How CFOs Can Manage ESG Reporting

Nneoma E. Njoku, general manager of Labrador
© AdobeStock
The task is critical for finance chiefs today, but figuring out how to do it best isn’t easy. Here are some key steps.

When it comes to demonstrating that your company cares about sustainability, mission statements and even anecdotes are no longer enough, says Nneoma E. Njoku, general manager of Labrador U.S., a global communications firm based in Atlanta that specializes in corporate disclosure documents and creator of the U.S. Transparency Awards. “Stakeholders are looking for greater transparency and for proof—metrics that pinpoint the success of ESG” goals, she stresses.

In a talk with StrategicCFO360, Njoku talks about the top ESG frameworks used today, the best metrics to consider pending mandatory disclosures and why it’s important to deepen your engagement with the board on ESG.

Why and how have the new demands for transparent ESG reporting changed the role of the CFO in the corporate disclosure reporting process?

With the corporate disclosure season upon us, CFOs are finding that their involvement in the development of the company’s corporate disclosure documents has become increasingly complex. Always the gatekeepers of financial information, their responsibilities are changing rapidly to include digital transformation, risk management and mitigation, accounting, investor relations, internal audit, treasury, technology—and now ESG reporting.

As ESG reporting evolves from voluntary to a hybrid of mandatory and voluntary disclosure, implementing standardized reporting and compliance requirements for an organization are now a critical part of the CFO’s evolving purview. And because ESG reporting requires input from multiple corporate departments, in many cases, internal teams are looking to the CFO to help them gather and provide the needed information in a way that best frames the corporate story.

This requires CFOs to gain a much broader understanding of sustainability and the required data analytics to support reporting, as well as further develop their strategic communication skills. When you look at the value creation of ESG reporting, companies can leverage this disclosure to demonstrate strong oversight and a focus on resilience over time.  Conversely, poor data controls and inaccurate data are a risk to an organization’ reputation and stakeholder trust. By implementing controls, the CFO is preemptively reducing stakeholder scrutiny. 

What are effective ways CFOs can prepare their organizations for future SEC-mandated and unmandated ESG reporting? How can CFOs create a well-honed process to capture the needed metrics without adding extra stress and burden to their organizations?

Stakeholders are increasingly expecting standardized measures to be in place to ensure the validity of ESG data and for this information to be accessible and transparent. Demonstrating strong leadership and acting as an advocate for ESG reporting within the organization is critical to the CFOs role in this area.  

A valuable first exercise is to conduct an assessment of the organization’s current ESG program. Evaluate the data collection practices, what departments are or should be involved in data collection, what data is being collected, and how the data is being verified.  

Whether you are the CFO of a public company that has been engaged in ESG reporting for many years or are just getting started, perform a materiality assessment to identify the ESG issues that are most important to the short-term and long-term value of your organization, and to the interests of your investors. This includes using both a financial and nonfinancial lens to assess, and demonstrate you are addressing and integrating the risks and opportunities that may impact your company operations and the impact your organization may have externally.  

Talking with auditors is also a great source of information and can help CFOs build a roadmap to take reporting from the early stages to the point where it is auditable and ready to have data third-party verified.

Evaluate your data and reporting against the various ESG external reporting frameworks to help determine the most relevant for your industry and those that best enhance the information most important to your company and its stakeholders.

Recognize that ESG reporting requires cross functional efforts and significant time for those involved. Establish a team of individuals across various departments and varying levels, including C-Suite executives with clear responsibilities to help minimize the complexity. 

Importantly, reporting to your company’s board of directors frequently helps keep them informed and provides them with the information needed to provide oversight of the various ESG components. The role of the board is evolving in tandem with the CFOs and there is value in developing deeper engagement around ESG reporting. Change starts at the top of an organization.

How to determine the correct framework for ESG reporting?

ESG information is not yet regulated, therefore finding a framework that works best for your company can be an important yet complicated process. As a result, we see most companies using multiple frameworks to guide reporting.

In Labrador’s recent review of the ESG disclosure documents of S&P 50 companies, Labrador found that 48 out of 50 publish some version of an ESG report. All companies referenced an external framework with the average number reported being three. The review found that:  

  • 85 percent report to Sustainability Accounting Standards Board
  • 74 percent report to Global Reporting Initiative Standards
  • 68 percent report to the Task Force on Climate-Related Financial Disclosures
  • 66 percent report to the United Nations Sustainable Development Goals

When choosing frameworks to inform reporting, it’s important to consider how to best build a strong foundation for your organization’s ESG program now and in the future that conveys credibility and a commitment to transparency.

What are the metrics most companies are including—whether mandated or not—and what should they include?  

The metrics most companies are including in their reporting fall into four categories: environmental, human capital management, diversity equity and inclusion, and sustainability oversight and compliance. The Labrador review of S&P50 ESG reporting found companies reported measurable metrics within the following areas: 

  • Governance: 92 percent
  • Diversity: 100 percent
  • Inclusion: 100 percent
  • Ethics: 98 percent
  • Health/safety: 94 percent
  • Human Rights: 90 percent
  • Community/charity: 94 percent
  • Biodiversity: 90 percent
  • Climate change: 100 percent
  • Water usage: 96 percent
  • Training: 96 percent

Whether mandated by the SEC or not, there is a demand for complete transparency when it comes to ESGespecially social or human capital management issues, e.g., workforce demographics and intersectionality, pay and racial equity and the programs to mitigate bias, human rights, etc., as well as environmental issues from carbon emissions reporting to renewable energy targets and net zero initiatives.

However, it’s no longer enough to have a company statement regarding diversity and inclusion, or say that you are a sustainable company. Stakeholders are looking for proofmetrics that pinpoint the success of ESG and human capital management initiatives. The CFO plays an important role helping various departments gather this data in a way that will best inform stakeholders.

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