Global Finance Trends

Findings from Protiviti's Global Finance Trends survey reveal that environmental, social and governance (ESG) strategy are taking center stage as a top priority of CFOs today. Case in point: In 75% of organizations, the finance team adopted ESG risks and issues as part of its role. With their unique blend of financial management fundamentals, risk intelligence and access to forward-looking, data-driven insights, CFOs continue to extend their value to the organization beyond the boundaries of traditional finance and accounting activities. “ESG goals have to become senior management's responsibility to execute. Embed strategy in their performance goals. Then it filters to operations, reporting, stakeholder engagement, and GRC as the overarching approach, then the IT organization provides the data. CFOs are increasingly devoting more time, attention and resources to enterprise ESG initiatives and are key contributors to the enterprise’s ESG strategy and related dialogue in the C-suite and boardroom,” said Chris Wright, who is the Managing Director of Finance Transformation and Transaction Services at Protiviti, as well as the Leader of its Global ESG Steering Committee. Not only are stakeholders, customers and investors placing increasing importance and expectations on corporations to drive social change, but a growing number of governments and regulatory authorities are putting forth requirements for ESG reporting. Europe has led the way in promulgating these requirements, but other jurisdictions are catching up quickly. For example, in the United States, the U.S. Securities and Exchange Commission has issued proposed rules that would require reporting companies to enhance and standardize climate-related disclosures contained in registration statements and periodic reports. Given their experience in complying with various human capital disclosure requirements, CFOs should take a prominent role in tracking, reporting and improving performance against their company’s ESG goals.

Nine key ESG actions to take

Today, nearly every strategy and planning session among board members and C-suite leaders addresses ESG. Yet many companies – 34% of publicly held organizations and 22% of privately held organizations, according to our research – feel they are not ready for potential new required ESG disclosures. They need additional skills and resources, development of necessary internal data, and more time. As organizations begin to implement formal ESG strategies and reporting in accordance with regulations and best practices, CFOs and financial leaders can take the following actions:

1. Make a plan

As with any other key initiative, there must be a strategy and a plan for ESG programs and activities. They cannot be approached as a side project. Consider where the organization is, where it wants to be, and actions are needed to bridge the gap. “Unless you have a regulation or a form to fill out, you should not start with ‘Where do I report, what do I report?’ Ask ‘What are we doing here? What are our operational goals? How do we tend to be more sustainable? And therefore, here's how I'm going to report.’ There are framework selections that have to happen,” said Wright.

2. Be flexible

Recognize that ESG operating and reporting rules and regulations are in flux, as are stakeholder demands. This leads to likely shifts in expectations and needs in operations and reporting. Ongoing programs and lean managing can help an organization stay flexible and agile to respond to changing demands and inquiries.

3. Know the landscape

Understand ESG ratings, rankings and metrics so you can choose knowledgeably which framework and/or methodology the organization should follow. “We have to understand the social aspect ESG and what metrics can we gather. In our Sustainability Control Tower, that is exactly what we do. We have the share of women in management roles, the employees by gender and grade. We also have similar metrics that we can gather from the environmental perspective. These include total greenhouse gases and how that is being gathered and reported. Finally, we have overall governance, which is very similar,” said Chris Hickman, Associate Director, SAP ESG Leader at Protiviti.

4. Prepare to be audited

Establish management controls and ensure the organization’s relevant ESG data is of high quality and is as reliable as the financial data that auditors are accustomed to reviewing. Engaging internal audit or working with independent auditors can be especially helpful to ensure data and reporting are accurate.

5. Designate your ESG data resources

Identify who (inside or outside the company) will be able to access and provide the necessary ESG data, some of which involves complicated calculations and the use of data from sources that are not familiar to the CFO, FP&A group and other financial reporting teams that will be responsible for the filings.

6. Anticipate scrutiny

Expect all stakeholders – regulators, shareholders, investors, customers and employees – to intensify their reviews of corporate ESG reporting. The organization’s reporting should tell the company’s story clearly and be supported by data and metrics. But be diligent about avoiding greenwashing. Ensure that the organization’s efforts are effective and truly targeted toward sustainability and are not just words or activities intended to make the company look good. “Stakeholders, including employees, are deciding where to work whether to stay at their company based on how sustainable their employer is or plans to be. Protiviti's survey of over 1,000 CFOs - 78% of which were private companies - put ESG reporting in their top 10 concerns. That is the reason we know that it's more likely about the sustainability than about required reporting, said Chris White, Leader of Protiviti’s Global ESG Steering Committee.

7. Engage a broad group of stakeholders

Involve the audit committee, internal audit and SEC counsel in the evolving climate reporting conversation during the planning phases. That way, you can align resources and priorities. Make sure ESG planning, strategy and reporting takes a multidisciplinary approach in your organization. “Remember that stakeholders are not just shareholders, but lenders, vendors, employees, customers, insurers, and in many cases the community leaders in the communities in which companies exist and do business,” said Wright. Ensure all of the right people are at the table, including internal audit, finance, other functional leaders and the board. This enables the organization to adopt a holistic approach to its ESG reporting.

8. Assess gaps

Evaluate the company’s existing ESG reporting capability and skills against ESG objectives. Identify where the partners in your professional services ecosystem can be complementary and fill in the gaps. Consider the talent and bandwidth of your internal teams. Think about whether it will be necessary to look at other resources, including managed business services partners.

9. Don’t forget the big picture

Remember that ESG is not just about data and what you are reporting to the outside world. It’s about building an inclusive internal culture. Make ESG a critical part of your organization’s mission, purpose and strategy. Link your ESG initiatives with financial performance and KPIs. A strong ESG program will keep employees engaged and informed and help the organization attract new talent while reducing attrition. “The real desired outcome is in five or 10 years when people stop using the three letters “ESG” because it's ingrained in the three letters “BAU;” business as usual. We are not there yet, and we are not going to get there anytime soon. This has to start at the top. It has to be in people's goals and then that is what gets it funded,” said Wright. Interested in learning more? Read our research report, Reimagine: From automation and cloud to ESG and talent management, CFOs are reimagining their long-term roles, available at www.protiviti.com/financesurvey.