Practical hurdles in emissions measurement, sector reporting and integrating sustainability into strategy

Carbon Accounting and ESG Reporting Challenges

The corporate sustainability reporting landscape in 2026 continues to evolve at an unprecedented pace, shaped by intensifying regulatory demands, persistent operational complexities, and groundbreaking technological innovations. As organizations worldwide grapple with the full operationalization of the EU’s Carbon Border Adjustment Mechanism (CBAM), the U.S. Securities and Exchange Commission’s (SEC) crackdown on ESG disclosures, and expanded supervisory enforcement across Europe, the practical challenges of emissions measurement—especially for Scope 3 and lifecycle emissions—remain formidable. At the same time, advances in agentic AI-enabled ERP systems, interoperable middleware, and governance frameworks are enabling deeper integration of sustainability into corporate strategy and financial management.

Regulatory Intensification: CBAM’s Sectoral Cost Signals, EU Enforcement, SEC Crackdown, UK’s SRS Launch, and New EU Liability Regimes

2026 marks a pivotal year as sustainability regulation enforcement sharpens and harmonizes globally, with several critical updates:

CBAM Imposes Significant Carbon Costs on Energy-Intensive Imports: The EU’s CBAM is now fully live, delivering concrete carbon cost signals across key sectors. Notably, aluminium extrusion imports face incremental burdens of up to €230 per tonne, dramatically reshaping competitive dynamics for companies reliant on carbon-intensive raw materials. This price signal incentivizes upstream decarbonization and demands highly granular, interoperable emissions data systems to track multi-tier supply chains accurately.
EU Omnibus I Directive Introduces New Civil Liability and Penalty Regimes: Published recently in the Official Journal of the EU, this directive reforms corporate liability frameworks by capping penalties for non-compliance at 3% of net worldwide turnover, a significant escalation that underscores regulatory seriousness. This development heightens the stakes for companies to maintain audit-ready, verifiable ESG disclosures and robust internal controls aligned with stringent enforcement expectations.
SEC’s Intensified Enforcement and ESG Disclosure Overhaul: The SEC Chair’s recent editorial branding current ESG disclosures as a “Frankenstein monster” signals an unambiguous hardening of the agency’s stance. The SEC demands consistent, verifiable, and complete disclosures that withstand investor scrutiny and regulatory audit, driving companies to overhaul their ESG reporting frameworks to restore market confidence.
UK Launches Long-Awaited Sustainability Reporting Standard (SRS): The UK Financial Conduct Authority (FCA) formally adopted the ISSB’s IFRS S1 and S2 standards and launched its own Sustainability Reporting Standard (SRS) in February 2026. This harmonization elevates sustainability disclosures to the rigor and auditability of financial reporting, reinforcing global consistency while increasing issuer accountability.
Fragmented U.S. State-Level ESG Mandates Continue to Multiply: Beyond federal SEC rules, states like New York have introduced stringent greenhouse gas disclosure requirements. This patchwork regulatory environment demands agile compliance strategies capable of navigating divergent scopes, thresholds, and enforcement priorities.
Mainstreaming of Double Materiality and Financial Integration: Double materiality—the dual assessment of ESG factors’ financial impacts and societal footprints—is now deeply embedded in supervisory frameworks and data providers, including MSCI and the EU’s Environmental and Social Information Framework (EINF). Financial institutions, from banks to asset managers, are systematically revising capital allocation and risk management to incorporate climate risk.

Operational Hurdles Persist: Closing Scope 3 and Lifecycle Emissions Data Gaps

Despite technological progress, operational challenges remain steep, particularly in measuring and reporting upstream and downstream emissions:

Scope 3 Emissions Remain a Data Black Box: Complex, fragmented supply chains continue to hamper full Scope 3 accounting. For example, the Ingka Group (IKEA’s parent) still excludes several Scope 3 categories due to supplier non-compliance, a microcosm of a widespread industry challenge.
Supplier Capacity Building Is a Critical Bottleneck: The EU’s recently published 35-page procurement guide for Irish SMEs exemplifies practical efforts to empower smaller suppliers with ESG compliance tools and knowledge. Such targeted capacity-building initiatives are essential to improve the completeness and quality of emissions data upstream.
Lifecycle Emissions Beyond Supply Chains Are Under-Reported: Emissions during product use and end-of-life stages remain poorly accounted for, creating significant blind spots in lifecycle assessments and hampering comprehensive sustainability impact evaluation.
Cross-Functional Collaboration Remains Difficult to Institutionalize: Effective Scope 3 accounting demands sustained cooperation among sustainability, procurement, finance, and operations teams to avoid data duplication and ensure integrity. Institutionalizing these workflows remains a persistent hurdle.
Middleware and Primary Carbon Data Take Center Stage: Platforms like Hashgraph’s TrackTrace are gaining traction by providing immutable, transparent emissions data trails across multi-tier supply chains, facilitating compliance with CBAM and ESRS requirements. TrackTrace leverages distributed ledger technology to enhance traceability and auditability, critical in a regulatory environment demanding verifiable disclosures.
Sector-Specific Momentum Shows Promise: The bar beverage sector, led by companies like BarthHaas Group, demonstrates how supplier engagement aligned with the Science Based Targets initiative (SBTi) can drive improved data quality and tangible emissions reductions. Similarly, Constantia Flexibles, Europe’s second-largest flexible packaging company, highlights advances in paper-based packaging and lifecycle emissions measurement at CFIA 2026, underscoring the role of supplier collaboration and integrated lifecycle platforms.

Technology and Governance: Agentic AI, SOX-Compliant Frameworks, Middleware Enhancements, and Explainable Compliance Tools

Technological innovation is reshaping sustainability data management, but demands rigorous governance to ensure reliability and regulatory compliance:

Agentic AI Embedded in ERP Systems: Leading ERP platforms, such as SAP S/4HANA Cloud, increasingly incorporate agentic AI functionalities that automate data synthesis, validation, and scenario modeling for emissions reporting. This enables real-time, audit-ready carbon ledgers integrated directly into financial planning and risk management workflows, bridging sustainability and enterprise value creation.
SOX-Compliant AI Governance Frameworks Gain Traction: Gartner’s recent report, AI Agents, EU Regulation & Why 40% Will Fail, warns that as many as 40% of AI-enabled sustainability initiatives risk failure without proper governance. Organizations are proactively adopting Sarbanes-Oxley (SOX)-compliant AI governance frameworks featuring continuous monitoring, comprehensive audit trails, and proactive risk mitigation to ensure data integrity and regulatory alignment.
Explainable Compliance Tools Enhance Transparency: Solutions like Compliance Scorecard v10 provide explainable, context-driven AI insights to help sustainability and finance teams navigate complex regulatory landscapes and demonstrate compliance with evolving standards.
Middleware Platforms Facilitate Seamless Data Exchange: Tools like the TRACES API and GeneCapsule enable standardized, interoperable data exchange across extensive supplier networks, particularly in manufacturing and mining sectors. These platforms play a critical role in managing multi-jurisdictional emissions data flows but require integration with holistic lifecycle emissions accounting practices.

Market Integrity and Voluntary Carbon Market Scrutiny Intensify

The voluntary carbon market (VCM) faces increasing regulatory and investor scrutiny to ensure credibility and market integrity:

The draft ESRS E1 standard clarifies corporate expectations regarding carbon credit accounting and usage, directly impacting the legitimacy of net-zero claims and offset strategies.
Market participants are focusing more sharply on carbon credit quality, including additionality, permanence, and the avoidance of double counting to counter greenwashing risks.
Practical compliance aids such as ESG due diligence checklists and supplier procurement guides (e.g., the EU’s Irish SME guide) are becoming indispensable tools for verified sustainability data generation.
European supervisory bodies are intensifying enforcement, emphasizing the necessity for robust, audit-ready, and cross-functional reporting workflows capable of delivering resilient ESG intelligence.

Sector Signals and Heightened Board-Level Scrutiny

Industry-specific developments and evolving governance expectations illustrate shifting priorities:

Packaging and Manufacturing Advances: Constantia Flexibles’ innovations in paper-based packaging and integrated lifecycle emissions measurement illustrate how supplier engagement and technology adoption foster measurable emissions reductions.
Maritime Sector Decarbonization Without Inflation: Emerging analyses and industry dialogues underscore the maritime sector’s progress toward decarbonization strategies—such as zero-carbon fuels and vessel efficiency improvements—without triggering inflationary pressures. These developments carry significant implications for emissions reporting and regulatory compliance in a globally interconnected transport sector.
Increased Board-Level Attention on Energy and Environmental Risk: According to the recent Environment+Energy Leader report, boards are asking more probing questions about energy and environmental risks, signaling a shift toward elevated governance and executive sponsorship of sustainability initiatives. This scrutiny drives investments in ESG data infrastructure and cross-functional collaboration, institutionalizing sustainability as a strategic imperative.

Geopolitical and Market Fragmentation: U.S. State Divergence, Australia’s ISSB Adoption, and Multijurisdictional Compliance

The U.S. continues to experience regulatory fragmentation with diverse state-level ESG mandates complicating compliance strategies for multistate operators.
Australia’s formal adoption of ISSB standards aligns it with global sustainability reporting norms, but companies operating across borders must navigate a complex matrix of overlapping and sometimes divergent reporting obligations.
These dynamics underscore the critical need for agile, interoperable compliance systems capable of harmonizing data flows and regulatory responses across jurisdictions.

Strategic Priorities for Companies in 2026 and Beyond

To effectively manage the escalating sustainability landscape, companies should prioritize:

Closing Scope 3 and Lifecycle Emissions Data Gaps: Intensify supplier engagement, leverage interoperable middleware platforms like TrackTrace, and invest in integrated lifecycle emissions measurement tools to enhance data completeness, quality, and audit readiness.
Implementing SOX-Compliant AI Governance: Establish continuous AI monitoring, maintain transparent audit trails, and embed proactive risk mitigation to safeguard compliance and data integrity.
Embedding ESG into Financial Strategy: Integrate verified sustainability and emissions data into earnings forecasts, capital allocation decisions, and enterprise risk models to align sustainability targets with business value creation.
Elevating Board-Level Oversight: Promote executive sponsorship, invest in ESG data infrastructure, and foster cross-functional collaboration to institutionalize sustainability governance.
Preparing for CBAM and Multijurisdictional Compliance: Develop agile compliance strategies and interoperable data flows to manage carbon cost exposures and regulatory heterogeneity across global supply chains.
Utilizing Practical Compliance Aids: Deploy ESG due diligence checklists and supplier procurement guides—especially targeted at SMEs—to empower suppliers and close critical data gaps.

Conclusion: Toward Resilient, Audit-Ready ESG Intelligence

In 2026, the quest for continuous, audit-ready ESG intelligence stands as both a formidable challenge and an indispensable enterprise. The convergence of verified primary carbon data, agentic AI-enabled ERP systems, interoperable middleware platforms, and evolving governance frameworks is reshaping how companies measure, report, and manage environmental impacts with rigor and transparency.

Sustainability expert Alexandra Blake encapsulates this imperative:

“Accurate carbon accounting is foundational for effective supplier engagement and targeted emissions reduction.”

Forward-thinking organizations now recognize sustainability not merely as a regulatory obligation but as a strategic driver of resilience and competitive advantage. With mounting regulatory pressures—from the SEC’s enforcement intensification to the ECB and ESMA’s uncompromising calls for transparency—and sectors like packaging and maritime making tangible decarbonization strides, 2026 is a watershed year. Companies that embrace innovation, governance rigor, and cross-functional collaboration will not only meet escalating demands but unlock new opportunities for risk mitigation, operational efficiency, and long-term enterprise value creation in an increasingly sustainability-driven market landscape.

Sources (42)