Why Finance Should Copilot ESG Compliance
At most companies, multiple teams support environmental, social, and governance (ESG) disclosures. But landing a plane requires coordination between pilot and copilot—not the whole crew. Which departments should own ESG reporting, manage the underlying data, and drive quality standards across the organization?
While thought leaders argue this question, finance professionals should take note of growing consensus that puts a great deal of ESG accountability in the CFO’s office. Deloitte, for example, calls on CFOs to “advocate sustainable business practices and transparent ESG reporting.” And former SEC Chief Accountant Wes Bricker insists that Finance Departments are “uniquely positioned to own the ESG reporting process.” Even Prince Charles encourages accountants to save the world through ESG reporting.
If you’re wondering why they are the chosen ones, keep in mind that finance teams have competed in this rodeo before. Remember when ERPs and big data burst on the scene in the 1990s? Back then, corporate CFOs took charge of policing data-gathering efficiency, assurance, and controls, and instilled public confidence in reports. That background will help tremendously now in the exploding, but still maturing, ESG arena.
Why the time is right for CFOs
In an article Bricker wrote for Financial Executives International (FEI), he praised the growing number of companies consolidating ESG reporting and data quality under finance. These are his main arguments:
1) Data on sustainability and environmental compliance, diversity efforts, etc., come from various parts of the company—but the common thread is they end up in public disclosures. Who in the corporate hierarchy is more sensitive to the impact of disclosures than the CFO or finance director?
Workiva’s take: Finance departments are uniquely positioned to help steer the ESG reporting process because they are uniquely positioned to know how to manage the underlying data. As more companies (especially in the U.S.) try to get ahead of imminent, tougher SEC rules on ESG disclosure, their data sources are proliferating. Not every company department knows how to manage multiple data producers. Finance does.
2) ESG isn’t a drag on the bottom line—it helps drive it. “A strategic focus on ESG can also be good for business,” Bricker says in his article, even if a popular misconception holds otherwise. What team is a better fit than finance to oversee efforts that drive near- and long-term company value?
Workiva’s take: Skeptics see ESG as an expensive social cause. In reality, ESG efforts are designed to improve long-term results as well as show the enterprise’s value beyond the balance sheet. Finance teams know a thing or two about valuing enterprises and are well qualified to support the twin goals of ESG and financial reporting.
3) Investors are basing their decisions in significant part on ESG performance and are well suited to tie the two together. Several years of institutional investors demanding actionable ESG disclosures and backing shareholder resolutions on climate change give all the evidence you need, Bricker says. “Building an environment to foster quality, investor-grade ESG data is more important than ever,” he says.
Workiva’s take: We’ve pointed out before how aggressively the equity and debt markets embrace ESG as a core fundamental for investment prospects. ESG performance earns their trust, and the capital markets reward that trust with favorable investment returns.
4) ESG performance affects a company’s financial reporting. “CFOs and the finance function are the most mature and seasoned professionals in managing corporate reporting,” Bricker points out in his article. The rigor, skills, and discipline needed to police financial reporting will serve Finance well in managing the ESG process, he says.
Workiva’s take: Make no mistake, ESG mandates for companies are inevitable in the world’s leading economies. The stakes will be high, and no team in the corporate hierarchy is better positioned than finance to succeed in that game.
Once finance gets involved: What then?
ESG disclosures and reports are high-visibility, high-risk work. How can finance teams support the sustainability team’s objectives, while connecting remote groups and policing the integrity of ESG data?
With the right technology platform, they can hit the ground running. A cloud-based platform that streamlines ESG reporting may be part of the answer; so is finding the right partner with deep ESG experience.
That combination enables a finance team to deploy an end-to-end platform and process that maximizes efficiency in ESG data collection, aggregation, and reporting—from sustainability reports to XBRL output. Companies taking this approach can expect the ESG transparency and assurance that regulatory agencies like the SEC and auditors will demand.
About the Author
Steve is Senior Director of Product Marketing and Accounting Industry Principal at Workiva. Previously, Steve served as an accounting leader in multiple roles including Vice President and Controller for Backcountry.com, a private equity owned, online retailer of outdoor products, and as the Director of SEC Reporting for Overstock.com (NASDAQ: OSTK), a $2 billion revenue, online retailer of home goods and blockchain technology company. His experience includes multiple acquisitions, debt offerings, an IPO, and the world’s first digital debt and equity offering (by Overstock). Steve is the Executive Advisor of the SEC Professionals Group, and a former member of the US XBRL Data Quality Committee. He began his career as an auditor in public accounting, received his Accounting degree from the University of Arizona, graduating summa cum laude, and received a Master of Accountancy and Information Systems degree from Arizona State University.