ESG Reporting: How Finance Professionals are Looking Ahead

Given the increased regulatory attention and the degree to which finance professionals are being relied on to support increased ESG reporting efforts, the Financial Education & Research Foundation of Financial Executives International collaborated with Ernst & Young LLP (EY US) to conduct research designed to uncover:

• The extent that members of the finance function have dedicated time and resources to address ESG reporting
• The robustness of formalized policies and procedures
• The roles and responsibilities of key individuals in the organization
• The most common ESG metrics that are reported and the timing and manner in which the data is collected

This article contains key excerpts from the research and highlights how finance professionals are interacting with ESG reporting right now and how they are addressing key control considerations for ESG reporting.

Finance professionals and ESG

“We own our involvement in [ESG reporting] now and moving forward,” explains one controller. She continues, “But as we think of what the future of this really looks like, and as we establish more defined roles and responsibilities, [our involvement] will continue to evolve.”

As anticipated, the Securities and Exchange Commission released its proposed rule – The Enhancement and Standardization of Climate-Related Disclosures for Investors – back on March 21^st. As the proposal provides greater clarity on potential future reporting requirements, financial leaders, such as the one quoted above, are now determining what their involvement in the process will look like moving forward.

In the meantime, some finance professionals are in the process of discovering where the scope of finance function begins and ends as it pertains to involvement with ESG reporting. Moreover, several interviewees are now in the process of leveraging their skillsets in financial reporting in the ESG reporting space. As one finance professional noted, “Clearly, the chief accountants and the controllers of the world weren’t built to be climate experts or understand everything about human capital metrics.” He continued, “Where we can help is by coming up with controls and building processes to gather that data — we know how to do that kind of stuff because we already do it for [financial] numbers.”

How finance professionals are approaching ESG controls right now

“We have started to ask about documentation, and a lot of people respond, ‘Well, we probably have a few emails,’” remarked one finance professional. Based on the interviews, the documentation underpinning publicly disclosed ESG information is often ad hoc and inconsistent, in contrast to financial data. To bring the documentation into greater alignment with reported financial data, finance professionals are working with data owners, data collectors and functions that own sustainability reporting to help create formal documentation that addresses how to collect, store, collate, analyze and, ultimately, report on the various ESG metrics. One controller described her controllership’s experience in working to understand and map the ESG-related data saying, “Prior to getting involved, we were like a lot of companies. The data, the data collection and the data analysis are performed by the sustainability group, or the energy group, or HR, or any number of other functions that own the data.” Her team’s work to map the flow of data through the process helped them provide understand the process and flows of data, enabling them to work with data and process owners to make improvements delivering increased accuracy and efficiency. Another interviewee is focusing on ensuring that her organization’s process is resilient and adaptable from the human perspective; for her, this means adequately documenting each task being performed, why it is performed, and how it is performed. 

Another interviewee remarked that, regardless of any regulations, and before many stakeholders started paying much more attention to publicly disclosed ESG information, her organization wanted the comfort of knowing it had robust documentation in place. She also remarked that documenting the existing processes has helped to identify gaps in their control framework. Since many metrics disclosed can be difficult to measure and can rely on outside inputs or significant judgments and estimation, finance professionals are looking at documentation to explain how certain measurements and metrics were derived.

Thinking about Scope 3 Emissions

One finance professional pointed to documentation of Scope 3 emissions as an area to which their company is devoting a lot of time, attention and resources – as currently there is a dearth of definitive guidance on this topic. Moreover, the inclusion of Scope 3 emissions in the SEC’s proposal is adding importance to the determinations described by the finance professional in the preceding sentence.

While large accelerated filers won’t have to report on Scope 3 emissions until 2025 and accelerated and non-accelerated filers until 2026, companies are quickly having to consider how to gather data from across the value chain. Moreover, some companies are beginning to plan for how they will approach reporting on their Scope 3 emissions with the understanding that some suppliers are and will be able to provide the data and others will not; one professional noted that their company would probably have to study those that do provide data and then make estimates for those that do not based on the other suppliers.

Moving forward

For now, we are seeing approaches to ESG reporting and finance’s involvement therein taking myriad shapes. In truth, we are seeing a diversity of approaches as numerous as the number of companies reporting on such information. One salient example is talent: a finance professional said that her team has recently begun the process for hiring an ESG internal controls position; other interviewees indicated that their organizations were considering other ESG-finance hybrid roles.

While the SEC’s proposals aren’t final (the comment period was recently extended until June 17) increased ESG integration into finance and vice-versa represents another aspect of how finance professionals are being asked to evolve. As with all aspects of their roles, finance professionals are bringing a commitment to quality, consistency, and effort to supporting ESG reporting.

To learn more, download the full report, How Finance Professionals Are Helping to Advance ESG Reporting.