Despite the vast number of frameworks and the greater quantity of data available, this is not a synonym for confidence for investors, fund managers, or asset managers. On the contrary, several doubts arise relating to the quality, validation, comparability, and integrity of both the sustainability measures and the non-financial information available and reported by companies [6,7,8,23].

This is a serious concern for actual and potential investors since much of the available data in the financial marketplace can be viewed as “background noise” instead of a “clear translation” of which companies are sustainably outperforming and those that are involved in “green- and good-washing”, even when companies choose to report under frameworks as the ones described above [1,9,23,24].

The first of the general challenges presented by the ESG frameworks is the diversity they represent, sometimes causing conflicting reporting of sustainability data. Although some of the frameworks intersect and are an opportunity for investors to gather the information they need, it becomes an impossible task for the companies that supply such information. This aspect of the frameworks contributes to a phenomenon that companies refer to as “reporting fatigue” that results from the demanding task of reporting several types of information without a set of standardized guidelines or system that structures and synthesizes it [9,24,25].

Differences in what is valued in each framework can also become a challenge for sustainability reporting, since some are more interested in gathering information and providing guidelines for corporate environmental performance (e.g., TCFD) and others prioritize governance practices of companies, as a way to assess company’s sustainability actions and strategies, while only a few value the company’s commitment to the society’s overall well-being, human rights defense, and other social themes (e.g., GRI) [8,23,24]. This exigency to specify and focus most of the reporting on only one of the aspects of ESG leads to gaps in the reports made by companies, leaving them vulnerable to, for example, reputational risks [1,9,23].

Piling on this “negative” diversity is the difficulty in quantifying the impact of sustainability on the operational success of companies [8]. Several studies have found statistically significant relationships between corporate, environmental, and social sustainability (using a global standard) and the financial/economic performance of companies, e.g., [26,27,28] while others propose that this is a difficult association to be established given the inherent challenges between financial and non-financial metrics and the consequent reporting difficulties, e.g., [29,30]. However, most frameworks fail to provide evidence or a guideline as to how a company can profit from being sustainable and contributing to the socio-economic global development [24].

Another discrepancy and controversial challenge of these frameworks is to identify which ESG metrics are material to ESG classifications. Inherently, this must be based on a sector approach since what is material for some businesses may be irrelevant to others [8,9,23,24]. For example, TCFD defines materiality as the company-specific disclosure of risks and opportunities related to climate change under national reporting requirements that ultimately may have a short-term effect on the price of a company’s stock. Similarly, SASB considers financial materiality as the disclosure of information that would be considered relevant for investors when making an investment decision, which seems like a narrow view of the concept and might fail to encapsulate the real important questions in terms of ESG risks. Conversely, the GRI offers a more broad and long-term view of materiality by not only integrating the immediate impact of the ESG matters but also considering trends and issues that can influence the company’s overall market posture and consequently their market capitalization [23].

As such, a more comprehensive approach, considering and integrating the company’s growth, profitability, capital efficiency, and risk profile along with the reporting requirements integrated into an industry-by-industry basis would be a clearer way to look at materiality in ESG [8,23].

(a) Lack of consistency

This is one of the biggest difficulties identified by companies that utilize different frameworks to report their non-financial information. This lack of consistency adopts many forms, such as unclear ESG methodological standards, which translates to wide variations in the companies that report on even broad ESG topics (e.g., reporting only on Scope 1 greenhouse gas emissions, or reporting on all Scopes); having different time frames for the information required, which leads to incomplete benchmarking for instances; and not providing a clear methodology for the reporting itself, which leads companies to report about the same themes and issues, in different ways, resulting in conflicting information even in companies of the same sector, hindering the comparability across sectors and industries [9,23,31]. Additionally, incomplete reporting of some key performance indicators and metrics or even failing to distinguish between missing data or just poor performance hinders the quality of the reported information, since most frameworks record and code both these types of information as zero in their classifications, resulting in companies being either benefited or undermined [8,23,31].

(b) Lack of transparency

Failing to consider and disclose how each metric is obtained in several frameworks, by not distinguishing the information obtained through “ground-work” investigation and due diligence or information gathered by surveys, for example, can contribute to the feeling that the information reported is not verifiable or trustworthy. Conversely, difficulties in monitoring the quality of the reported information, regarding possible errors and mislabels in the data entry, and consequent failure to alert the reporting companies can lead to misleading analysis and wrong assessments of the companies’ ESG classification [9,23,24].

(c) Challenges in standardizing and normalizing data

Data standardization has long been a challenge for ESG reporting, making it difficult to guarantee that a company’s classification reflects the common methodologies and benchmarking. This difficulty refers to, for instance, differences in measuring units (e.g., tons, vs. megaton), and difficulty in establishing a comparability analysis between companies, even in the same sectors given that most frameworks fail to consider both scale and scope of the reported information and the individual company’s characteristics [23,24,31].

(d) Focusing on static metrics and negative impacts

Losing the scope of analysis of a company’s progress or deterioration can only provide investors with a small portion of a company’s sustainable efforts, rather than their performance overall. In line with this challenge, considering and reporting only past non-financial information, rather than analyzing the impact of strategies to be adopted by companies in the future, is a missed opportunity for ESG frameworks [23,30]. Lastly, there is a tendency to consider ESG reporting to disclose only negative impacts, despite the positive impacts being also “material” and influencing a company’s financial performance, just as risks do [1,31,32].

(e) Ignoring the “S” in ESG

Another important challenge reflects the “forgotten” side of the ESG, the “S”, which has been largely ignored in ESG reporting. How a company delivers on society’s goals as well as its own, meaning how it contributes not only to environmental and governance sectors but to the social dimension has been a blind spot in ESG reporting and analysis in the last years [8,33]. However, issues related to civil and human rights, health and safety, diversity, equity and inclusion, equal pay, and stakeholder and community engagement, should be considered and integrated into the company’s “S” strategy and ESG reporting [34].

These are key aspects for companies to consider due to several added values and risks they constitute for businesses in general. One of these aspects relates to reputation and value that it adds to the companies—for example, not addressing sexual harassment and racial discrimination in the workplace has a negative impact on market value while implementing ESG programs and initiatives can improve companies’ value and capture new investments. Another relates to the productivity of the companies themselves and the ability for employee retention, since workplaces that promote diversity, inclusion, and integrate anti-discrimination policies, combat harassment, and promote equal pay and respect have higher productivity, translating to higher revenue growth, innovation, and employee retention rates. Another important side of investing and reporting on the “S” dimension is associated with legal compliance, given the rapidly changing regulatory standards and overall mandatory requirements environment. Companies that already implement ESG, and particularly “S” policies, will be able to comply with the regulatory developments and other mandatory requirements more rapidly, allowing them to avoid legal and financial penalties associated with being uncompliant; for a review see [34].

Nevertheless, without clear guidelines on how to report on this important dimension, businesses are vulnerable to legal liabilities under an increasing number of regulatory frameworks that require the disclosure of the efforts to prevent human rights violations, as well as reputational and financial harm, due to the lack of reporting of essential information regarding the social aspect of their performances [32]. Another important aspect related to this challenge is the need to assess compliance and due diligence conducted by the companies, regarding the social aspect of ESG, which in most frameworks is not verified or only translates to questioning companies about the existence of policies that consider social themes, such as human rights or modern slavery, but not even verifying if the policies themselves are compliant [8,32,33].

As such, there is a need to integrate and direct the attention to a broad sector of stakeholders and ensure that the companies not only disclose, but actively contribute to the customers, employees, suppliers, and communities around them as well as delivering profits to their shareholders [23,33].