ESG: How Businesses Are Preparing for the Future

In the upcoming years’ sustainability Action landscape marks a pivotal shift in how companies approach ESG (Environmental, Social, and Governance) disclosure and readiness. With global regulations expanding— from the SEC’s climate disclosure rule to Europe’s CSRD and ESRS—organizations are rethinking their sustainability strategies not just to comply but to compete.

Deloitte’s 2024 Sustainability Action update shows that many businesses are stepping up. They’re forming dedicated ESG teams, improving how they track and report emissions, and focusing more on long-term sustainability goals. At the same time, challenges like poor data quality and limited reporting on supply chain emissions are still common.

This year’s findings show both progress and pressure. To stay ahead, companies need to improve their ESG reporting, invest in better tools, and get ready for stricter rules in the near future.

Businesses Need to Know About ESG Readiness

1. Increased Interest in ESG Reporting

98% of respondents reported that there was at least some progress in their sustainability goals, with 25% making significant progress. 38% of businesses with a cross-functional ESG council reported making progress, as opposed to 10% for those without an ESG council.  

Moreover, 52% of surveyed professionals reported already having a cross-functional ESG council, with only 2% saying that they don’t plan to have one. In addition, out of 52% of respondents who have an ESG council, 98% admitted to meeting at least once every quarter, with 4% meeting more than once a month.     

Interestingly, the preparedness from the December 2022 survey has decreased from 58% to 38% as businesses are more prepared in their current state and feel like they don’t need to prepare for the future. 

2. Companies are Realizing the Benefits of ESG

Apart from sustainability, companies have now started realizing both the internal and external business benefits of EG reporting. Among 300 respondents, the majority of respondents (20%) claimed brand reputation to be the topmost benefit. On the other hand, the Premium Pricing of Products was the least favorable, with 14%. 

Moreover, 51% of respondents reported reaping internal benefits (Increased Efficiencies and ROI, Enhanced Trust with Stakeholders, and Reduced Risks) from ESG reporting, while 49% experienced external benefits (Brand Reputation, Talent Attraction and Retention, and Premium product Pricing).    

3. Data Quality is a Challenge in ESG Reporting

As more and more businesses have started shifting their focus to ESG reporting, many have realized the challenges that come with it, the topmost being data quality. Among the respondents, 57% believed data quality to be the biggest issue, with it being in the top two for 76% of professionals.  The second major challenge turned out to be documentation review and sign-off, with 52% including it in the top two challenges.  

Another key challenge to ESG reporting is that organizations are using multiple ESG frameworks for disclosures, with the International Sustainability Standards Board (ISSB) and Global Reporting Initiative (GRI) being the top two, with 54% and 50%, respectively.   

4. Increase in the Creation of New Roles

The evolving regulatory requirements and focus on preparedness have created new roles in diverse industries and organizations. 77% of respondents reported creating new roles, including 87% of smaller businesses and 69% of larger ones. Among the new job roles, the Chief Sustainability Officer (CSO) was at the top with 55%. 

5. Increase in the Creation of New Roles

The evolving regulatory requirements and focus on preparedness have created new roles in diverse industries and organizations.

77% of respondents reported creating new roles, including 87% of smaller businesses and 69% of larger ones. Among the new job roles, the Chief Sustainability Officer (CSO) was at the top with 55%.

6. Companies Not Disclosing Scope 3 Emissions

Only 15% of respondents reported disclosing Scope 3 GHG emissions. Out of these organizations, 64% of professionals reported that they find a Lack of confidence in the data received from vendors to be the biggest challenge. Another major challenge was the Lack of consistent industry standards for measurement.

7. Technological Investments Still a Focus

74% of respondents are still keen on investing in technology, with 24% being very likely. However, the percentage has decreased from 99% in 2022, as most businesses have already made significant investments in the last two years. When asked about enhancing internal mechanisms, 79% said they already enhanced them, compared to 89% in 2022.   

Industry-specific Insights

Let’s examine some industry-specific insights from the Sustainability Action Report. The industries included financial services, consumer products, oil and gas, tech, media, telecom (TMT), life sciences, and healthcare.

• 86% of respondents in the Oil and Gas sector created new roles to prepare for an increase in disclosure requirements. 
• 54% of respondents in the financial services sector reported that their ESG council meets at least once a month.
• All industries reported feeling the most pressure from the Board of Directors to increase preparedness for regulatory requirements. The least pressure comes from the government. ESG rating agencies put the most pressure on financial services (49%) and Life Sciences and Healthcare (51%). Investors are a vital factor for Oil and Gas (44%).  
• All industries have seen a rise in appointing the Chief Sustainability Officer (CSO) to manage sustainability disclosure, with Consumer, TMT, and Life Sciences leading with 67%, 67%, and 62%, respectively.
• The consumer industry reported the most Scope 3 GHG emission disclosures, with 25%. 

Public vs Private Sector

• Only 38% of private companies reported having an ESG council, with 44% in the process of establishing one. 
• 17% of private companies are waiting to improve preparedness as opposed to 8% of public companies.
• Private companies are more keen on disclosing Scope 3 emissions than public companies. 
• Public companies (39%) are more likely to obtain assurance than private companies (30%).

Businesses Prioritizing ESG Reporting – 2022 vs 2024 

Future Predictions That Will Define the ESG Landscape

1. Assurance Will See Tremendous Growth

Regulations like California’s climate change law allow for assurance by a CPA and require engagements to be performed per professional standards. With 99% of companies either seeking or planning to seek assurance on ESG disclosures, and 80% transitioning from limited to reasonable assurance, the investment in third-party providers for ESG assurance will grow.

2. Investment In Technology Will Continue

With 74% of companies planning tech investments in 2024 (down from 99% in 2022, indicating past purchases), the next phase involves integration and optimization. Businesses are likely to invest in ERP, risk, and compliance solutions. Moreover, ERP reporting will be integrated with AI to automate data collection, detect anomalies, and simulate future sustainability risks. 

3. Stakeholder Pressure May Rise

With businesses realizing both internal and external benefits of ESG reporting, we might see an increase in stakeholder interest. Currently, companies report significant ESG pressure from boards (52%), ESG rating agencies (45%), and investors (42%). But in the future, customers, ESG rating agencies, and the government might also add pressure due to changing laws.

Most organizations consider sustainability a priority and take major steps to improve preparedness for regulatory requirements and manage sustainability disclosure.

Some of the key steps include investing in technology, hiring new resources, creating new roles, and establishing an ESG council. 

However, data accuracy and completeness remain a challenge. Also, more businesses need to disclose Scope 3 GHG emissions. As the regulations evolve, the sustainability landscape will keep changing in the coming years.

Note: The data mentioned in this blog is sourced from Deloitte’s 2024 Sustainability Action Report.