Governance
Many companies are still determining how ESG reporting ties into their governance structure. With many ESG initiatives focusing on sustainability, it is no surprise that the principal responsibility for ESG reporting resides with the chief sustainability officer (CSO) (45%). In addition, 89% of respondents said that CSOs were either highly or moderately involved with ESG reporting.
The survey also found that many organizations are adopting a multidisciplinary approach, but the way in which the shared responsibility of ESG reporting varies between principal data owners and function heads. These roles continue to evolve, and many companies are still considering who should “own” ESG reporting.
Board oversight over ESG is also increasing, with 75% of respondents indicating that their audit committee or other board committee has asked about policies and procedures for ESG reporting.
Processes and controls
Even though 75% of respondents indicated their board is asking for ESG processes and controls, only 8% of respondents indicated that they have a complete and robust set of procedures in place to drive the consistent application of ESG data across the organization.
Inventorying and aggregating ESG information may be a critical first step. Many companies said that ESG data is disbursed, residing in various databases and applications. For example, approximately 60% of respondents indicated that ESG information resides in a patchwork of software applications and 55% of respondents house their ESG data in spreadsheets. Finance teams can find ways to bring order to the existing data collection process.
The cadence for aggregating ESG information also varied widely, with more than half of the respondents saying they collected information quarterly, with another quarter of respondents gathering the information annually. The SEC proposal would require climate reporting to sync with financial reporting, which means organizations will need to evaluate their processes for data gathering to report the required information in regulatory filings.
Data and technology
The bespoke and disparate nature of ESG data represents a significant challenge. With so much of that data collected manually, many finance functions anticipate spending more time and resources to address this issue, including development of appropriate new technological tools to complement existing ones.
In addition, companies are still grappling with the question of how to gather data from across the value chain. Some are beginning to plan for this eventuality and are discussing how to approach Scope 3 reporting when some suppliers provide the data and others do not. Still, even if a metric does not rely on significant estimation or judgments, many are considering documentation as a step toward audit readiness for voluntary ESG disclosures, as well as for disclosures that may be required.
At this time, slightly over 40% of respondents are using a third-party non-audit firm to provide assurance over ESG data, while only 22% of respondents said they use an external auditor to provide assurance. The proposed SEC requirements could shift this trend as companies begin or continue to implement SOX-like controls to report in regulatory filings.
Conclusion
Looking ahead, finance teams should view ESG reporting as an opportunity to not only help their organizations comply with potential new regulatory requirements but also as a mechanism to communicate ESG strategy to external and internal stakeholders. The skill set of the finance function can help elevate ESG reporting from an initial, less mature iteration to a more established process backed by necessary levels of rigor, automation, and consistent policies and procedures.
