGAR [electronic data gathering, analysis, and retrieval] system,” said Mellen.
(XBRL is the open international standard for digital business reporting that is a required format for certain SEC filing types.)
The role of technology
Though technology is viewed as a critical enabler for integrated reporting, 61% of respondents said data security was a barrier to adopting business reporting technology. Other recent studies, including a recent report from KPMG, found that companies also face data-collection hurdles, with nearly half using spreadsheets to manage their ESG data.
More than 80% of executives surveyed expressed optimism on the potential for generative artificial intelligence to help them meet regulatory requirements, including the ability to compare documents. Through these capabilities, generative artificial intelligence could help firms as they strive to meet multiple overlapping regulatory requirements, Mellen said. Among institutional investor participants, more than half (57%) said they used generative AI in their efforts to evaluate a company's financial performance.
Workiva commissioned research firm Ascend2 to carry out the study in December 2023, which included two custom online questionnaires, with feedback from 894 C-Suite executives and vice presidents, as well as 103 institutional investors across the U.S., Canada and Mexico.
