Deloitte’s 2024 Sustainability Action Report reveals significant gaps in ESG reporting, with data quality and supply chain information posing major business challenges.
Companies are making strides in environmental, social, and governance (ESG) reporting, but significant challenges remain, particularly in measuring and disclosing Scope 3 emissions. This is according to Deloitte’s 2024 Sustainability Action Report, which surveyed 300 executives at publicly owned companies with annual revenue of $500 million or more.
Regarding ESG reporting, data quality emerged as the top challenge, with 57% of executives citing it as their biggest hurdle and 88% ranking it among their top three challenges. The issue is particularly acute for Scope 3 emissions, where companies rely heavily on information from suppliers and other third parties.
For context, Scope 3 emissions are a category of greenhouse gas emissions that represent all the indirect emissions that occur in a company’s value chain outside of its own operations. These emissions result from a company’s suppliers, customers, and other business partners, as well as the use and disposal of its products.
The category usually makes up a significant portion of a company’s overall carbon footprint—sometimes more than 70%. Therefore, addressing Scope 3 can be challenging, often requiring collaboration and coordination with external stakeholders throughout the value chain.
For the 15% of companies that report Scope 3 emissions, Deloitte stated that 64% struggle with confidence and completeness in the primary data received from supply chain partners. Half of these respondents also noted a lack of consistent industry standards and methodologies as a significant obstacle.
Despite these challenges, the report found that 98% of companies have made some progress towards their sustainability goals in the past year, with 25% reporting significant progress. This suggests that while comprehensive emissions reporting remains challenging, businesses are actively working to improve their sustainability performance.
The survey revealed that nearly all companies (98%) have established cross-functional ESG councils or working groups that meet at least quarterly, with 43% meeting monthly or more frequently. This high level of engagement demonstrates the increasing importance of ESG issues at the executive level.
Regarding ESG disclosure management, the report noted a rise in the role of chief sustainability officers (CSOs) since December 2022, increasing from 42% to 55%. There was also a notable increase in the involvement of general counsel (26% to 41%) and executive leadership teams (31% to 42%) in ESG disclosure responsibilities.
“In the rapidly changing ESG landscape, we’ve seen considerable strides among businesses, Kristen Sullivan, audit & assurance partner for sustainability and ESG services at Deloitte, said. “The creation of dedicated ESG teams, the rise in specialized roles, and investments in sustainability reporting all indicate a strategic shift toward embedding sustainability into their core operations.”
20% of respondents cited brand reputation as the top expected business outcome from enhanced ESG reporting, followed by improved talent attraction (15%) and the ability to implement pricing premiums (14%). These findings highlight the perceived external benefits of robust ESG reporting.
The report also illuminated the standards and frameworks companies are using for ESG disclosures. The International Sustainability Standards Board (ISSB)/Sustainability Accounting Standards Board (SASB) standards were the most commonly used (54%), followed by the Global Reporting Initiative (GRI) at 50% and the Task Force on Climate-related Financial Disclosures (TCFD) at 49%.
Despite the challenges, companies increasingly seek external assurance for their ESG disclosures. The survey found that 99% of respondents plan to obtain assurance or engage in assurance readiness for their ESG disclosures in the next reporting cycle, up from 96% in Deloitte’s December 2022 report.
Moreover, 78% of respondents evaluated steps to move from limited to reasonable assurance or made progress on such a move, though only 13% completed their evaluation of the next steps. This trend towards more rigorous assurance suggests that companies are taking ESG reporting increasingly seriously and working to enhance their disclosures’ credibility.
The report also highlighted industry-specific trends. Consumer products and oil and gas industry respondents reported limited disclosure of Scope 1 emissions. Interestingly, more oil and gas companies disclose Scope 2 emissions (59%) than Scope 1 (48%).
Companies are taking various steps to address the challenges in ESG reporting. Half of the respondents (50%) reported that hiring new resources is the most common step they are taking to enhance technical measurement and reporting capabilities around greenhouse gas emissions. Other common steps include including ESG in disclosure committee review (49%) and adjusting reporting timelines (48%).
As regulatory pressures increase and stakeholder expectations evolve, companies must address these challenges head-on. Improving data quality, enhancing supply chain transparency, and adopting consistent reporting standards will be crucial for companies aiming to provide comprehensive and reliable ESG disclosures.
