TMT companies are split in how prepared they are for increased ESG regulatory requirements, with 45% reporting they are "preparing extensively", and 44% reporting they are "preparing in a limited fashion".

Figure 1. Are TMT companies actively preparing for evolving ESG requirements?

When asked how they're preparing for ESG requirements, 89% of respondents shared they are taking steps to prepare for the fast-approaching and ever-expanding ESG regulatory and disclosure requirements. While the US Securities and Exchange Commission's (SEC) final climate rule was issued March 6, 2024 (which has since been stayed)¹, it's worth noting that a large part of what the SEC's final climate rule encompasses is similar to disclosures already present in other regulations and standards, which are likely driving many companies' readiness efforts. If companies focus on compliance with regulations like those set by the Corporate Sustainability Reporting Directive (CSRD), the California climate rules, or a jurisdiction that plans to adopt the International Sustainability Standards Board (ISSB) standards as a regulation, it's likely that they will, in turn, cover a significant portion of what's outlined by the SEC's requirements. This underscores the fact that the SEC's final climate rule is typically only one part of a company's broader ESG regulatory environment.

Some companies should carefully consider what is required by the SEC's final climate rule even if it means taking a step back, identifying data that is subject to reporting, and planning accordingly. However, they should not be bound only by its timeline when working toward their ESG goals but should also consider other applicable requirements.

About 38% of TMT companies have already established a cross-functional ESG council or working group, while 47% are in the process of doing so.

Figure 2. Companies with established or in-progress ESG councils
*The 1% illustrated here was added due to rounding to 100%

Data from our TMT ESG report shows that 85% of surveyed companies have made some amount of progress when it comes to establishing a cross-functional ESG council and are most likely to prepare for various rules, regulations, and stakeholders.

TMT company respondents report feeling pressure from consumers (40%), from nongovernmental organizations (NGOs) (30%), and from governments and their new regulations (25%). In addition to climate-related disclosures, the increased pressure might also be due to data privacy and concerns in the supply chain (e.g., labor rights pertaining to workers in various stages of the supply chain potentially facing low wages and excessive working hours).ⁱ Furthermore, in our experience, TMT companies typically handle vast amounts of personal data, and consumers expect them to protect this data from breaches. With the advancements in technology, consumers also have increasingly high expectations for seamless, innovative, and personalized experiences.

Figure 3. Sources of ESG reporting and disclosure policy pressure

*Each industry oversample surveyed a mix of public and private companies, with a minimum of at least 100 publicly owned companies. Which stakeholders do you feel the most pressure from regarding your organization's ESG reporting and disclosure policy?

While ESG regulatory and other disclosure requirements might be expanding, this data shows that expectations are not just being set by the regulators who establish them, but also by the consumers of TMT products, as well as affected NGOs, among others. More parties interested in ESG-related information can mean a heightened importance placed on the data and the potential need for teams dedicated to helping analyze, collect, and report it.

Half of TMT companies surveyed have their current financial statement auditor perform external assurance over certain specific aspects of ESG reporting, while more than a third use other certified public accountant (CPA) firm assurance providers to perform assurance over ESG reporting.

Figure 4. ESG reporting assurance provider at TMT companies

Historically, assurance for TMT companies has been largely voluntary. But an evolving regulatory environment with assurance requirements (and growing interest from various stakeholders) suggests that assurance providers proactively engage on matters of ESG reporting.

The establishment of a robust global regulatory reporting framework largely depends on having a third party present to provide assurance as needed.

Nearly seven in 10 TMT companies (69%) report that their customers often—or always—request that they report GHG emissions as a requirement to respond to a request for proposal (RFP) or to do business.

Figure 5. Number of TMT companies required to disclose GHG emissions in RFPs or to do business

ESG reporting transparency isn't just about adhering to rising regulatory requirements. Nor is it just about addressing growing investor interest. Now, customers (particularly those who serve mostly multinational or Fortune 500 companies) are increasingly demanding this data as a prerequisite for RFP submission. Consequently, focusing on a global regulatory framework can imply a business impact beyond mere regulatory compliance. ESG data is often evolving into a business imperative that can be important for continued operations, growth, and resilience. Therefore, it's suggested for TMT companies to recognize and elevate its importance.

Scope 1 emissions (direct emissions from sources owned and controlled by a company) and Scope 2 emissions (indirect emissions released from purchased energy) are important to disclose for most companies. And while the SEC's March 6 ruling excludes a direct requirement for all companies to disclose Scope 3 emissions (all other indirect emissions that are outside of the organization's control) from its reporting requirements, increasingly stakeholders and reporting bodies may expect them to be reflected on their climate-related reports. Compared to other industries surveyed, the TMT industry has the most companies that currently prepare and disclose Scope 1 emissions (78%). Another 55% prepare and disclose Scope 2 emissions. Just 16% prepare and report Scope 3 emissions.

Figure 6. GHG emissions reporting currently prepared and disclosed by TMT companies

For many TMT companies, determining materiality when disclosing GHG emissions may be a challenge, particularly for those that do not have a large physical footprint that produces significant Scope 1 and Scope 2 emissions at scale. Even if Scope 3 emissions are not significant, companies subject to climate regulations set by California, the CSRD, or the ISSB likely need to consider them, regardless of whether it is required by the SEC.

This requirement could catch companies off guard if they do not pay close attention, highlighting the importance of understanding their global ESG requirements and the stakeholders to whom they are accountable. Therefore, it's important to work to integrate this understanding into a global regulatory and voluntary reporting framework. This proactive approach allows companies to be prepared to meet some potential disclosure requirements, thereby potentially minimizing risk and enabling readiness.

On a scale from “not at all likely” to “very likely,” 60% of TMT companies report being “somewhat likely” to invest in new technology or tools to enable more timely data and high-quality disclosure in the next 12 months.

Figure 7. Likelihood of investment in new reporting technology or tools

As more than half of respondents reported that they plan to invest in new technologies or tools, the expectation is to prepare to see an increased usage in reporting technology that can strengthen internal governance, processes, and controls. While it's an effort that almost always comes with upfront costs, technology is typically at the center of a much larger spend that is centered on enhancing ESG reporting capabilities across people, process, and existing solutions.

In addition, given the assurance requirements that accompany most new ESG reporting regulations, investments in new reporting technology can help with timely and accurate data reporting to allow for compliance with regulations, to increase operational efficiency, and to manage risks more effectively.