How well a company performs on environmental, social, and governance (ESG) issues is becoming an increasingly critical performance metric for investors, consumers, and management. Investors and rating agencies are demanding ESG reports. Investors believe that companies with a strong ESG program perform better and are more stable.
Companies still struggle with how to measure ESG outcomes and how to report metrics on the company’s ESG priorities and performance to key stakeholders. Finance is ideally positioned to help organizations carry out ESG reporting efficiently and weave ESG into strategy and operations.
In the paper below we describe how finance can drive success in ESG and enhance the strategic role of CFOs and CAOs.
Finance is the right place for ESG
ESG reporting needs to be translated into financial metrics and used as an input for strategy and investment decisions. As the fiduciary leader in the organization, Finance has the experience compiling and reporting on metrics to stakeholders and shareholders. CAOs and CFOs also have deep experience in other forms of regulatory and compliance filings.
Moreover, Finance is ideally positioned in the organization to track the information needed for ESG strategies and reporting. Finance sees data on sales, supply chain, customers and other types of information that help assess ESG performance. Finance also works across functions and business units, position to lead an organization’s ESG reporting and data management programs. The financial planning and analysis organization can connect ESG information, drive insights, and report on progress.
Environmental, social, and governance issues represent the non-financial factors used to evaluate a company’s practices around the conservation of the natural world, the consideration of people and relationships, and the standards of running a company.
Consumers and investors expect companies to take positive action on issues such as climate change, social justice, diversity and inclusion, and exploitation of workers. Some 70 percent of consumers in the U.S. and Canada think it is important that a brand is sustainable or eco-friendly. Younger Americans, in particular, say they consider social and environmental practices when they are choosing brands or companies to work for.
Four areas in which Finance can help drive an organization’s ESG agenda
Corporate Strategy: Incorporating ESG into strategy involves establishing sustainability guiding principles and prioritizing strategic initiatives by incorporating ESG drivers into business cases and quantifying sustainability impacts.
Investments: ESG investment can drive value through several factors—increasing top-line growth, reducing costs, and decreasing investor, regulatory, and legal interventions.
Reporting: Companies are expected to report continuous progress on ESG goals to stakeholders. This requires complete, accurate, and timely information that proves the impact of ESG efforts.
Risk: Risk management often falls under finance and CFOs and CAOs should understand the financial and non-financial risks around ESG—and manage such risks successfully.
Advantages of Finance management of ESG
Finance can leverage its existing skills and framework to drive the organization’s ESG agenda.
- internal and external reporting
- cross functional integration
- financial management
- governance and risk management
- process efficiency
- investor relationships.
How to begin
CFOs looking to create an ESG strategy and reporting mechanism can begin by asking these questions:
- In what part of the organization can you make the largest ESG impacts? Do they align with the company’s ESG focus areas?
- How can you integrate ESG into the value identification and measurement processes?
- Is your finance department adequately integrated into ongoing and potential ESG initiatives?
- Do you possess the required data and reporting capabilities to track and report ESG impacts, including measuring successes and identifying gaps?
Download the PDF to explore how Finance can drive success in ESG and enhance the strategic role of CFOs and CAOs.