ESG reporting has become a cornerstone for businesses seeking to meet stakeholder demands for transparency, accountability, and responsibility in their operations. As organisations worldwide recognise the importance of demonstrating sustainable practices, the drive towards comprehensive ESG reporting has intensified. Investors, regulators, employees, and consumers are all asking more questions about how companies contribute to environmental sustainability, social justice, and ethical governance.

Despite the increased focus on ESG, many challenges are still associated with reporting. These challenges can impact the accuracy, comparability, and integrity of reports, ultimately undermining the effectiveness of ESG as a framework for fostering sustainable growth. This article delves into the major obstacles that organisations face when navigating traditional ESG reporting.

1. Inconsistent Reporting Standards

The ESG reporting landscape has long been challenged by the absence of a unified, universally accepted framework for disclosures. Companies must navigate a diverse array of reporting standards, such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the Task Force on Climate-related Financial Disclosures (TCFD). These frameworks offer valuable guidance, but the lack of alignment between them complicates the ability of organisations to produce reports that are consistent, comparable, and useful for stakeholders like investors.

This fragmentation often leads to companies selecting reporting frameworks based on regional regulations or stakeholder preferences rather than a set of universally accepted principles. As a result, significant variations emerge in how ESG performance is measured and communicated, hindering effective benchmarking and making it difficult for stakeholders to compare ESG data across companies.

Efforts to address these issues are now gaining momentum. The International Sustainability Standards Board (ISSB), established by the IFRS Foundation, seeks to create globally accepted sustainability-related disclosure standards. The ISSB’s focus on harmonising existing frameworks is exemplified by the launch of the Sustainability (S1) and Climate Disclosure (S2) Standards, which prioritise financial materiality.

These standards aim to integrate sustainability disclosures with mainstream financial reporting, thereby allowing investors to better evaluate long-term business risks and opportunities in the context of global climate challenges and broader ESG concerns.

The ISSB’s work has been well-received, with over 20 jurisdictions representing 55% of global GDP and 30% of global market capitalization announcing plans to incorporate its standards into their legal frameworks. At the same time, the European Commission has advanced its own sustainability agenda by adopting the European Sustainability Reporting Standards (ESRS) under the Corporate Sustainability Reporting Directive (CSRD). The ESRS addresses a full range of environmental, social, and governance issues while striving to achieve interoperability with global standards to minimize duplicative reporting for companies.

With growing alignment across global and regional reporting frameworks, the future of ESG reporting looks more streamlined, offering enhanced comparability, transparency, and clarity for stakeholders across the world.

2. Challenges in Data Collection and Accuracy

ESG reporting relies heavily on data, but gathering accurate, reliable, and timely data remains a significant hurdle for many organisations. Unlike financial reporting, which is governed by established processes and timelines, ESG data often comes from various internal and external sources. Collecting this data requires coordination across departments, business units, and supply chains. Data points such as carbon emissions, energy usage, water consumption, workforce diversity, and supply chain sustainability must be meticulously tracked.

For many organisations, particularly those that have not yet implemented automated data management systems, this process remains manual and prone to human error. Furthermore, the lack of clear guidelines on what constitutes material ESG data can lead to selective or incomplete reporting. Companies may inadvertently—or sometimes intentionally—omit critical data points that would provide a fuller picture of their ESG impact.

3. The Risk of Greenwashing

As companies strive to present themselves as sustainable, the risk of greenwashing—exaggerating or misrepresenting sustainability achievements—becomes a concern. Greenwashing undermines the credibility of ESG reporting and erodes trust among stakeholders. With ESG data and reporting still in a relatively nascent stage compared to financial disclosures, fewer regulatory checks are in place to prevent misleading claims.

Greenwashing can take many forms, from overstating environmental achievements to selectively reporting favourable metrics while ignoring less flattering data. Without strict oversight and verification processes, the integrity of ESG reports remains vulnerable to manipulation, making it difficult for stakeholders to differentiate between genuinely sustainable organisations and those merely engaging in ESG as a marketing exercise.

4. Lack of Standardised Metrics

Unlike financial reporting, where there are established and widely accepted metrics, ESG reporting lacks universally standardised measurements. For instance, two companies may report their carbon emissions in different units or methodologies, making it difficult to compare their environmental performance. Similarly, social and governance factors—such as employee turnover rates, gender diversity, or executive pay ratios—can be reported in varying formats, further muddying the waters.

Without standardised metrics, stakeholders find drawing meaningful comparisons between organisations difficult. This variability in reporting complicates the task of evaluating companies on their ESG performance and can obscure the true impact of sustainability initiatives.

5. Regulatory Fragmentation

ESG reporting regulations are far from uniform across the globe. Different regions and countries have reporting requirements, creating a fragmented regulatory landscape. For multinational corporations, this means navigating a complex web of local laws and guidelines, often resulting in multiple versions of the same report tailored to meet varying regional demands.

For example, the European Union’s Corporate Sustainability Reporting Directive (CSRD) sets stringent requirements, while in North America, companies may follow the more voluntary guidelines provided by frameworks like SASB or TCFD. This regulatory fragmentation creates additional administrative burdens for companies, increases reporting costs, and limits the comparability of ESG data across jurisdictions.

6. Cost and Resource Intensive

Producing a comprehensive ESG report is time-consuming and resource-intensive, particularly for small and medium-sized enterprises (SMEs). Collecting data, ensuring its accuracy, coordinating across various business units, and producing a polished report that meets stakeholders’ expectations requires a significant investment of both time and money.

Larger corporations may have the resources to dedicate teams specifically to ESG reporting. Still, smaller businesses often struggle to allocate the necessary personnel and financial resources to meet these growing demands. Moreover, the costs associated with third-party audits or verification processes can further strain budgets, making ESG reporting a financially burdensome activity for many companies.

7. Stakeholder Expectation Misalignment

Different stakeholder groups place varying levels of importance on the environmental, social, and governance aspects of ESG. Investors may prioritise governance and risk management, while consumers may focus more on environmental sustainability and ethical sourcing. Employees may emphasise diversity and inclusion, while regulators might concentrate on compliance with environmental laws.

This misalignment of expectations can make it challenging for companies to balance their ESG reporting to meet the diverse needs of all stakeholders. Creating a report that satisfies one group may inadvertently overlook the priorities of another. As a result, companies often find themselves in a dilemma when determining which ESG issues to highlight and how to allocate resources towards addressing them.

8. Limited Focus on Social and Governance Issues

While environmental issues like carbon emissions and climate change often dominate ESG reporting, social and governance factors frequently receive less attention. Companies may be more comfortable reporting on measurable environmental metrics than tackling more complex social issues such as labour rights, human capital development, and corporate governance.

This imbalance in focus can create gaps in ESG reporting, where important social and governance issues are either underreported or ignored altogether. Effective ESG reporting requires a holistic approach that addresses all three pillars equally, ensuring that social justice, ethical governance, and environmental sustainability are all given due consideration.

9. Lack of Integration with Business Strategy

For ESG reporting to be meaningful, it must be integrated with a company’s overall business strategy. Yet, in many cases, ESG initiatives are treated as standalone compliance exercises rather than being embedded into the core operations and decision-making processes of the organisation. This disconnect can lead to a lack of coherence in sustainability efforts and create a situation where ESG is seen as a separate or secondary priority rather than a driver of long-term value creation.

Organisations that successfully integrate ESG into their business strategy are more likely to see positive outcomes in terms of their sustainability performance and financial returns, risk management, and brand reputation.

10. Difficulty in Measuring Long-Term Impact

While companies may be able to report on short-term ESG outcomes, measuring the long-term impact of sustainability initiatives is much more challenging. For example, while a company can report on its annual carbon emissions or diversity initiatives, it may be difficult to quantify the long-term impact of these efforts on climate change mitigation or social equality.

Traditional ESG reporting methods often fail to capture the broader, long-term benefits of sustainability initiatives. As a result, stakeholders may not fully understand the enduring impact that a company’s ESG strategy is having on the environment and society.

11. Verification and Assurance Gaps

One of the growing demands in ESG reporting is third-party assurance or verification of the data being reported. However, unlike financial audits, the process of verifying ESG reports is still developing. Companies often struggle to find qualified auditors or standards to validate their ESG data, which can raise concerns over the credibility of their reports.

Without clear assurance guidelines, stakeholders may question the authenticity of ESG disclosures. Ensuring the reported data is accurate, complete, and aligned with recognised standards is crucial for building trust with investors and other stakeholders.

12. Technological Challenges

Many organisations are limited in integrating technology into ESG reporting. While digital tools and platforms can enhance data collection, analysis, and reporting, many companies still rely on outdated or manual processes. The lack of investment in advanced data management systems can hinder the efficiency and effectiveness of ESG reporting.

By leveraging technology, companies can streamline their reporting processes, improve data accuracy, and gain deeper insights into their ESG performance. However, adopting these solutions requires significant investment and a commitment to digital transformation.

Conclusion

The challenges associated with traditional ESG reporting are numerous and multifaceted, ranging from inconsistent standards and data accuracy issues to the risk of greenwashing and stakeholder misalignment. Organisations must navigate these challenges carefully to produce meaningful, reliable, and actionable ESG reports. As ESG continues to grow in importance, companies will need to invest in better data management systems, adopt standardised metrics, and integrate sustainability into their overall business strategy to overcome these obstacles.

For businesses to succeed in the future, ESG reporting must evolve into a tool for driving real, measurable impact rather than merely serving as a compliance exercise.

For tailored sustainability solutions, connect with Deborah O’Connor, Sustainability Solutions Lead at Emergent Africa, to discuss how your organisation can enhance its ESG reporting and drive meaningful change.