Dive Brief:
- Most U.S. CFOs and other senior executives (57%) view securing high quality data as the No. 1 challenge in meeting the rising demand for disclosure on business sustainability, Deloitte found in a survey.
- Four out of five (82%) executives say they need to reinforce company capabilities to provide detailed reports on environmental, social and governance (ESG) performance for stakeholders such as investors and the Securities and Exchange Commission (SEC), Deloitte said.
- Only 21% of respondents said their companies have created an in-house ESG working group across operational, legal and human resources divisions, while 57% said they plan to do so, Deloitte said. Nine out of 10 (92%) of executives say their companies need to increase spending on technology to ensure reliable ESG measurement, reporting and disclosure.
Dive Insight:
CFOs face rising pressure from the SEC and investors such as BlackRock, State Street and Vanguard to provide detailed reports on company efforts to align with the principles of sustainability, both internally and with external stakeholders.
The SEC on Monday released a proposal that would require companies to provide uniform, comparable disclosures on climate risk. Before a 3-1 commission vote approving the initiative, SEC Chair Gary Gensler said that investors with $130 trillion in assets under management have pushed for expanded disclosure.
If the SEC enacts the proposal after a comment period ending May 20, companies would need to describe on Form 10-K their governance and strategy toward climate risk and their plan to achieve any targets they’ve set for curbing such risk.
Companies would need to disclose their greenhouse gas (GHG) emissions, including so-called Scope 1 emissions from their facilities and Scope 2 emissions related to their energy purchases. They would also need to obtain independent attestation of their data.
Larger companies would be required to report on so-called Scope 3 emissions by their suppliers, vendors and other third parties across their supply chains. Such reports would be phased in, subject to safe harbor protections and, at the outset, not required of smaller companies.
“Businesses with sizable Scope 3 footprints are likely to push back the most on the proposed rule,” Goldman Sachs said in a report. “These rules would represent a higher bar, not only for U.S. companies but foreign issuers listed in the U.S.”
Although regulators, environmentalists and businesses disagree on the value of reporting Scope 3 emissions, they generally agree on the difficulty of gathering such information compared with Scope 1 and Scope 2 information.
“There’s a lot of tension among stakeholders as to the value of reporting Scope 3 emissions from the company’s standpoint,” Matthew Dobbins at Vinson & Elkins said in an interview. “There’s a lot of pros and cons on both sides.”
Measuring Scope 3 “is a significant exercise potentially to identify and disclose all the emissions involved in your value chain,” he said, noting the problem of double counting.
The Deloitte survey results affirm the challenge that CFOs and other top executives see in mining credible GHG data.
“While companies are setting ambitious climate and ESG goals, leaders remain cautious about their ability to deliver on rising disclosure requirements in a consistent and timely way,” Deloitte said.
While 58% and 47% of CFOs and other senior executives are prepared to report Scope 1 and Scope 2 emissions, respectively, only 31% are ready to disclose Scope 3 emissions, according to Deloitte.
Eight of 10 senior executives are unsure whether they have enough staff to meet stakeholder expectations on ESG, Deloitte said. Three out of four plan to obtain assurance over sustainability disclosures in the next reporting cycle.
During the fourth quarter of last year, Deloitte surveyed 300 senior finance and accounting executives, general counsels, chief legal officers and chief sustainability officers at public U.S. companies with annual revenues exceeding $500 million.
