ESG Reporting compliance is mandatory in 2024, here’s how you can prepare your organization with an integrated FP&A solution
Dresner’s recent ESG market report puts the writing on the wall and shows that, with mandatory environmental, social, and governance (ESG) reporting standards coming into effect from 2024 onwards, the need to digitally transform to meet regulatory obligations more efficiently is more pressing than ever.
Organizations across the globe are aware of the need for ESG reporting with 64% of respondents in the Dresner study rating its importance as critical, very important, or important.
However, 56% of respondents admit that their approach to ESG reporting is yet undefined. While a KPMG study found that 75% of organizations are unprepared for the ESG audits that will occur in 2024.
We are going to cover the main points of the report, the updates to reporting standards you should be aware of, and how an integrated FP&A system may provide a better solution for accurate and timely reporting capabilities.
What is ESG Reporting?
Environmental, social, and governance reporting provides governing and regulatory bodies an insight into the potential impacts of social and environmental factors on an organization’s finances.
These compliance standards also quantify the external impact of an organization on factors such as societal issues, the environment, and the economy.
This reporting of an organization’s environmental, social, and governance practices is increasingly being used by investors so that they know their investments are ethical and sustainable.
Even with prim and proper ESG practices, as of January 2024 succinct reporting is required, even from small to mid-sized enterprises.
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How is ESG compliance changing?
While organizations of all sizes may have modern ESG practices, many do not currently generate ESG reports. As ESG reporting will become important for an organization very soon, the time has come to prepare a strategy to deal with it efficiently.
Both the International Financial Reporting Standards Foundation and the European Union announced formal ESG reporting standards will be enforced in 2024.
US organizations are also implicated as the Securities and Exchange Commission declared rulings on climate disclosure in 2022 which will likely also be enforced in the coming future.
What’s more, the International Sustainability Standards Board also announced that two ESG standards, IFRS S1 and S2, became effective on January 1st, 2024.
Large enterprises will not be the only ones affected, while small to mid-sized enterprises (SMEs) are usually exempt from the full complexity of reporting they must also prepare full reporting capabilities.
For example, the EU’s Corporate Sustainability Reporting Directive will eventually apply to SMEs, albeit with an additional 3 years to comply, with reports on 2026 data to be expected in 2027.
It's clear that organizations of all sizes will soon be expected to have succinct and accurate ESG reporting capabilities, of which there is very little currently as reported by Dresner.
The pressing points from Dresner’s recent study on ESG reporting
Dresner Advisory Services conducted a survey in late 2023 to discover the current state of ESG reporting, among organizations of all sizes and geographies, as well as listing some of the impending changes to reporting compliance.
Their report lays out what’s to come, why many organizations may be under-prepared, and why this compliance needs action sooner rather than later.
Key findings from Dresner’s ESG market study
Currently, ESG reporting is highest in Europe, the Middle East, and Asia (EMEA) at 45%, while it remains at its lowest (23%) in North American (NA) organizations.
But ESG reporting is only done by 32% of organizations, with an additional 18% considering it. This means that more than 50% of organizations, of varying sizes, are likely unprepared for coming reporting regulations.
Additionally, 75% of respondents state they don’t even know what standards are in use or likely to be used.
Responses suggest cross-functionality is paramount and enterprise performance management (EPM) capabilities are an enabler for ESG reporting, with the CFO and finance team taking most of the responsibility for ESG reporting.
What’s clear in the report is that many organizations are unprepared, and in the worst cases unaware, of the impending standards that will be put in place. Those without any plan of action could come under a lot of stress.
Why an integrated FP&A solution is necessary
ESG reporting is challenging, with monitoring and tracking of non-financial data being paramount - It’s clear that an integrated financial solution is the key.
With a Cloud-based FP&A system, organizations can easily conform to ESG reporting requirements as they will occur in the future and benefit from reporting capabilities in other areas.
Alternately, a financial function that has siloed data from outdated legacy systems will struggle to meet the complex requirements for compliance standards to be satisfied.
Even those organizations with a digital financial function are still lagging with static reporting tools rather than the proactive management functionality that an ERP suite provides.
In other words, a cross-functional response from an organization is required to satisfy all elements of ESG reporting standards. This requires a financial function that is succinctly integrated with other non-finance departments to meet ESG reporting standards with confidence.
Learn how Unit4 can provide the ESG reporting solution for you
Dresner ranked Unit4 as the 3rd highest vendor, out of 10 surveyed, due to its ERP cross-functionality and integrated FP&A solution. As a result, Unit4 excelled in the ESG reporting category of Dresner’s 2023 Technology Innovation Awards.
With Unit4 reporting can be much easier and more succinct by compiling data across all departments and offices. Unit4 FP&A is a comprehensive software solution designed to assist organizations in collecting, analyzing, and reporting their Environmental, Social, and Governance (ESG) data.
Learn more about how this powerful planning and analysis tool enables organizations to monitor their sustainability performance, support compliance with statutory reporting requirements, and make more informed decisions to drive positive environmental and social impacts.
