Financial professional involvement will likely play a key role in the next phase of the environmental, social and governance (ESG) reporting process as the ESG landscape rapidly evolves, according to new research from Ernst & Young and the Financial Education & Research Foundation (FERF).
The findings from the firms’ new study, How Finance Professionals are Helping to Advance ESG Reporting, reflect how finance professionals are being relied upon to support and reinforce ESG reporting efforts as demand from regulatory bodies, investors and other stakeholders increases. In fact, finance professionals report strong levels of involvement, and while just 7 percent of chief accounting officers (CAOs) and 3 percent of chief financial officers (CFOs) “own” the ESG reporting process, more than 60 percent of respondents indicated that the CAO, CFO, head of Securities and Exchange Commission reporting, head of internal audit and audit committees are either highly or moderately involved with ESG reporting efforts.
In addition to survey data, the report includes perspectives drawn from interviews with financial executives from eight public companies
Both the survey data and the responses reflect the need for alignment in three key areas related to finance support for world-class ESG reporting:
- Processes and controls
- Data and technology
The application of these three fundamental components of financial reporting represents a progression of ESG reporting from what could be described as the first and less mature generation to the next, while increasing the level of process rigor, use of automation, consistent policies and procedures, and finance-team involvement.
Building the foundation of ESG reporting will likely involve appropriate new technological tools to complement existing ones, according to the report.
Other key findings of the report show that:
- Controls and processes are a work in progress: Just 8 percent of respondents indicated that they had a relatively complete set of procedures in place to drive a consistent application of ESG data across the organization.
- ESG data resides all over the place: 60 percent of respondents indicated that ESG information resides in a patchwork of software applications, and 55 percent of respondents are housing their ESG data in a spreadsheet.
“Finance professionals are critical to the ESG reporting process,” said Jackie Klos, a partner with Financial Accounting Advisory Services at Ernst & Young LLP and a contributor to the report, in a news release. “By applying the same rigor used in financial reporting to ESG reporting, finance functions are enhancing governance and controls over the underlying data and calculations, allowing executives to rely on both financial and ESG information to inform strategy, achieve their goals and support the veracity of external disclosures.”
“The research also shines a spotlight on the fact that the role of financial leaders in business today continues to diversify, reminding us that the skills and experience of such professionals should evolve to stay effective,” said to Andrej Suskavcevic, CAE, president and CEO of FEI and FERF.
This research is based on a survey distributed to finance professionals from US-headquartered publicly traded companies. In total, 72 chief accounting officers and controllers from some of the largest US companies responded to the survey.