Public companies in the U.S. are increasingly disclosing sustainability information, but many say they find it a challenge to report fundamental climate data that many regulators around the globe likely will require under incoming mandatory reporting standards.
Nearly two-thirds of respondents said their company was disclosing environmental, social and governance information, up from 56% in the prior year, according to the annual survey of sustainability officials that WSJ Pro conducted this spring.
However, there was little consensus on which framework to use and respondents highlighted three fundamental types of information as their three biggest environmental reporting challenges: Greenhouse-gas emissions, climate-change risk and energy management.
The proportion of companies disclosing sustainability and ESG information was 63%, up from 56% last year. Those that don’t yet report this data but plan to was 16%, down from 25% last year. About one-fifth of respondents said their organization had no plans to report their progress, virtually unchanged from last year. Breaking that down, a quarter of private companies don’t plan any ESG reporting, while only 7% of public companies felt the same.
Regulators around the globe are finalizing rules that would require companies to publish standardized information after years of patchy voluntary ESG reporting based on a host of frameworks. California’s governor has said he would soon sign that state’s requirements into law. The U.S. Securities and Exchange Commission’s rules are expected later this year. European regulations are already in place and many other countries are also working on standards. The International Sustainability Standards Board hopes its climate framework, completed this past summer, becomes the global baseline.
While it is mostly public companies that face mandatory requirements, even private businesses face increased scrutiny of their sustainability and ESG policies from stakeholders including shareholders, eco-conscious consumers, suppliers, insurers and lenders.
Mandatory disclosure requirements will create some standards, but for now there remains little consensus on which reporting framework to use, with nearly a quarter of respondents saying they rely on more than one framework.
The five main global climate reporting frameworks were the most popular with public companies: 44% of respondents said they use the United Nations’ Sustainable Development Goals reporting guidelines, followed by the Global Reporting Initiative (40%), Task Force on Climate-Related Financial Disclosures (40%), the CDP system (34%) and the new International Sustainability Standards Board rules (33%). Six percent said they don’t yet report, but plan to, while another 7% don’t plan to.
The picture looks quite different for private companies: 45% don’t report ESG information and more than half of those don’t plan to. The two most popular standards used are a self-developed framework (28%) and the U.N. SGDs (22%).
Respondents were asked which areas of sustainability they found most difficult to measure and report. Nearly half of respondents said greenhouse-gas emissions were their biggest environmental reporting challenge, 45% said climate-risk reporting and around a third struggled with energy management.
The top three social and human capital issues, chosen by about a quarter of respondents, were supply-chain management; data security; and employee engagement, diversity and inclusion.
Management of the legal and regulatory environment was the top governance reporting challenge. Small businesses (33%) found it more difficult than larger entities (28%), perhaps because bigger companies have in-house legal and compliance support available.
Public companies cited greater reporting challenges than private businesses across virtually every topic area, likely because listed firms face more stringent reporting requirements and pressure from investors. These demands are set to increase with incoming mandatory climate reporting requirements.
The sustainability information respondents were most likely to publish was for employee diversity, equity and inclusion, at 47%. The least likely were biodiversity at 16% and so-called scope 3 emissions at 17%, which are those from a company’s supply chain and customers. Measuring biodiversity and scope 3 emissions is often challenging, while workplace diversity is relatively easier to track.
“Scope 3 emissions are by definition outside of a company’s direct control, making them nearly impossible to measure and difficult to even estimate,” said Maria Ghazal, the Business Roundtable’s senior vice president of corporate governance.
Organizations typically have greater knowledge of and control over the emissions from their own operations (scope 1) and those indirect emissions from purchased energy (scope 2), than with scope 3 emissions. Sixty-one percent of the public companies surveyed have published their scope 1 and scope 2 emissions, about a quarter plan to start doing so, with the remaining 13% saying they have no intention to disclose the information. Private businesses published less information: Only 26% have made scope 1 and 2 emissions disclosures, while 30% said they plan to do so. Forty-three percent said they don’t intend to publish the data.