An EY survey finds that whilst AI can address key shortcomings in non-financial data management, concerns remain around sustainability-related reports.
Financial executives worldwide are raising serious concerns about the reliability of environmental reporting data, with new research revealing widespread scepticism about companies’ ability to meet their sustainability targets. The findings, released in EY’s 2024 Global Corporate Reporting Survey, paint a troubling picture of the current state of corporate sustainability reporting.
The survey, which gathered insights from more than 2,000 finance leaders and 815 institutional investors globally, found that a staggering 96% of CFOs have concerns about the integrity and reliability of their organisations’ non-financial data. This is nothing short of a crisis of confidence. What’s more, this insecurity comes at a crucial time when stakeholder scrutiny of environmental performance is intensifying.
Is pressure from investors growing?
EY’s report shows that more than two-thirds of finance leaders are being questioned more about non-financial metrics by investors, compared to two years ago. Now, this speaks to the growing importance of environmental, social and governance (ESG) data in investment decisions. However, the study reveals some significant challenges in data management, with 39% of respondents reporting problems with data formats and 35% citing inconsistencies.
Perhaps most concerning for sustainability professionals is that only 47% of finance leaders believe corporations are on track to achieve their stated environmental goals. This scepticism is slightly less pronounced among investors, with 53% expressing confidence in companies’ ability to meet their targets.
Fears of greenwashing and the challenges of regulation
The spectre of greenwashing allegations looms large over corporate environmental reporting, with 55% of finance leaders expressing concern about potential accusations in their industries. This anxiety reflects deeper doubts about whether nonfinancial disclosures are supported by robust due diligence and data processes.
While new reporting standards offer some hope—with 78% of investors believing they could positively impact sustainability disclosures—finance leaders appear less optimistic. More than half anticipate burdensome costs, whilst 44% believe compliance with new regulations would be highly complex.
A report recently published by Trellis quoted Dylan Siegler, Head of Sustainability at Universal Music Group, who stated that stringent regulations might inadvertently act as a “throttling mechanism” for proactive companies. She noted that motivation is diminishing for sustainability “first movers” to set ambitious public goals or participate in voluntary disclosures over fears of legal accountability for missing targets.
“Finance leaders’ apprehension around businesses’ ability to meet crucial goals underscores the growing importance of building confidence in reporting on sustainability efforts”, says Nicolas Lecoq, EY Global Financial Accounting Advisory Services Leader. “Customers, shareholders, regulators and investors increasingly hold companies to account for their environmental impact and commitment to sustainable practices”.
AI as a potential solution
Artificial intelligence may offer a potential solution to these challenges. The survey found that 57% of investors believe AI could be valuable in assessing the credibility and accuracy of sustainability disclosures, whilst 51% think it could help identify discrepancies in company reports.
However, adoption of AI technologies faces several hurdles. Only 43% of finance leaders express enthusiasm about implementing AI in corporate reporting, with 29% preferring to wait until the technology’s risks are better understood. Cost concerns (39%) and regulatory compliance worries (36%) also present significant barriers to adoption.
The current state of technology infrastructure compounds these challenges, with just one-third of organisations reporting they have sophisticated systems in place for data management and analysis.
“Although AI is still in the early stages of adoption, and while it’s clear that many finance leaders are nervous about potential costs, compliance and wider possible risks, there’s no doubting its immense potential to transform data analytics and corporate reporting for the benefit of all,” notes Lecoq.
By James Darley
Source: sustainabilitymag.com
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