How Prepared Are the Indian CFOs for Climate Reporting and Compliances?

One in five CFOs in large enterprises is prepared to meet upcoming requirements to report and seek external assurance on climate-related risks and opportunities.

An Accenture survey indicates that despite the majority of executives anticipating an increase in sustainability reporting requirements in the coming years, well-prepared executives are more likely to view sustainability as a potential opportunity for their companies.

The company has released the report during a period of increasing global sustainability regulations and legislation. These include EU’s CSRD regulation and CBAM, and the US SEC’s climate disclosure rules; measures to enhance market transparency, set carbon content-based import prices, and provide grants for sustainable activities.

Key findings:

According to the survey:

90% of respondents agreed that ESG issues will be a major focus for them over the next five years.
Nearly 85% of respondents said they expect mandatory disclosure to increase over the next three years.
Over 80% of respondents indicated that they are under pressure from three or more stakeholder groups to take sustainability-related action. The most frequently mentioned groups exerting pressure are shareholders, board members, and regulators.
Just 22% of CFOs reported feeling well prepared to disclose on climate-related risks and opportunities and to seek external assurance on their disclosures.
Additionally, only 10% of CFOs felt well prepared to meet these reporting requirements in all sustainability areas, such as resource use and circularity.

These results suggest that finance executives are feeling the pressure of the changing regulatory landscape. The findings suggest that even though finance executives are under increasing pressure to address sustainability issues, most do not yet feel ready to meet many of the new requirements.

Ratings per ESG measurement:

The study found a wide range of preparedness across the nine capabilities.

In this, it rated 12% of businesses as weak, 73% at a moderate level, with some having automated ESG data capture and most approaching the integration of ESG into their management systems, and 15% as having strong capabilities, including gathering comprehensive ESG data, automatically monitoring quality, utilizing ESG data to enhance business decision making, identifying potential ESG risks with predictive analytics, and developing complementary skills within their finance and sustainability teams.

According to the survey, 68% of the “weak” group’s companies reported finding it difficult to strike a balance between profitable growth and sustainability, compared to only 20% of the “strong” group. Additionally, “strong” companies were more than twice as likely (20%) to already view sustainability as a significant value driver for their organizations than the “weak” group (9%).

The study revealed a noteworthy association between businesses that perceive sustainability as a potential area for growth and opportunity and those that are well-prepared for ESG measurement and management.

How prepared are the Indian CFOs?

Indian Chief Financial Officers (CFOs) are the most optimistic in the APAC region, with 94% of them expressing confidence in their country’s economic future, according to the most recent Deloitte Asia Pacific (APAC) CFO Survey 2023 which was released in September last year.

Indian CFOs, also demonstrated an urgency when it came to putting in place suitable processes to comply with climate requirements. Approximately 59% of Indian CFOs plan to implement the required processes in the future, and 37% have already done so. Twenty-two percent of Indian CFOs were found to be adequately prepared to handle ESG challenges, according to the survey.

Using more sustainable materials (55 percent), encouraging or requiring suppliers and business partners to meet specific environmental sustainability criteria (53 percent), and adopting public policy positions that promote sustainability and actions to address climate change (65 percent) were the top three proactive sustainability initiatives by Indian CFOs.

Our take:

India is at the cusp of entering the ESG/sustainability mainstream. Global compliances and domestic mandates such as the BRSR Core are promoting the community to closely monitor the corporate ESG strategy, compliance and reporting. They are working closely with the BU Heads as well as the ESG teams and external partners to not just understand the new concepts, but also the ramification of non-compliance and the financial impact on the business!

The regulatory mandates in India have evolved to be more supportive and balance growth and sustainability.

Sustainability regulations are fostering innovation in disclosures, making assured integrated reporting the gold standard.

A new Workiva 2024 ESG Practitioner Survey reveals that while respondents have confidence in their data, sustainability regulations pose significant challenges for their teams.

88% of respondents believe robust ESG reporting programs provide a competitive advantage. This indicates that sustainability regulations are fostering changes in corporate reporting.

CSRD:

81% of companies not regulated by the European Union’s Corporate Sustainability Reporting Directive (CSRD), plan to align their sustainability disclosures with its requirements.

The CSRD regulation, the first to mandate integrated financial and sustainability disclosures with third-party assurance, is expected to significantly impact businesses’ preparations for their first required reports in 2025.

“The CSRD has initiated a global shift toward assured integrating reporting, with business leaders recognizing the market demand for contextual, transparent, and credible data that aligns with stakeholder expectations. As companies around the world gear up for their first mandated CSRD reports in 2025, we are seeing CSRD’s impact extend far beyond those subject to the regulation,” said Paul Volpe, Senior Vice President, Growth Solutions, Workiva.

Practitioners Embracing Change Despite Challenges:

Most respondents in all disciplines prioritize compliance with reporting requirements and adhering to new mandates, but 88% believe robust ESG reporting programs provide a competitive advantage for companies.

84% believe integrated financial and sustainability data improves decision-making, and long-term value creation, and increases the likelihood of a company achieving its goals, with 88% of practitioners agreeing.

83% anticipate challenges in collecting accurate data for CSRD requirements, indicating increased complexity and maturation of reporting processes due to new regulatory requirements.

Paul Dickinson, a member of Workiva’s ESG Advisory Council and the Founder Chair of CDP, said, “It’s a testament to practitioners’ adaptability as we navigate a new era in corporate transparency. However, the survey also revealed that while the majority of respondents have confidence in their data, regulation poses significant hurdles for their teams.”

Reporting Processes Are Being transformed:

Practitioners are utilizing generative AI solutions to streamline reporting procedures, with 82% of respondents believing it will make their jobs easier and sustainability reporting more efficient in the next five years.

98% of practitioners plan to increase funding for technology-related sustainability initiatives within three years, while 92% are investing in technology to improve reporting team collaboration.

78% now have three or more internal teams involved in their company’s ESG reporting processes.

85% believe that integrating finance, sustainability, and compliance processes allows individuals to allocate more time to value-added work.

It must be noted that more than 2,000 professionals in corporate reporting, including those in risk, sustainability, internal audit, finance and accounting, and Europe and Asia, participated in the third annual 2024 ESG Practitioner Survey.

The way forward:

Volpe emphasized that assured integrated reporting goes beyond compliance; it is a crucial tool for demonstrating performance and value in a competitive market. Business leaders are committed to a transformational opportunity, investing in integrated, accessible, and innovative reporting across all business lines.

EU member states have approved a directive delaying the adoption of sector-specific sustainability disclosure standards and sustainability reporting from non-EU companies under the Corporate Sustainability Reporting Directive (CSRD).

The EU Council and Parliament have agreed to delay the deadline for sector ESRS by two years, urging the Commission to publish and adopt sector reporting standards soon.

The new directive will postpone the adoption of the ESRS for non-EU companies to June 2026, and delay 2028 reporting obligations by two years to 2030.

The Council has officially approved a directive, extending the deadline for the adoption of sector-specific sustainability reporting standards for EU companies and general sustainability reporting standards for non-EU companies.

This modifies the Corporate Sustainability Reporting Directive (CSRD) for specific industries and third-country undertakings, allowing the affected companies additional time to implement the European Sustainability Reporting Standards (ESRS), the Council said in a press release.

The European Union’s CSRD, which began in 2024, requires companies to report on sustainability-related impacts, opportunities, and risks.

Sustainability disclosure is netting the global corporate sector,

The corporate segment is just a month away from disclosing its quarterly financial results. Besides the financial analysts who are waiting with a hawk eye to review the company’s performance and forecast its trajectory, another set–of sustainability experts are keen to study the impact of various regulatory disclosures that companies have undertaken and the impact of these regulations.

However, for the business as usual (BaU), commissions and governments are giving out mixed signals. On a positive note, Singapore will introduce mandatory climate-related reporting requirements for listed and large non-listed companies starting in 2025. The rules were announced by the Second Minister for Finance Chee Hong Tat, and details were released by the Accounting and Corporate Regulatory Authority (ACRA) and Singapore Exchange Regulation (SGX RegCo). The new reporting obligations will be phased, starting with listed companies in 2025 and large non-listed companies in 2027.

The specific obligations for each group will be phased in over time, with listed companies reporting on Scope 1 and 2 emissions in the first year and large non-listed companies starting in 2029. The government will also focus on helping companies develop sustainability reporting and assurance competencies.

The country already has stringent ESG compliance standards. The new mandate will strengthen its stand in the global Destination Sustainability Index, demonstrating its commitment to real change.

Back home in India, the Securities and Exchange Board of India (SEBI) introduced BRSR in 2021, last year upgraded the compliance to introduce Business Responsibility and Sustainability Reporting (BRSR) Core that includes nine new principles to include the value chain and the customers, as well as third-party assurance.

The framework is set to undergo a significant transformation in 2024, requiring top 1000 companies to ensure reasonable assurance, enhancing transparency, risk management, and regulatory compliance. Analysts have pointed out SEBI’s reduction in the number of listed corporates required to submit BRSR reports from 1000, resulting in a decrease in compliance.

On the other hand, in Europe, the Council and the European Parliament have reached a provisional agreement to delay sustainability reporting for certain sectors and third-country companies by two years. The agreement will allow more time for companies to prepare for the sectorial European Sustainability Reporting Standards (ESRS) and specific standards for large non-EU companies, which will be adopted in June 2026. The agreement aims to boost European competitiveness by reducing the administrative burden on companies and allowing them time to implement the ESRS and prepare for the sectorial European Sustainability Reporting Standards.

The Commission proposed reducing reporting obligations by 25% without undermining related policy objectives, and the provisional agreement now needs to be endorsed and formally adopted by both institutions. The date of application for third-country companies will remain the financial year 2028, as set out in the CSRD.

Sustainability and ESG reporting are now mainstream. Regionally, corporates are abiding by the local rules and therefore, have an ESG strategy in place. For those organizations that have a multi-national presence, compliance gets tougher as they have to comply with multiple regulations.

What is required is a linear compliance mechanism that will enable the multinationals, or domestic companies targeting global expansion to seamlessly adhere to the compliance.

The organizations have come a long way in terms of change of attitude from tick-boxing compliance mandates to impact-driven outcomes. However, not meeting climate action targets remains a concern. For this, we need stricter and faster implementation of regulations.

94 % of investors in a recent PWC survey said that corporate reporting on sustainability performance contains unsupported claims.

Sustainability continues to be pivotal for investors:

Sustainability continues to remain pivotal to investors, according to the PWC report. Investors are looking for stronger reporting standards amid greenwashing concerns.

75% said that how a company manages sustainability-related risks and opportunities is an important factor in their investment decisions, although this is down 4% from last year.

Investors this year highlighted a strong undercurrent of doubt around the reliability of sustainability reporting and information. This is often referred to as greenwashing.
• 94% believe corporate reporting on sustainability performance contains some level of unsupported claims (up from 87% in 2022)
• 15% think unsupported claims to be high to a very large extent
• 79 % said unsupported claims are present to a moderate or greater extent, which is up one percentage point from last year
• 57% said if companies meet the upcoming regulations it will meet their information needs for decision-making to a “large” or “considerable extent”
• The upcoming regulations include CSRD, the SEC proposed climate disclosure rules in the US, and ISSB standards

These perceptions of greenwashing may explain why investors are looking to regulators and standard setters to create clarity and consistency in companies’ reporting, PWC said.

Investor focus:

The focus of investors on meeting the cost of ESG commitments has also risen, the PWC researchers noted.

• 76% of investors find this information important or very important.
• 75% agree that companies should disclose the monetary value of their impact on the environment or society, up from 66% in 2022
• 85% say that reasonable assurance (akin to an audit of financial statements) would give them confidence in sustainability reporting to a “moderate”, “large”, or “considerable extent”

The survey – now in its third consecutive year – queried 345 investors and analysts across geographies, asset classes, and investment approaches. The aim was to get insights into the factors that most affect the companies they invest in and cover.

Key highlights:

• Three-quarters of investors say sustainability is important to their investment decisions
• More than half (57%) back greater clarity and consistency in sustainability reporting
• Technological transformation is driving the investment landscape
• 59% identified technological change as the most likely factor to influence how companies create value over the next three years
• 61% say faster adoption of AI is very or extremely important
• Macroeconomic and inflationary concerns fall from 2022 highs
• Concern about climate change rises from 22% to 32%, putting climate on par with cyber risks

Investors favor accelerated AI adoption, despite risks

This year’s survey findings show investors view the accelerated adoption of artificial intelligence (AI) as critical to value creation while recognizing the importance of managing risks.

• 61% say faster adoption is “very”, or “extremely important”
• 85 % noted moderately important
• 59% identified technological change as the factor most likely to influence how companies create value over the next three years
• Innovation and emerging technologies (including AI, the metaverse, and blockchain) among their top five priorities for evaluating companies
• 86% see AI presenting considerable risk from a “moderate” to “very large extent” when it comes to data security and privacy; insufficient governance and controls (84%), misinformation (83%); and bias and discrimination (72%).

Quotes:

Nadja Picard, Global Reporting Leader, PwC Germany said, “We are seeing significant steps towards more consistent reporting from companies around climate change, however, there is a need for improvement. All the while, investors are calling for greater engagement around how companies manage the opportunities and risks of new technologies, particularly generative AI, as new technologies increasingly drive business transformation and investment.”

James Chalmers, Global Assurance Leader, PwC UK, said, “We are moving from a period of awareness raising around the importance of climate and technological change to a time where investors are increasingly asking specific and tough questions about how companies are addressing those issues in their strategy, how they assess risk and opportunity, and what is truly material for them. In this context, corporate reporting needs to continue to evolve so it provides reliable, consistent, and comparable information investors – and other stakeholders – can rely on.”

Tag: CSRD

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