How tech companies can turn sustainability compliance into a strategic advantage

  • Publication
  • 5 minute read
  • November 18, 2024

The takeaway

As tech companies shift from voluntary to mandatory sustainability reporting, they should consider these key actions.

Tech companies are realizing the significance and effort of mandatory reporting — especially when it comes to data collection and governance processes. It’s critical to understand the requirements of global disclosure regulations such as the CSRD or California’s reporting requirements and the standards and frameworks that underpin them (e.g., ISSB, ESRS). And compliance deadlines are looming. Much of what companies need to report may require enhanced rigor compared to past practices. Passing muster with independent third-party assurance providers and regulatory auditors requires thorough and reliable data. Build a formal reporting process, driven by the right people and technology, rather than relying on reactive, manual approaches. Gathering data and putting governance in place are critical.

Reporting requires vast amounts of data, and many tech companies are operating with leaner teams. Elevate your existing capabilities and make cost-effective upgrades that not only speed up data gathering but connect to your strategic technology investments and initiatives.

Compliance may shift to the state-level if federal efforts are challenged. And many countries are developing their own sustainability reporting frameworks, including Canada, Mexico, Australia and Japan. Stay abreast of evolving global and US requirements.

Beyond meeting regulatory demands, aligning reporting with strategy can enhance transparency and unlock value by turning compliance data into strategic insights. This approach reframes compliance as “strategy explained,” fostering informed decision-making and supporting sustainable growth.

With global, federal and state regulations mandating sustainability reporting, tech companies stand at a critical juncture. As these regulations evolve, they’ll likely prompt a sustainability transformation akin to the financial transformation triggered by the Sarbanes-Oxley Act (SOX) in 2002. SOX wasn’t just about compliance — it reshaped how companies did business and set a new standard for transparency and accountability.

Sustainability is experiencing a similar evolution driven by mandated rules that vary from across jurisdictions. Despite the influx of disclosure requirements, tech companies should remain focused on the big picture when it comes to reporting and use the exercise as an opportunity to shape their broader sustainability strategy. For tech chief financial officers (CFOs), ESG controllers, chief sustainability officers (CSOs) and CIOs, the time to act is now.

Rethink your approach to mandatory reporting with the right people and tech

Historically, sustainability reporting has been largely voluntary, and most Fortune 500 companies already choose to disclose some environmental, social and governance (ESG) metrics. Tech companies already lead in data collection and analysis, often disclosing vast amounts of information about their operations, products and sustainability efforts. But as regulatory expectations rise, the focus is shifting from quantity to quality. It’s no longer enough to just report. Your reporting should be reliable, consistent and aligned with regulatory requirements.

Regulatory bodies worldwide are moving toward mandatory sustainability reporting, compelling companies to align sustainability strategies with their broader ESG strategies and report progress against set goals. This means tech CFOs, CSOs, CIOs and ESG controllers have their compliance work cut out for them as they use technology to collect the needed data and report it to comply with regulations such as Europe’s Corporate Sustainability Reporting Directive (CSRD). For tech companies already under scrutiny for their environmental impact — from energy-intensive data centers to the life cycle of consumer electronics — these new regulations present both challenges and opportunities.

States like California are leading with their own sustainability laws, creating a complex regulatory environment for companies to navigate. Beyond California’s new rules, there’s quite the “alphabet soup” of reporting regimes. Many of them, including the SEC’s, are currently facing legal challenges. Despite the demanding regulatory environment, tech companies shouldn’t let individual challenges to any single framework or rule undermine careful planning to create the right strategy and then deliver thorough and reliable reporting.

Focus on getting your reporting right. Set your organization up for success by having solid governance in place, streamlining data collection and formalizing processes so that they’re repeatable. The goal is to meet existing regulatory requirements and prepare for evolving mandates — all while building trust with investors, customers and regulators.

Preparing auditor-ready, thorough and reliable reporting requires early planning and collaboration across teams. The emerging role of the ESG controller will likely take center stage in these processes as they work with tech CFOs to lean on the finance function’s reporting acumen to implement the right processes and controls needed to deliver. The ESG controller and CSO will also likely collaborate to oversee the data collection and governance required for reporting — and confirm that the data is reliable and consistent. An ESG controller is typically someone with a financial reporting background who has undertaken deliberate upskilling on sustainability matters and associated regulations.

If you haven’t already, seek independent third-party assurance for your sustainability reports to enhance the credibility of your disclosures. This provides stakeholders with confidence that the reported information is reliable and independently verified — a crucial step in transitioning from voluntary to mandatory reporting, where there are potential financial, regulatory and reputational risks for noncompliance. Enlisting this kind of professional help is critical. Meeting with your auditor while you’re implementing your compliance plan is good practice since it may help you avoid any last-minute surprises. Surprises are for birthdays, not audits.

Boost your reporting strategy with tech-enabled solutions

Sustainability reporting can be a tough hurdle for tech companies, especially when it comes to collecting accurate, copious data across operations and supply chains. It often requires large teams of people dedicated solely to data gathering. As an example, a company reporting specific energy metrics, such as kilowatt hours and MMBTU of natural gas, may need a lot of time — sometimes months — to gather utility invoices or collect that kind of data from ERP systems. A generative AI (GenAI) model can be trained to do perform that same task in mere minutes.

Adopting a proactive, tech-enabled approach can help scale reporting efforts by automating data collection processes, boosting accuracy and simplifying reporting. This is where the CIO can really help the rest of the cross-functional team. Your CIO may establish robust security protocols while also selecting and deploying the right technologies to capture, process and validate the data that feeds the reports. This often begins by using what you have. The CIO is equipped to determine how to leverage existing tech systems by either augmenting them with sustainability-specific modules or creating a dedicated data lake for sustainability data that is auditable, accessible and ready for internal and external reporting.

Technologies like GenAI can help you streamline data collection processes, making it easier to comply with regulations and audits without the need for extensive manual labor. Responsible use of emerging technology will be key in the efforts necessary to build formal tech-driven governance processes, and it can free up valuable human resources for other value-add tasks. While this kind of tech-enabled approach may take an upfront investment, the long-term payoffs can be significant. Accurate and transparent reporting helps preserve brand reputation, builds stakeholder trust and enables compliance.

Get proactive to tackle the fragmented reporting landscape

As more countries, like Australia, Mexico and others, develop distinct sustainability reporting frameworks, each with varying requirements and timelines, tech companies should stay vigilant. Challenges abound for multinational firms juggling complex regulations while striving to comply with region-specific standards. Balancing these varying frameworks while supporting cohesive global sustainability strategies could strain resources and increase compliance costs.

The new US administration’s policies will likely influence tech companies’ sustainability efforts, especially when it comes to the potential downstream impacts of a post-Chevron environment. Regulatory compliance shifts may result in more state-level reporting if federal initiatives face challenges. This may further fragment sustainability reporting.

Despite being on hold due to legal challenges, the climate-related disclosures put forth by the SEC could serve as a benchmark for how companies report sustainability information and may facilitate comparability across companies, allowing investors to make more informed decisions based on standardized data. With the SEC rule in administrative stay, individual states like California have enacted their own climate rules, not waiting for the federal government. Being proactive has been top of mind for TMT leaders: 79% said the outcome of the 2024 US election will affect how their company engages with policymakers. Starting a conversation with regulators early on can help tech companies anticipate future regulations and prepare effectively, reducing the risk of noncompliance, avoiding potential penalties — and getting ahead of competitors.

Jumpstart your sustainability transformation to build value

Sustainability transformation is not just a regulatory requirement. It’s an opportunity for tech companies to further drive innovation, reduce risks and build long-term value. But working in this complex environment requires industry knowledge and strategic planning. PwC is here to help. Our team of sustainability professionals can work with you to develop tailored strategies that align with regulatory requirements, leverage emerging technologies and prepare investor-grade ESG reporting.

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Rich Goode

Sustainability Principal, PwC US

Dallas Dolen

Technology, Media and Telecommunications Industry Leader, PwC US

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