High insurance and financing costs are amongst the biggest threats associated with weak measurement and recording processes.
Almost all large businesses in the UK have suffers commercial damage of some kind due to poor environmental, social and governance data sets. Meanwhile, 59% say they do not trust the information they hold on performance in these areas.
Published by Dcycle, the new report takes in responses from 500 c-suite and senior staff working in ESG, finance, risk and IT. All worked at organisations which have more than 1,000 members of staff. Based on this, despite the vast majority of those in the study claiming they treat environmental and governance reporting with the same rigour as financial data, 95% said they had recorded some form of commercial damage due to the low quality of information held. This is despite the same proportion claiming their data would stand up to regulatory scrutiny.
Overall, less than one-third of businesses kept their ESG data with a dedicated sustainability team, and 23% suggested there was no clarity on who ‘owned’ that information. Tools involved in measurement and reporting added to the overly-complex situation, with an average of six platforms being used by companies to complete their records, although almost half of those in the study said they were relying on seven or more systems.
Thanks to this confusing landscape, just 34% said they felt in control of this data, and even less — 12% — felt confident in being able to respond to new requirements in a matter of weeks. The average estimated time to implement any measurement and reporting changes stipulated by new legislation was 2.65 months.
All of this is despite the fact one-in-five companies considers ESG to be a primary driver of revenue growth. This is backed up by reports about organisational impact, with 44% of respondents suggesting poor data led to higher insurance or financing costs, 42% pointed to lost or delayed contracts, and 41% said there had been complications with mergers and acquisitions.
The survey points to a significant shortfall between what is currently required by law, and what industries including insurance are now looking for in order to safeguard their policy liabilities. At the same time, the current extent of compulsory reporting is clearly challenging many organisations, emphasising how important it is to have dedicated teams.
‘There’s a dangerous gap emerging between perception and reality,’ commented Juanjo Mestre, co-founder and CEO of Dcycle. ‘Businesses are confident their ESG data would stand up to scrutiny, yet almost all have already experienced financial consequences linked to poor data. When ESG information is spread across multiple systems and ownership is unclear, organisations expose themselves to contract losses, financing pressure and deal disruption.’
‘Regulatory expectations will continue to evolve, whether companies feel ready or not,’ he continued. ‘Confidence won’t protect revenue, but better control will do. The organisations that treat ESG data with the same discipline as financial data, with clear governance and robust infrastructure, will turn compliance pressure into competitive advantage.’
Image: Apex Virtual Education / Unsplash
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