By: James Paterson, Vice President and General Manager, CCH Tagetik at Wolters Kluwer
The relative importance of corporate Environmental, Social, and Governance (ESG) reporting is continuing to evolve, with Bloomberg Intelligence predicting that global ESG assets under management are on track to exceed $53 trillion by 2025. A recent PwC investor survey found that 79% of respondents said that ESG reporting was an important factor in their investment decision-making, and 49% said they were willing to divest from companies not taking significant ESG action.
These projections are driving many companies to accelerate plans to better quantify, integrate, and elevate their ESG reporting…and ask the very functional question of which of their leaders is best positioned to lead the ESG reporting process. A recent Accenture survey found that 68% of executives believe that the ultimate ownership of ESG should lie within the office of the CFO. Still, an EY survey conducted in the same period indicates that only 3% of organizations currently give the finance team primary responsibility for the ESG reporting process.
Here’s my take on why CFOs are well-positioned to lead ESG reporting and why that shift in ownership needs to start now.
- CFOs possess the holistic, 360-degree organizational perspective that ESG reporting requires. As lead financial stewards for the entire organization, CFOs have long maintained a 360 view of the company’s strategic business and cultural priorities, as they are traditionally tasked with ensuring budget, staffing, and other resources are appropriately aligned to support those priorities through the budget process. Due in large part to the integral role they’ve needed to play in managing many of the disruptions of the last few years—the COVID-19 pandemic, rising inflation, supply chain issues, and the war in Ukraine, just to name a few—CFOs continue to expand the breadth and depth of their understanding of operational planning, human resources, logistics, and other functional areas that have a significant impact on ESG reporting.
- High-quality ESG reporting requires the same deep, cross-functional collaboration that CFOs implement to facilitate quarterly and year-end financial reporting. Similar to quarterly and annual financial reporting, effective ESG reporting requires a centralized leader who is skilled at:
- collaborating with a myriad of sometimes-siloed departments, businesses, regions, and teams to identify and collect specific metrics and real-world data that reflect the company’s performance against key strategic priorities and goals;
- partnering with the Office of the CIO to make the collection and analysis of that data less onerous and more efficient;
- aligning company leaders to use that data to tell a consistent, compelling financial story to employees, customers and investors.
Effective CFOs have already collaborated with internal teams to develop the infrastructure, technology, and processes to facilitate these complex tasks for financial reporting. They are well-positioned to adapt each to meet the complex needs of effective ESG reporting.
- CFOs are highly experienced in reporting complex organizational and financial data in a way that drives compliance with complicated standards. Until recently, ESG reporting has largely been voluntary and relatively flexible, with companies having the freedom to pick and choose from several disclosure standards, which they are free to interpret in a number of ways. However, with the U.S. SEC making clear that it will soon require corporations to adhere to specific ESG reporting and disclosure requirements in their registration statements and financial reports, and with the EU also implementing more stringent ESG reporting requirements in January 2023, new levels of rigor, consistency, and discipline now need to be applied to ESG reporting, with a serious focus on compliance.
CFOs already advise their organizations on relevant tax and finance requirements across various global jurisdictions. They can apply that same skillset to ESG oversight and reporting, helping to bring greater clarity, accuracy, and reliability to the process. CFOs are also well suited to develop ESG metrics that can verify financial projections communicated by the CEO and other management while collaborating with key internal teams to ensure those projections are achievable and aligned with stated goals.
- ESG reporting is an excellent opportunity to build trust and competitive advantage among investors, customers, and employees. CFOs already lead the process of ensuring that corporatebudget processes communicate a company’s values and culture, which may be one reason why research demonstrates that when CFOs help develop ESG programs, they are better aligned with company objectives. Effective CFOs also deeply understand the economics of their company business models, have a command of sector-shaping trends and serve as a thought leadership partner of the CEO and the board. This makes them well positioned to help reduce corporate exposure by ensuring that ESG approaches are coherent, logical, and in sync with overall business strategy; and to guide other company leaders to maintain cohesion between the company’s high-level financial and ESG vision and daily decisions and activities. CFOs are also best positioned to ensure financial, and ESG reporting are integrated to tell a compelling story that builds credibility, trust, and competitive advantage among investors, customers, and employees.
- CFOs are the best positioned to promote a culture of long-term sustainability by leveraging technology to fully integrate ESG KPIs into financial and operational plans that combat risk and drive business growth. To move away from a compliance only ESG mindset, companies must demonstrate how ESG initiatives and financial performance converge. CFOs are best positioned to leverage technology to embed ESG data and KPIs into financial and operational plans to improve organizational decision-making and help companies combat credit, climate, and reputational risks, while reducing costs and optimizing resources.
The tide of public sentiment is this: companies that aren’t producing ESG results now and for the foreseeable future aren’t a good investment. Getting ESG reporting right is critical to meeting emerging regulatory requirements, influencing ESG credit ratings, and improving reputation among sustainably minded investors.
Now is the time for finance leaders to lean into the evolution of their roles and reassert themselves as strategic partners and digital enablers of the business by leading not just the financial reporting process, but the ESG reporting process, too.
About the author:
James Paterson, Vice President and General Manager, CCH Tagetik at Wolters Kluwer. James leads the Corporate Performance Management software solutions business unit in North America and consults with clients in the office of finance, assisting them in making faster and better-informed decisions in financial close & consolidation, integrated business planning, and regulatory compliance processes.