The 2021 EY Global Corporate Reporting Survey showed that 76% of finance leaders across some of the world’s major companies now back the need for globally consistent environmental, social and governance (ESG) standards and that 74% believe these standards must be mandatory.

Featuring the views of more than 1,000 finance leaders from companies spanning 14 sectors and 26 countries, the report also examined how businesses need to adapt in the face of major challenges, including the COVID-19 pandemic and technological change, in order to provide enhanced reporting.

The findings follow the COP26 announcement of the new International Sustainability Standards Board (ISSB), which will develop a comprehensive global baseline on sustainability disclosure standards to meet the needs of investors around the world.

COVID-19 has accelerated corporate reporting change

According to the survey, nearly three quarters (74%) of finance leaders say they believe the move toward better non-financial reporting is gaining momentum, and many cited the COVID-19 pandemic as a key factor in this acceleration. There is also a strengthening view among finance leaders that ESG is a significant part of their role – 70% of those surveyed believe this to be the case now, up from 63% last year.

“There is no doubt that the drive towards improved sustainability reporting is gaining momentum in businesses around the world,” says Marie-Laure Delarue, EY global vice chair. “Companies increasingly recognise the crucial need for globally consistent standards and they can see the benefits of making the rules compulsory.

“But there is a steep mountain to climb. If businesses are going to meet the needs of investors and other key stakeholders, and if they are going to build real trust in the data, they need to give ESG reporting the same prominence as financial reporting. There is a vital role for finance teams to play here, but it’s no mean feat and will need a much more acute focus on material issues.”

Blockers still in the way of ESG reporting

However, the survey also highlighted a number of challenges that companies face in providing useful ESG reporting. 39% say there is a disconnect between ESG reporting and mainstream financial reporting, 38% pointed to a lack of focus on material issues, and the same proportion observed that there is a lack of information on long-term value. A third (33%) said they believe that a lack of real-time information is an obstacle, while 32% highlighted the absence of any forward-looking disclosure.

Finance leaders say that the number one barrier to producing useful ESG disclosures is “getting clarity from investors on what they want from ESG reporting”, In addition, the survey exposes a gap between the views of companies on the usefulness of their reporting and the perspective of investors, who use the information from companies to make decisions on their portfolios. 

For example, 50% of investors surveyed in the EY’s recent Institutional Investor Survey are worried about the lack of focus on material issues, and 51% worry about the level of information available on long-term value. Investors are also more likely than corporations to want mandatory global standards – 89% compared to 74%, according to the same study.

Progress made, but an “urgent need” to do more

Discussing the survey results Tim Gordon, EY global financial accounting advisory services leader, said: “Companies are clearly starting to address the challenges that they face on sustainability reporting, but there is an urgent need for them to do more. Finance leaders need to be clear on the role they and their teams can play within their organisations. They should also look at how they can drive transformation and collaborate more effectively across their organisations from board members to chief sustainability officers to demonstrate how long-term value is being created.”

The survey also highlights an urgent need for companies’ finance teams to address major obstacles to improve reporting. Asked to name the primary challenges to producing useful and effective ESG data and disclosures, 31% mentioned a lack of reliable systems for aggregating and analysing ESG data.

Talent, skills and data gaps

There is also a clear need to address issues with talent and skills. 17% of the leaders questioned said that the main problem they face is that finance professionals appear unwilling to adapt to changing needs, while 16% pointed to a skills shortage in relation to data, and 12% were concerned about a lack of technology to address current and future challenges.

To address their data needs, businesses are prioritising investment in analytics, with planned spending across several key areas including advanced and predictive analytics (39%), cloud-based tools (38%), AI (36%), robotics/automation (29%) and blockchain (25%).

Gordon added: “The skills gap in relation to data is clear and needs to be addressed urgently if companies are to make progress on corporate reporting. We know that finance leaders recognise the need to develop their business’ understanding of advanced technology and data analytics, but what’s needed now is action to ensure that businesses are future-proofed.”

Click here for the full 2021 EY Global Corporate Reporting Survey.