The Governance Guide to ESG Data You Can Rely On

When Shell paid €230 million to settle a water contamination lawsuit and faced US lawmakers’ condemnation for greenwashing, when Italian fashion retailer Shein absorbed a €1 million fine for misleading sustainability claims, the message became unmistakable. The era of casual governance over environmental, social and corporate data has ended.

Across global markets, executives confront a troubling reality: the ESG data underpinning trillion-pound investment decisions often rests on shaky foundations. Strong governance frameworks are no longer optional extras in sustainability reporting. They have become essential infrastructure preventing corporate greenwashing and protecting shareholder value. Research shows that 85% of investors believe greenwashing has worsened over the past five years, whilst 96% of finance leaders report encountering problems with the non-financial data they receive. When Deutsche Bank’s asset management division paid $25 million to the US Securities and Exchange Commission for ESG misstatements, inadequate governance of sustainability data revealed its steep price.

Why ESG Data Quality Has Reached Crisis Point

The explosion in ESG reporting has exposed critical weaknesses in how companies collect, verify and disclose sustainability information. According to recent surveys, 55% of chief financial officers believe their industries’ sustainability reporting lacks credibility and risks being perceived as greenwashing. The problems run systemic rather than isolated.

Finance leaders identify varying data formats as the most prevalent issue, cited by 39% of respondents, followed closely by data inconsistencies at 35%, incomplete data at 34%, and unclear data definitions at 33%. These figures reveal a landscape where the basic building blocks of reliable reporting (consistency, completeness and clarity) remain elusive for most organisations.

The consequences extend beyond regulatory fines. A study examining ESG scores and greenwashing risk found that high ESG ratings often correlate with greenwashing accusations rather than genuine environmental performance. Companies with elevated ESG scores frequently face the most allegations, suggesting that current rating methodologies capture communication efforts rather than actual impact. This fundamental disconnect undermines investor confidence and distorts capital allocation.

RepRisk data illustrates the severity problem. Whilst overall greenwashing cases decreased 12% globally in the year ending June 2024 (the first such decrease in six years), the severity of greenwashing cases increased by 30% year-over-year. Thirty percent of companies linked to greenwashing in 2023 were repeat offenders in 2024. In the United States, 42% of companies linked to greenwashing cases also appeared in subsequent years’ reports, suggesting systematic governance failures rather than isolated mistakes.

Building Governance Frameworks That Actually Work

Effective governance of ESG data requires companies to elevate sustainability information to the same standards applied to financial reporting. Leading organisations establish dedicated data governance councils comprising representatives from all business units, with clearly defined decision-making processes and escalation pathways.

Consider PepsiCo’s approach. The company maintains topic-specific documented sustainability data governance calculation methods, with a dedicated team reviewing all files before external communication. This systematic approach allows the company to accumulate year-over-year metrics, identify trends and demonstrate long-term progress. The governance structure addresses several critical components simultaneously.

First, companies need to identify data owners responsible for ensuring quality and defining requirements within their domains. These individuals bear accountability for the accuracy and completeness of specific data streams, from carbon emissions to supply chain labour practices. Without clear ownership, data quality becomes everyone’s responsibility and therefore no one’s.

Second, organisations must develop documented methodologies for data collection, calculation and aggregation. These methodologies cannot exist as informal knowledge held by individual employees. They require formal documentation, version control and regular review to ensure consistency as personnel change and regulations evolve.

Third, governance frameworks require control mechanisms throughout the data lifecycle. Subject matter experts should certify that data is accurate and complete at multiple organisational levels, from those managing primary data sources to executives reviewing at regional and global levels. Before external disclosure, information should undergo independent review separate from the teams that compiled it.

How Regulation Is Forcing Better Governance

Global regulators have recognised that voluntary approaches prove insufficient to ensure data reliability. The European Union’s Corporate Sustainability Reporting Directive represents the most comprehensive regulatory response, requiring companies to report according to European Sustainability Reporting Standards from 2025 onwards.

Large public interest entities already reporting under the Non-Financial Reporting Directive published their first CSRD-compliant reports in 2025 for the 2024 financial year. The directive’s scope expands progressively, capturing other large companies in 2026 and listed small and medium enterprises in 2027. By the end of the decade, non-EU companies generating substantial turnover within Europe will also face reporting obligations.

The CSRD introduces several governance-strengthening requirements. Companies must conduct double materiality assessments, evaluating both how sustainability issues affect their financial performance and how their operations impact society and the environment. This dual perspective demands cross-functional collaboration and robust data collection across value chains.

In the United States, the SEC finalised climate disclosure rules in March 2024, focusing on oversight of climate-related risks, financial impacts of severe weather events, and Scope 1 and Scope 2 greenhouse gas emissions. The rules require independent attestation of reported emissions, elevating sustainability data to audited status. “What we’re seeing is very clear and consistent enhanced emphasis on preparing for the shift from a voluntary to a regulatory landscape,” notes Kristen Sullivan, audit and assurance partner at Deloitte & Touche.

Technology’s Role in Governance

Manual processes cannot deliver the data quality that regulators and investors demand. Organisations increasingly turn to specialised ESG data management platforms that automate collection, apply validation rules and flag anomalies for review.

Advanced systems integrate directly with enterprise resource planning, human resources and facilities management platforms, extracting sustainability metrics alongside operational data. Built-in calculation methodologies ensure consistency in how organisations measure carbon footprints, water consumption or employee diversity across reporting periods.

Artificial intelligence capabilities further enhance governance effectiveness. AI-powered tools can identify data gaps, detect inconsistencies across sources, validate calculations and even predict future performance based on historical trends. More than half of investors surveyed indicated that AI would prove useful in assessing the credibility and accuracy of disclosures.

However, technology adoption lags behind need. Only 32% of finance leaders report having high-grade technology in place for managing and analysing sustainability data. This gap creates vulnerability as reporting requirements intensify. Alexandra Mihailescu Cichon, RepRisk’s chief commercial officer, emphasises the importance of external validation: “No matter the regulation, no matter the disclosure framework, there’ll always be a need for investors and companies to see what’s behind those disclosures and reporting. Data based on sources external to a company will serve as a mirror and help assess whether companies are really walking their talk.”

The Assurance Imperative

External assurance provides crucial validation that internal governance processes function effectively. Leading companies engage third-party auditors to verify key metrics, particularly carbon emissions, water usage and supply chain data.

The level of assurance matters significantly. Limited assurance, comparable to a review of financial statements, provides some confidence but falls short of the reasonable assurance standard applied to financial audits. As regulations evolve, expectations increasingly point toward reasonable assurance for material sustainability disclosures.

Organisations should design data collection and governance processes with auditability as a core requirement from the outset. This means maintaining clear audit trails from source data through calculations to final disclosure, documenting assumptions and methodologies, and preserving evidence that supports reported figures. The governance infrastructure built for reporting purposes serves strategic management as well.

Creating Clear Organisational Accountability

Strong governance requires clear accountability structures. Many organisations now establish “ESG controller” roles, mirroring the financial controller function. More than 50 Fortune 100 companies have hired ESG controllers, a role that was virtually non-existent just two years ago. Currently, 36% of finance leaders report their organisations already have this role in place, whilst a further 58% plan to establish it.

Daniel Lim, who helped pioneer the ESG controller role at Google, describes how the position has evolved: “When I first started on this journey, my role was largely focused on preparing for upcoming global ESG disclosure rules and ensuring this non-financial information is subject to a level of rigor that we would expect of financial information. Today, the role has evolved to serving as a centre of expertise in bringing financial accounting, reporting and controls experience and combining it with environmental sustainability knowledge.”

The ESG controller typically coordinates information owners responsible for data quality standards and metric-level documentation, disclosure owners who incorporate certified information into reports, and validators who provide independent review. This structure separates data compilation from verification, reducing the risk that errors or misstatements go undetected.

Senior leadership engagement proves equally vital. Disclosure committees comprising executive leadership should review ESG summaries and public disclosures before publication. In the most mature organisations, sustainability performance links to executive compensation, ensuring governance receives appropriate board-level attention.

Defending Against Greenwashing Accusations

Despite increased regulation, greenwashing remains prevalent and increasingly severe. Robust governance provides the primary defence against greenwashing accusations. Companies must ensure that claims about environmental or social performance rest on verifiable data rather than aspirational statements.

Consider the scale of recent enforcement actions. Active Super, one of Australia’s biggest superannuation funds, was found guilty in June 2024 by Australia’s Federal Court for holding investments in tobacco manufacturing, oil tar sands and Russian securities despite claiming to exclude these sectors. The fund was subsequently fined $10.5 million. The case demonstrates how even large, established funds face severe consequences when governance fails to match rhetoric.

Every public assertion should trace back to documented evidence that withstands independent scrutiny. Volkswagen’s “Dieselgate” scandal, which ultimately cost the company over €30 billion in global penalties, stands as a stark reminder of the consequences when governance structures fail to detect or prevent misleading claims.

Preparing for Stricter Requirements

The trajectory points unambiguously toward stricter requirements and greater scrutiny. The International Sustainability Standards Board has released baseline standards that numerous countries are adopting or referencing in their regulations, gradually creating global consistency.

Organisations should conduct comprehensive gap analyses to identify where current reporting fails to align with emerging standards. This includes assessing data collection processes, calculation methodologies and disclosure practices against requirements like the European Sustainability Reporting Standards or ISSB frameworks.

Investment in technology infrastructure deserves priority. Cloud-based platforms enable real-time data collection and analysis, whilst automation reduces the risk of manual errors. Companies should also develop their internal expertise, training finance, legal and sustainability departments on new standards and governance requirements.

Value chain engagement presents particular challenges and opportunities. As CSRD-reporting organisations request sustainability data from suppliers, those suppliers face their own governance imperatives. Companies should begin Scope 3 data collection early, offering templates and support to business partners whilst establishing processes to validate information received.

When Good Governance Pays Dividends

Strong ESG data governance delivers benefits extending beyond regulatory compliance. Investors increasingly integrate sustainability factors into valuation models and capital allocation decisions. Companies that provide reliable, comparable data attract investment, whilst those with poor governance face scepticism and higher capital costs.

Operational improvements often emerge from rigorous data collection. When organisations systematically track energy consumption, waste generation or employee engagement, they identify inefficiencies and opportunities previously invisible. The measurement drives management.

Reputation effects also prove significant. In an era where 52% of consumers believe organisations are greenwashing their initiatives (up from 33% the previous year), demonstrated commitment to accurate disclosure differentiates leaders from laggards. The companies that establish gold-standard governance now will command trust as competitors struggle with compliance.

The fundamental shift is clear: ESG factors have moved from the periphery to the core of corporate performance evaluation. Sustainability data now receives the same level of oversight as financial data, not as a burden but as a competitive necessity. The governance frameworks companies build today will determine which organisations thrive in tomorrow’s capital markets and which face mounting costs from regulatory penalties, investor scepticism and reputational damage. In this environment, governance is not merely about compliance. It has become the foundation of corporate credibility itself.