Dive Brief:

• More than two out of three senior executives (35%) identify shoddy data as their biggest challenge as they try to gauge company performance in meeting environmental, social and governance (ESG) best practices, Deloitte found in a survey. One out of four executives said they lack access to essential data.
• Ninety-nine percent of companies will probably invest in more technologies and tools related to ESG measurement and reporting during the next 12 months, according to the Deloitte survey, which coincide with plans by U.S. regulators to require detailed disclosure on climate risks.
• Nearly three in five executives (57%) said they have created a cross-functional ESG working group compared with 21% in a 2021 survey, Deloitte said, describing the results from 300 respondents in a range of industries. Forty-two percent of executives said they currently are launching such a working group.

Dive Insight:

The Deloitte survey indicates that CFOs and their C-suite colleagues have stepped up efforts at ESG measurement as the Securities and Exchange Commission (SEC) considers changes to a proposed rule requiring companies to provide detailed disclosures on carbon emissions and climate risk.

The SEC aims to mandate that companies describe on Form 10-K their strategy toward climate risk, including plans to achieve any targets they have set for curbing such risk.

Companies would also need to disclose data on their greenhouse gas emissions, either from their facilities or through their energy purchases, and obtain independent attestation of their data.

Under a regime of uniform climate risk reporting, businesses would gain detailed insights into potential costs and opportunities and investors will be able to better gauge risks at specific companies and compare risk levels across industries, according to SEC Chair Gary Gensler.

The SEC has drawn fire for overreach and onerous rulemaking from lawmakers, industry groups and from within the agency itself.

Some requirements under the rule “could be extremely challenging from a compliance perspective and of limited or negative value to investors,” SEC Commissioner Hester Peirce said in a speech Wednesday. “The proposal would roughly quadruple the external costs of preparing the form S-1 and Form 10-K,” Peirce said, quoting SEC Commissioner Mark Uyeda.

The rule would not necessarily yield reliable and consistent data for investors, Peirce said. “The proposal, much of which is rooted in conjecture, instead could bring investor confusion.”

“Companies could face quite a task in collecting the data they need to make the required disclosures,” Peirce said, citing a letter to the SEC from the Food Industry Association. “Companies will have to do the best they can with whatever information they can glean, but we should not expect those results to be particularly reliable,” she said, flagging the challenge of measuring greenhouse gas emissions (GHG).

Only 37% of executives are prepared to report so-called Scope 3 GHG emissions by vendors, suppliers and other organizations across their companies’ supply chains, Deloitte said. “The top challenges to Scope 3 GHG emissions details today include lack of confidence in the quality of data from external vendors (51%) and lack of data availability (41%).”

Detailed ESG reporting will bolster hiring and retention of talented employees, boost efficiency and return on investment, and strengthen trust among stakeholders, most of the executives said.

“Standardized disclosure protects investors, facilitates capital formation and ensures efficient and orderly markets as U.S. companies improve risk management and their ability to compete in a transitioning economy,” according to a Dec. 12 letter to SEC Chair Gary Gensler from five pro-sustainability business groups.

Deloitte in August and September surveyed 300 senior finance, accounting, sustainability and legal executives at publicly owned companies with minimum annual revenues of $500 million.