Eye-opening new research from Accenture reveals how the urgent need for global reporting standards on environmental, social and governance (ESG) performance that emerged at COP26 through the International Financial Reporting Standards Foundation (IFRS) is ushering in a new era of measuring the performance of organizations and redefining what success means for companies. According to the report, Measuring Sustainability. Creating Value, while the CEO is at the helm of this seismic shift, CFOs and other senior leaders must also raise the bar on measuring and driving better performance that delivers value and impact for all stakeholders.
“Transparency builds trust—the foundation of strong partnerships and a compelling reason why people join a company,” said Julie Sweet, chair and CEO of Accenture, in a news release. “Using the right technology and business practices, there is now an opportunity for organizations to gather comprehensive ESG data that can help transform how they do business—building accountability across the organization, achieving global sustainability goals and ultimately creating greater business value.”
The researchers analyzed responses from over 640 finance leaders in 12 industries and six countries to understand how companies can better measure, manage and report ESG performance to fully deliver on their sustainability commitments. The report found that while the majority (78 percent) of finance leaders are seeking to understand the financial risk to their business that sustainability represents, only 47 percent have defined key metrics and data sources for their ESG reporting.
According to the report, businesses that translate ESG metrics into key performance indicators (KPIs) to monitor and advance their progress on concrete sustainability goals are more likely to be rewarded by the market. Between 2013 and 2020, companies with consistently high ESG performance tended to score 2.6x higher on total return to shareholders (TRS) than medium ESG performers.
“The urgent call for a unified set of ESG standards has finally put sustainability on the priority agenda in the way businesses report and disclose financial data, making COP26 potentially the GAAP moment for sustainability,” said Peter Lacy, Accenture’s global Sustainability Services lead and chief responsibility officer, in the release. “This is not simply a call to improve disclosure and reporting or tick boxes, but rather an opportunity for top-to-bottom transformation that enables individuals at all levels of the organization to make better decisions using new data, balancing shareholder and stakeholder value on sustainability and financial performance.”
According to the report, only 26 percent of companies have clear, reliable data to measure and monitor their sustainability goals. The research also found that 70 percent of companies still use manual or semi-automated processes for their ESG reporting. Moreover, with just 31 percent of companies claiming to have fully embedded ESG data and measurement in their core operational and management information systems, it’s clear that sustainability data is not yet treated as essential business data, despite the impact it can have on an organization’s bottom line.
A talent gap is also hindering sustainability progress, with more than half (54 percent) of leaders citing inadequate skills as a challenge to measuring and reporting ESG performance, making the need for leadership from the top even more important.
“Digital and sustainability will be the two driving forces of competitiveness in this decade. Leaders must now rethink what performance means in their organizations and devote the same resources and attention to ESG that they do to financial data streams if they want to unlock the full value from and impact of sustainability,” said Jason Dess, global lead, CFO & Enterprise Value at Accenture, in the release. “CFOs will play a central role—as they allocate capital and oversee performance—in financial reporting and engaging strategically with the capital markets. They have a real opportunity to close the ESG data gap by working with a wider set of ecosystem partners and across their companies to identify, extract, interpret and report all required data.”
The Accenture report offers companies, and CFOs in particular, guidance for how to navigate ESG challenges and lead change by rearchitecting performance rooted in reliable data that can be measured in an accurate and transparent way. This includes:
Inform and play a role in shaping the sustainability strategy
To satisfy market demands and make sure that ESG reporting remains more of an opportunity than a financial risk, companies should publicly commit to establishing value targets for their sustainability strategy and ambition—towards, for example, net zero, circularity or delivery of the UN Sustainable Development Goals.
Focus on measurement, accountability and effective management
Financial leaders need to assess and shape the “Sustainability DNA” of their organizations alongside CHROs and other talent leads; transform the operating model through organization design and the latest tools and capabilities; and embed ESG goals and accountability across the business to drive fundamental shifts towards the creation of value and impact for all stakeholders.
Seek the right data to make better decisions at every level, including using existing and rapidly emerging technology solutions
Currently, financial and ESG data are not treated equally. Companies need to recognize and improve how sustainability data is collected. This includes defining a clear plan to capture key data; establish quality and readiness systems for disclosure; design end-state ESG data storage and reporting solutions; and identify key metrics for value creation and internal performance.
Go beyond reporting and disclosure to wholly rethink the definition of performance and success to stakeholders
Align on a strong narrative that presents an effective storyline for key metrics, then build modular, integrated interactive elements—from voluntary reporting to compliance—that communicate results in a unified way and take advantage of advances in technology and new ways of working to drive a new era of performance.
Accenture commissioned McGuire Research Services to conduct a survey of corporate finance leaders on how they approach ESG measurement and reporting, and the challenges they face. We surveyed 640 finance leaders, ranging from CFO to Director of Finance, in August and September 2021. We surveyed leaders at companies that reported more than $1 billion in revenue, spanning 12 industries and with headquarters in six countries (China, France, Germany, Italy, the UK and the US). Accenture also convened and conducted an expert panel discussion at COP26 with six corporate sustainability leaders in different industries at an event that took place in Glasgow, Scotland, on November 4, 2021.