From San Francisco to Shanghai, Stockholm to Sydney, major companies face the looming shadow of environmental, social, and governance (ESG) disclosure obligations.
Strict regulations have already been introduced in some countries and trading areas, while others are on the horizon and these standards will be required by both customers and stakeholders. It's only a matter of time before that happens.
This is increasing the need for organizations around the world to rethink their sustainability reporting strategies and the people responsible for ensuring their compliance.
Going back just 20 years, the role of Chief Sustainability Officer (CSO) was unprecedented in 2004, when DuPont's Linda Fisher was widely heralded as a pioneer.
The world's largest companies, with incredibly broad mandates and increasing pressure to report externally rather than internally, bring in experts to ensure compliance and navigate this complex and evolving landscape. It's no wonder that.
Welcome to the era of ESG controllers. ESG controllers are responsible for reporting ESG data in a timely and accurate manner, similar to how a CFO plays this role in financial reporting.
What does an ESG controller do?
A quick scan of job boards shows that ESG controller roles are popping up more and more. DuPont is growing rapidly again and recently adopted his first ESG controller. Alphabet and Halliburton made similar appointments.
To find an ESG controller, you may need to read between the lines of the job description. Companies like Netflix, Mastercard, and Delta Air Lines all employ this position in name only.
So what does an ESG controller do? Why is it necessary? And how does that impact CSOs and broader sustainability teams?
Christina Shim is Head of Sustainability Software at IBM. As ESG and sustainability mandates have matured in recent years, management has become more involved, often working closely with CSOs, she says.
“Having an ESG manager tells regulators, investors and the market that we are taking this seriously. It is essential in developing ESG measurements, systems and reporting processes,” Sim told Sustainability magazine.
“This also shows that sustainability reporting is no longer just about corporate citizenship, but reflects the critical importance of sustainability efforts to business outcomes.”
Sim points to an IBM study that found more than 80% of CEOs believe investing in sustainability will improve business performance over the next five years. This means ESG managers can ensure disclosure of assurance responses regarding material impacts, risks and opportunities, while also linking sustainability information to business performance.
Moving the Sands of Sustainability
Matthew Sekol is a Global ESG and Sustainability Advisor at Microsoft and the author of a forthcoming book. ESG mindset. In talking with companies and colleagues, he says, he has noticed that the role of the CSO is changing dramatically around disclosure and regulation.
“Whereas CSOs used to pursue purposeful work, metrics are now in the spotlight, and the CSO's role has moved away from influence,” says Seacol. “His CSOs who use this data to inform potential strategies are now meeting with executives who see their role as a compliance exercise rather than one of delivering or protecting business value.
“ESG managers need to focus on non-financial accounting, data quality, along with regulation and reporting. For now, this role is different from sustainability leaders, who are empowered to act on data. Sustainability leaders must manage risk, drive improvements such as operational efficiency, and foster new innovation.”
Mandatory reporting has become entrenched in the European Union with the Corporate Sustainability Reporting Directive (CSRD). This requires eligible companies to submit detailed reports on their operations and ESG impact.
The CSRD does not only affect listed companies, or indeed companies headquartered in the EU. In addition to large companies with 250 or more employees, a turnover of 40 million EU or more, and total assets of 20 million EU, non-EU companies with at least one subsidiary in the EU and a net turnover of 150 million EU can also be reported. Mandatory.
Either way, companies will need to have a firm grip on and understand their ESG reporting responsibilities, if not now, then in the near future.
Nancy Mentesana is Executive Director of ESG at Labrador US, a global communications firm specializing in corporate disclosure documents. She says we are in the midst of a transformation from piecemeal reporting to regulated reporting.
“Each group focuses on high-level communication of ESG data, goals, and progress over time, rather than simply publishing reports that focus on employee stories or high-level CSR initiatives such as beach clean-up days. ,” says Mentesana.
“If a company doesn't have a goal, they've figured out how to set one, and if they already have a goal, they've demonstrated it with a validated methodology.”
It is clear that the situation is complex, and some believe that recent changes in the demands placed on sustainability teams are a natural evolution.
“In recent years, we have seen a shift from amateurs to subject matter experts,” says Elisa Moskolin, executive vice president of sustainability at Sage Group.
“CSR, and now sustainability teams, have historically had a lot of well-intentioned staff, but not enough expertise. Having a skilled workforce is key to successfully executing your strategy.
“When it comes to disclosing non-financial information, it is essential to have someone who understands the reporting standards and can help companies respond. Given the complexity and sophistication of technology, it will play an increasingly important role.”
Finance is important for success
Moskolin highlights key issues for any organization looking to implement a dedicated ESG controller. Where is that person located? Is he more aligned with the finance team than the sustainability team?
She says the integration of financial and non-financial information “brings rigor to disclosure.” However, she is careful not to confuse her CSO role with the ESG manager/reporting, and she says further work and discussion is needed to avoid data becoming disconnected from strategy. thinking about. ”
IBM's Sim said he has experienced a variety of operating models, from centers of excellence that combine sustainability and finance skills to having part-time or full-time resources within controllership functions.
“The role of the ESG controller now shows the importance of managing the right data and enabling reporting and compliance,” she says. “But we don’t stop there. Going forward, this data will help ESG managers to ‘do’ it and incorporate it into their processes to support the achievement of sustainability goals and as part of good business practices.” I think that's clear. ”
Sim added that every organization is on its own journey and whether a separate sustainability and financial manager is needed depends on many factors. No matter where you are, collaboration between sustainability, finance, and many other internal stakeholders is essential to ensure compliance and drive business value.
Microsoft's Sekol endorsed the importance of business value, adding that it was “the heart of the matter.” He said ESG managers that comply with disclosure may also report material information and impacts on companies, but more agencies may be needed to act.
“The EU’s new Corporate Sustainability Due Diligence Directive requires companies to adopt transition plans in line with the Paris Agreement and address human impact, but the regulation also requires companies to address the most important ESG issues. “It's probably not going to be forced on companies,” he said.
“However, every company has its own unique touchpoint with this topic, and the role of the ESG manager has the potential to uncover connections with management and business units through high-quality data and robust analysis. .
“Whether those executives will listen, fund and act remains to be seen.”
Listening to ESG controllers is another matter, but finding that talent in the first place may be difficult, says Sage's Moscolin.
“The talent market is not mature enough. It’s easy to find financial managers, and if you look hard enough you can find really good sustainability reporting professionals, but there are people who are equally competent in both areas. Finding individuals is a skill set that simply doesn't exist yet and will take years to develop,'' says Moskolin.
“It is important that we continue to strengthen collaboration between sustainability reporting teams, finance teams, and data teams.”
The need for robust ESG reporting is here now. Is your organization ready?
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