A recently released report by Deloitte has pointed out a very big blind spot in environmental, social, and governance reporting-only 15% of companies report on Scope 3 emissions, though those could constitute as much as 95% of a company’s carbon footprint. These results are detailed in Deloitte’s 2024 Sustainability Action Report, which outlines the state of ESG reporting, successes to date, and remaining challenges regarding corporate sustainability.
Scope 3 Emissions: The Big Blind Spot
The definition of scope 3 includes all indirect emissions along a company’s value chain-from the supply side and consumption of its product. These emissions are more difficult to quantify and control, largely because they do not result directly from the activities of the company itself. This very complexity has given rise to the following gap in reporting: whereas 74% of companies report on Scope 1 emissions, which means they are directly generated by the operations of a company themselves, only a few report on Scope 3.
In the words of Kristen Sullivan, Audit & Assurance Partner for Sustainability and ESG Services at Deloitte: “In the fast-evolving ESG environment, we’ve seen quite significant strides among businesses.” As she continued to elaborate: “This includes the establishment of ESG teams, growing specialized roles and investments in reporting on sustainability-all indicative of a strategic shift toward embedding sustainability into core operations. While there are still challenges to overcome, the commitment to sustainability comes into sharper focus as business leaders continue to unlock more of the power from ESG insights.”
A Growing Commitment to ESG Reporting
The report says ESG reporting is a strategic priority issue for the companies. The survey finding shows that in the last one year, 98% of respondents have made some advances towards meeting goals and targets on sustainability. As a fact, almost all surveyed companies established ESG working groups, of which 43% convene at least once a month to discuss and further advance their ESG agendas.
Besides, the CSO role is increasingly becoming mainstream, with a 13% increase in companies reporting a CSO since December 2022. Half of the executives responded that their company is hiring new resources with a specific remit to improve their greenhouse gas reporting.
Deloitte, however, warns that companies adopting a ‘wait and see’ approach towards ESG reporting will find themselves scrambling rather sooner than later-especially as new regulations begin to take effect. Steven Goldbach, Sustainability, Climate, and Equity Leader at Deloitte, contributed, “To spur the development of the low-carbon economy, leaders need to find innovative ways to create movement within industries and sectors.”
The Business Case for Robust ESG Reporting
Deloitte’s report also illustrates the tangible business advantages of best-in-class ESG reporting. One-fifth of the executives in the survey named brand reputation as the key business result of enhanced ESG disclosures. What this indicates is that open and full sustainability reporting might have strong implications for public perceptions of a company.
Beyond reputational benefits, for instance, 15% think that better ESG reporting would help attract talent, while another 14% believe this could facilitate the application of pricing premiums to their products. This information suggests that there are various ways in which organizations could realize external benefits from good ESG reporting-implications which would be felt through consumer perceptions, employees, and market positioning.
In addition, more than half of the participants are expecting internal dividends from better ESG reporting practices through reduced risk, increased stakeholder confidence, and efficiency in operations. This dual focus on both external and internal gains reflects the extra value companies are beginning to reap from their ESG efforts across their operations. As companies continue to invest in the reporting of sustainability, increasingly it’s not viewed as a requirement for compliance, but rather as a strategic tool-one that serves to drive reputational gains and internal improvements across a wide array of their operations.
ESG Reporting Challenges: Data Quality and Controls
Despite such progress being noted, significant challenges persist. For over half of the executives surveyed by Deloitte, data quality presented the biggest challenge to ESG reporting, while 88% included it among the top three challenges they face. In all, ensuring accuracy and reliability of ESG data is still a very important challenge, while more than 80% of respondents have rated the important control steps of ESG data sign-off, review, and certification as among their top three challenges.
The findings also underpin the discrepancy in reporting on emissions: while most organizations report Scope 1 emissions, only 15% do so for Scope 3. Some of these gaps are justified by divergent requirements of different regulations on climate disclosure. While some do not even require the reporting of Scope 3, others do, like the Corporate Sustainability Reporting Directive (CSRD), California Climate Legislation, and standards from the International Financial Reporting Standards (IFRS).
As companies work through this in flux ESG landscape, Deloitte’s report underpins comprehensive sustainability reporting not as a measure of compliance but as a strategic lever for long-term business success.