Major organisations have been told they need to tackle the gap between perception and reality when it comes to the risks posed by poor ESG data.

The call has been made as new research found nearly all large UK businesses are paying a financial price for poor ESG data, with 95% reporting negative commercial consequences and 59% admitting they do not fully trust the ESG data within their organisation.

The research commissioned by Dcycle for its industry report Taking Control, polled 500 C-suite and senior ESG, Finance, Risk and IT decision-makers in organisations employing more than 1,000 people. It found that businesses’ ESG data challenges are directly resulting in higher insurance or financing costs (44%), lost or delayed contracts (42%), and complications during mergers and acquisitions (41%).

It added a  large proportion of business leaders (89%) claim their company’s ESG is governed with the same rigour as financial data. However, fewer than one in three organisations (32%) say ESG data sits with a dedicated sustainability team, while nearly a quarter (23%) report governance operates under diffuse “shared ownership”, meaning there is no single, clearly accountable team responsible.

The challenge is made worse by complex infrastructure, with businesses using an average of six different tools to manage ESG information, with nearly half (44%) relying on seven or more systems.
As regulations around climate reporting and disclosures accelerate across Europe, despite commercial challenges nearly all business leaders (95%) claim they are confident their ESG data would withstand regulatory scrutiny. But this is contradicted by the fact that only a third (34%) of organisations say they feel fully in control and confident in it, and just 12% believe they could respond to unexpected ESG reporting requirements within weeks. Large businesses surveyed say they would currently take an average of 2.65 months to respond to new requirements.

“There’s a dangerous gap emerging between perception and reality,” explained Juanjo Mestre, co-founder and CEO of Dcycle. “Businesses are confident their ESG data would stand up to scrutiny, yet almost all have already experienced financial consequences linked to poor data.

“When ESG information is spread across multiple systems and ownership is unclear, organisations expose themselves to contract losses, financing pressure and deal disruption.”

Businesses are also looking for greater clarity around regulation. More than three quarters (78%) say that current ESG regulatory guidance is unclear or impractical, while just under half (44%) report that timeline changes to certain regulations and standards across the UK and Europe have slowed or reduced the urgency of their ESG programmes.

“Regulatory expectations will continue to evolve, whether companies feel ready or not,” continued Mestre. “Confidence will not protect revenue, but better control will do. The organisations that treat ESG data with the same discipline as financial data, with clear governance and robust infrastructure, will turn compliance pressure into competitive advantage.”