EY on sustainability reporting: Data, credibility and transformation
On April 5, EY hosted “How the Corporate Sustainability Reporting Directive will transform your organization,” a webcast featuring a three-person panel representing standards agencies, EY clients and EY experts. TBR took away three lessons from the hour-long session:
- Data remains the core challenge for companies looking to understand, manage and report their sustainability risks and mitigation approaches
- Regulators and companies share a near-term goal of bringing sustainability reporting up to the rigor and standards of financial reporting
- Achieving credible and consistent sustainability reporting can help companies transform, operationally and strategically
Always about the data
On the first point, panelist Patrick de Cambourg, president of the Accounting Standards Authority and chair of the EFRAG PTF-ESRS (European Financial Reporting Advisory Group Project Task Force on European Sustainability Reporting Standards), said that the core obstacle to more reliable and useful sustainability reporting relates to the lack of quality of sustainability data. He noted the regulatory bodies understand the need to “put an end to the alphabet soup” of sustainability reporting but have been stymied by poor and inconsistent data.
Panelist Laura Fernandez, from Telefonica’s Sustainable Finance and Climate Change office, added that data quality is critical, emphasizing the need to ensure data can be disclosed and verified by a third party and that it is reliable, accurate and understood internally and externally. Fernandez summed up her position on data by noting that challenges persist in part because data within a company is so decentralized, leading enterprises to seek help in improving and transforming internal information sharing and data management — an understatement, in TBR’s view, and a business case for EY’s sustainability reporting consulting services.
Reading sustainability reports like reading a 10-K
De Cambourg, of the three panelists, spoke at the greatest length on the second point: the shared need for sustainability reporting to reach the same degree of rigor, standard and credibility of financial reporting. Reaching that goal, he noted, requires transparency by enterprises and verification by auditors.
Again, TBR was struck by how succinctly a panelist made the business case for EY’s — and other Big Four firms’ — consulting services. Recent proposals from the U.S. Securities and Exchange Commission (SEC) and the International Sustainability Standards Board (ISSB) around climate-related disclosures suggest that enterprises need to begin approaching this not just as a voluntarily action but also as a looming regulatory issue. This, in turn, makes the business case for auditors much more of a reality and puts those companies that are building up expertise around data management, risk and sustainability in a better position to respond.
Sustainability is everyone’s business, and no one is prepared
If the data can be wrangled, de Cambourg said companies reporting verifiable and reliable data will make better operational decisions, more fully engage stakeholders, and establish and maintain trust across employees, clients, partners and others within a company’s ecosystem. Keys to realizing those benefits, according to de Cambourg, include offering governance, education and incentives for all management levels on sustainability goals, and implementing capable information and risk management systems. In short, all operational departments must understand and act on sustainability reporting requirements.
Fernandez noted that European Union (EU)-based companies not previously mandated to report sustainability metrics will likely be required to submit this information soon, even as they face data and change management hurdles. In her estimation, an abundance of use cases and the shared struggles of peers trying to meet the standards will provide lessons learned for other companies as they develop their own compliance road maps.
EY’s Christian Orth, the third panelist, a partner at EY and the firm’s Europe West IFRS desk leader, rounded out the discussion by noting companies that have not done anything to date on sustainability reporting will face the biggest obstacles. Orth added that the European Union expects a jump from around 11,000 companies actively reporting to closer to 50,000 being required to report. Many EU-based companies struggle to collect the necessary data, do not have controls in place around risk, and are not prepared to have their sustainability data audited.
Orth predicted future business models, sparked by opportunities revealed through sustainability reporting, will drive change across organizations. In the near term, EY clearly sees a massive opportunity around preparing clients for sustainability reporting and then helping them sustain their new programs.
In 2022 TBR will launch our Decarbonization Market Landscape, which will analyze IT services vendors’ and management consultancies’ promises around decarbonization as well as the services they offer clients. In addition, TBR covers EY in depth on a semiannual basis as part of the Management Consulting Benchmark and associated vendor profiles.