Customers, employees, investors and regulators are interested in your environmental, social and governance (ESG) performance metrics. Managing the underlying data has typically been the job of the chief sustainability officer (CSO) or the general counsel. Now, the task is migrating to the CFO. And given the growing interest from stakeholders and shareholders alike, robust and accurate ESG reporting can both differentiate your company and elevate the role of the CFO.
For most companies, building a flywheel-like system is the answer. The mechanical concept of a flywheel is simple: the energy expended to create forward rotation in a wheel can create its own momentum that can be used to power something else later. The up-front work to create your ESG ecosystem can have a similar feel to it. Yes, it will be work to get it rolling but soon you can gain momentum with strategy, implementation and reporting, fueled by technology automation. But where to start? Here are three steps to take:
1) Establish standards and metrics
Begin with an ESG materiality assessment. Most companies should start with the standards laid out by the Sustainability Accounting Standards Board (SASB) for your industry, as well as guidance from the Task Force on Climate-related Financial Disclosures (TCFD). Then, tailor these guidelines for your firm. What constitutes a material disclosure that informs decision-making is subject to significant management judgment. Beyond what’s significant financially, what do your stakeholders—investors, employees and the board, among others—think are the material issues relevant to your organization?
Once you’ve determined this, work to map out the process for gathering the information required, noting where it all resides, so you can begin to imagine how to migrate it to a new system. “Begin with the end in mind,” as they say. Someday in the future, as this data becomes public and investor-facing, you will be bringing their feedback to these same stakeholders. You might find yourself coming back to the head of HR to talk about an issue an investor raised about your diversity efforts, for example, or bringing details of your strong climate performance to your head of communications and your CEO. PwC is seeing executives use these opportunities to lay the groundwork for a solid relationship.
2) Create the right policies, processes and controls
Once you decide what to report, a robust control structure can make all the difference. Software from providers may already be in use at your company, say, as your SOX compliance platform. Expanding to incorporate ESG with the same provider may give you a strong control component to capture your data in a system that is auditable and lives with your other financials.
One such solution: SASB and PwC have collaborated on a data framework that encompasses SASB’s 77 industry standards, creating a taxonomy to enable unstructured data and disclosures to be tagged, captured and managed centrally. Terms related to ESG can be made machine-readable, stored, analyzed and reported.
This taxonomy has been tested on the Workiva platform. Workiva is recognized as a market leader in SEC reporting and has powerful workflow capabilities for SOX compliance as well. The PwC alliance with Workiva provides a technology-enabled approach to ESG processes, controls and disclosures, including integration of Workiva’s framework enablement, data and reporting capabilities that allows a company to use multiple frameworks—or build their own—and match the data and outputs needed to tell their story.
This upfront work to help create the foundation for automation is crucial; the time it takes to manually gather, analyze and prevent error will likely be a hindrance. The goal is to tag your ESG component inputs in a way that allows you to adjust your analysis and reporting later, since standards will certainly evolve over time.
Work side by side with stakeholders as you build this system.
3) Establish the reporting regimen
Cloud-based reporting platforms, such as Workiva’s, can consume information from the underlying data systems and, when enabled with the end in mind, can reduce the time to generate the variety of reports required. But you’ll want to consider where that reporting appears. In a corporate sustainability report, or CSR? Posted on the company website? Included in your financial filings? Submitted to ratings agencies? Setting up a strong ESG reporting structure can differentiate your organization to all of your stakeholders.
This is where a centralized, standardized way of ESG reporting can empower the finance function. The CFO can begin to advise the broader business on how its ESG behavior is landing with investors. The Workiva platform, for example, helps bring accurate and data-driven disclosures to the market. That aids in the ever-critical analysis of ESG performance that leads investors to invest or divest. Strong ESG performance can win over and retain customers and employees by helping with recruiting and reputation in the market. Getting it right and showing continual improvement can set you apart in the press and in brand recognition.
If the idea of building out a system for each element of ESG is daunting, it’s feasible to build the strategy, implementation and reporting mechanism for one aspect of the ESG framework. Perhaps start with something that feels more urgent—say, climate risk.
Once the flywheel effect takes hold, you can be in a strong position to analyze, advise and inform all stakeholders for the greater good—and the bottom line.
