Comment: Why investing in climate action and reporting are priorities for sustainable business

November 6 – With sustainability increasingly climbing up corporate agendas, decision-makers are navigating two primary disruptions: the pressure to decarbonize their operations; and the regulatory need to report, according to Reuters Impact Global Sustainability Survey 2023.

The introduction of more complex reporting requirements, alongside a growing acknowledgement of the business risk posed by ESG compliance is prompting businesses to invest in a range of different tools and technologies, according to our research, which surveyed 570 senior sustainability professionals in the second quarter of this year.

The survey found that data analysis solutions, emissions accounting solutions and process improvement technologies the top three destinations for investment dollars today.

This will change by 2026, however, with environmental, social and governance (ESG) data management platforms, sustainability risk management solutions and emissions management solutions growing in popularity.

With Scope 3 reporting requirements, as mandated within the European Union’s Corporate Sustainability Reporting Directive (CSRD) and proposed by the U.S. Securities and Exchange Commission, set to become the de facto standard for ESG reporting over the coming years, investment in this area is also expected to grow.

A large majority of respondents to our survey, nearly 80%, said they expect sustainability-related investments to increase. However, our research also indicates that larger companies are more likely to expect an increase in sustainability investment than small- or medium-sized enterprises (SMEs).

Our research also indicates more of a link between company size (both in revenue and headcount), organizational structure (private versus publicly listed) and the level of greenhouse gas (GHG) emissions and current investment levels compared with other businesses in their respective industries.

Not surprisingly, companies with higher GHG emissions, publicly listed organizations, and larger businesses are more likely to spend greater sums on sustainability, irrespective of the industry in which such companies operate. These are therefore important factors for benchmarking sustainability strategies against peer groups.

Despite a perception that Europe remains ahead of North America in sustainability, our research identified little divergence between organizations operating in the two regions, with investment profiles largely similar.

Some more marginal differences, such as that respondents operating in Europe are more likely to invest in ESG data-management platforms and sustainability risk-management solutions than those operating in North America, could be reflective of stricter reporting demands currently in place. That respondents operating in North America indicated a greater swing towards investing in emissions-management solutions in the short-term than our global average could, however, suggest that taking action is a universal ambition.

More generally, there is a high level of satisfaction with current sustainability-related tools and technologies, with a majority of respondents scoring each technology as either “fairly effective” or “very effective”.

Of the technologies profiled within the survey, sensors and smart meters for data collection – sufficient and reliable data collection being imperative to accurate reporting – received our highest satisfaction rating, with 91% of respondents stating the technology set to be effective.

Sensors and smart meters were also among the technologies to score highest for ease of implementation, with 44% of respondents ranking them as either very easy or easy to implement, compared with 16% of respondents who ranked them as difficult or very difficult to implement.

Data management tools, however, scored less favorably. Tools including enterprise resource planning systems for data collection (23%), ESG data management systems (17%), emissions accounting tools (23%) and blockchain for use in logistics and sourcing (31%), were all among the technologies to receive high incidences of respondents ranking them as either difficult or very difficult to implement.

Irrespective of regional differences, energy and decarbonization is the highest sustainability priority area for organizations today. More than 80% of respondents to our survey selected energy and decarbonization among their top three sustainability strategies, with almost half (48%) citing it as their leading priority. This is being tackled in numerous ways, such as increasing operational efficiencies and investing in renewable energies, with success largely being measured in the reduction of Scope 1, 2, and 3 emissions, albeit to differing levels.

There are also more subtle differences in approach to, and metrics for, measuring the success of sustainability strategies between respondents operating in North America and Europe, such as recognition of diversity, equity and inclusion (DEI) in the workforce as well as nature- and biodiversity-related actions. These indicate not just how broad approaches to sustainability are for modern organizations, but also how many possible solutions present themselves on the market.

The demands upon sustainability practitioners and decision-makers continue to evolve at speed. Our research has outlined that while sustainability budgets are set to increase over the next three years, businesses are setting priorities and investing in a broader suite of tools and technologies to help meet growing targets and compliance requirements. The most popular tool or technology used today, data-analysis solutions, was selected by 38% of respondents.

This correlates with alternative research conducted by real estate and investment organization JLL, published last month. A survey of commercial tenants found that 45% of respondents planned to adopt energy or emissions management technologies within the next year, while adoption of data science and modelling tools rose by 14% compared with the survey’s 2022 – 2023 results.

The technologies favored for investment in 2026 suggest that different challenges are looming on the horizon, especially requirements for Scope 3 emissions reporting, which the CSRD requires of listed SMEs by 2026. These will require different tools and capabilities, of course, and will almost certainly require more investment. In fact, 74% of respondents surveyed said investment at their companies will grow over the next three years, while 26% said they expect an increase of between 6% and 10%.

There is little doubt that the business community is treating sustainability with growing importance and urgency. And while most organizations would also appear to have a strong understanding of their immediate plan, our research indicates that the uncertainties lie in how to tackle the disruptions on the horizon for the years ahead.

You can access a copy of the Reuters Impact Global Sustainability Survey 2023 here.

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