What CFOs need to know about ESG reporting

As the effects of global warming continue to be felt across the globe, businesses are in a hurry to ensure that they meet the ESG requirements demanded by regulators and investors.

According to a recent KPMG survey, more than 50% of businesses said they see financial disclosure of ESG impacts as an opportunity to set them apart from competitors. However, organisations struggle to successfully translate their efforts into non-financial reporting that showcases their achievements.

Hot off the heels of COP27 where new mandates were outlined, organisations have an opportunity to be strategic about their non-financial reporting and how they are move forward with their ESG agenda.

From implementing frameworks and policies that govern ESG reporting, to evaluating if organisations have the right data catalogued to support it, finance teams have their work cut out for them.

In a recent webinar, The CFO, in partnership with HR, payroll and finance experts MHR, outlined what CFOs need to know about ESG reporting.

Harry Briggs, director – sustainability advisory & reporting at Terra Instinct, explained that it was important for businesses to understand that investors are using ESG reporting information now more than ever.

“We have seen this on the increase for the best part of the past decade, but it has always been a fairly small part of the market that really gave any weight to the sustainability credentials of a business,” he said.

“That has gone through the roof over the last two years. You are now more likely to be asked about your sustainability credentials when investors are appraising and the statistics bear that out as well.”

According to our expert panel, the best way for organisations to correctly audit their existing data streams to assess which are relevant for measuring and reporting is to do a basic diagnostic assessment of what they actually have in place across all their profit and loss (P&L) accounts.

“What we have traditionally done is map that to [ESG] and identify out of that what relevant data can be used to form the basis of an effective ESG strategy. Once you’ve done that, then identify those easy, measurable streams,” said Mark Lumsdon-Taylor, partner at MHA Baker Tilly International.

As with many other aspects of the way business is conducted today, technology is also helping finance teams by ensuring that ESG reporting is done correctly and efficiently.

Alan Bagnall, associate director at Wolters Kluwer, stressed that a lot of the data needed to get an ESG journey started is in the business already and that taking small steps is important.

“It’s the old adage of how do you eat an elephant, you’ve got to do it in bits because you have to show the business that you can strategise on a small level, and deliver an outcome before you can move on to phase two, then phase three, and phase four,” said Bagnall.

It is crucial for companies to ensure that they do not underestimate the sheer amount of data and the abundance of sources of data that they are going to have to engage with.

“Historically, companies are not very good at actually being able to pull together their own internal data,” said Bagnall. “There are multiple technologies out there that can cater to this volume of data and allow for this volume of processing and the speed of processing that businesses need.

“Choose carefully the KPIs that you’re going to need to support how you externalise information and how you internalise information and how that enables strategy,” added Bagnall.

Businesses can evaluate the success of their ESG reporting in numerous ways, but in order to achieve ESG goals they must be baked into the very heart of an organisation.

“If you are going to achieve anything on the sustainability agenda, you’re going to have to integrate that across your whole business,” concluded Briggs. “So, you are not going to have a team of three people sat in the corner, just doing sustainability and your whole business is magically going to become sustainable.

“It’s going to have to become part of the day job for everyone across the business,” added Briggs.