Investors are overwhelmingly supportive of new sustainability-related reporting regulations such as the EU’s CSRD and U.S. SEC’s new climate reporting rules, with the vast majority believing high quality ESG data will enable better investment decisions, according to a new survey released by business data and reporting solutions provider Workiva.
While investors are strongly in favor of the new ESG reporting rules, however, many companies are anticipating challenges in complying with the new sustainability reporting obligations, the study found.
For the report, Executive Benchmark on Integrated Reporting 2024, Workiva commissioned a survey of nearly 900 executives at companies with over $250 million in revenues and more than 100 institutional investors across North America.
The survey found that despite the recent political backlash against ESG and sustainability reporting initiatives in the U.S., more than 80% of North American investors say that they have not changed how they make investment decisions, and an even larger majority appear to be in favor of new and emerging ESG disclosure regulations. Approximately 9 out of 10 investors believe that new sustainability reporting regulations will help them make more informed investment decisions, including 90% for the EU’s CSRD regulation, 89% for California’s climate disclosure laws, and 91% for the SEC’s climate disclosure rule.
Similarly, 92% of investors agreed that ESG data is important for assessing companies’ long-term financial outlook, and 88% said that ESG data should be treated with the same rigor as financial data.
As the new regulations are put in place, however, many companies anticipate difficulty in meeting the new disclosure needs, with 74% of executives reporting that complying with regulatory reporting requirements will become significantly more challenging in the coming year, and two-thirds expressing concern about their companies’ ability to comply with new regulatory reporting requirements. Technology is a key challenge, with 65% of executives reporting being concerned that the business reporting technology currently in use by their companies is insufficient for meeting new regulatory reporting requirements.
Executives reported seeing significant value in integrating financial and ESG reporting, with 85% agreeing that integrated reporting makes it easier for companies to comply with regulatory reporting requirements, and executives that currently integrate ESG and financial reporting nearly twice as likely to be expressing confidence in their companies’ ability to comply with the new SEC climate reporting rule.
Workiva ESG Advisor Diana Tidd said:
“Executives are grappling with an impending wave of ESG regulations, with the majority polled as part of this survey agreeing regulatory compliance will be significantly more challenging in the next year and expressing concerns about their companies’ ability to comply. As executives navigate the complexities of ESG regulation, they are seeking greater control over all aspects of their data and a scalable approach to keeping pace with regulatory demands.”
Investors also expressed strong support for integrating financial and ESG reporting, with 88% reporting that they would be more likely to invest in companies with integrated reporting.
Additionally, investors also reported strong support for the need for third-party assurance, with 88% saying they are more likely to invest in companies obtaining assurance of ESG data.
The study also examined some of the key barriers facing companies in integrating financial and ESG data, with the complexity of sustainability data collection emerging as the top challenge, cited by over half (52%) of executives surveyed, followed by adapting to changes in regulatory reporting by 48%, and obtaining assurance for ESG data by 45%. Additionally, 43% reported challenges due to limited sustainability expertise among their staff.
One of the key tools, according to the survey, expected to help companies address these challenges was generative AI, with 83% of executives believing that it will help companies to comply with regulatory reporting requirements. Despite the promising technology, however, 72% of executives reported limiting the use of generative AI in business reporting due to concerns over data security.
Generative AI has also emerged as a key tool for investors, according to the study, with 55% reporting that they currently use generative AI to evaluate companies’ ESG and sustainability performance, and 61% planning to do so in the next 5 years.
Workiva ESG Advisor Paul Druckman said:
“Workiva’s Executive Benchmark on Integrated Reporting sheds light on many of the dynamic challenges and opportunities shaping the landscape of corporate reporting. First and foremost, the survey underscores the prevailing sentiment among executives and institutional investors that integrated financial and ESG reporting is a fundamental necessity for providing stakeholders with a comprehensive understanding of a company’s performance.”
Click here [https://www.workiva.com/resources/integrated-reporting-executive-benchmark?_ga=2.25892414.289712833.1710149854-615872885.1702485170] to access the report.
