Get on board with ESG
In recent years, environmental, social and governance (ESG) initiatives have gained significant traction across industries worldwide, driven by growing awareness of sustainability challenges and increasing investor demand for responsible business practices. Finance professionals are playing an increasingly vital role in guiding organisations towards meeting their ESG goals and you could be on the front line.
ESG is about a lot more than just sustainability. Environment includes climate change and emissions, deforestation and energy efficiencies. Social covers everything from labour standards to diversity to customer satisfaction. And governance encompasses board composition, audit committee structure, whistleblower schemes and much more.
Critical performance metric
ESG is an emerging field where almost everyone is still adapting and learning, but ESG is an increasingly critical performance metric for investors, consumers and management. Investors and rating agencies are demanding ESG reports and view companies with strong and outstanding ESG as better and more stable.
Consumers are more willing to buy and pay more for companies that are more environmentally friendly with demonstration of good governance and a stand on social justice. Research from KPMG in the UK has found that over half (54%) of consumers say that they would stop buying from a company if they were found to have been misleading in their sustainability claims.
ESG reporting is not without its challenges. Poor ESG practices pose environmental, legal and reputation risks to the company and getting it wrong can have serious consequences. Deutsche Bank-owned asset manager DWS, for example, is facing an ongoing investigation into accusations of greenwashing sparked by a whistleblower that the company may have misled investors by marketing its funds as greener than they actually were.
Helping to make a better future
Notwithstanding the difficulties, it’s an exciting and dynamic area to get involved with that goes beyond looking good on your LinkedIn profile. You can drive meaningful progress towards a more sustainable and responsible future for businesses and society as a whole.
Accountants involved in ESG initiatives must possess a deep understanding of sustainability principles and frameworks. This includes familiarity with standards such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB), as well as knowledge of relevant regulatory requirements and reporting guidelines. You must be able to assess and measure ESG performance metrics accurately, ensuring transparency and credibility in reporting practices.
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Secondly, strong analytical skills are essential if you are navigating the complexities of ESG data. You must be adept at collecting, analysing and interpreting large volumes of information, often sourced from diverse stakeholders and across multiple data sets. This analytical acumen enables you to identify trends, assess risks and develop strategies to enhance ESG performance effectively.
Effective communication skills are paramount for accountants engaged in ESG initiatives. You must be able to articulate the financial implications of ESG strategies to key stakeholders, including investors, board members and regulatory bodies.
Adaptability and a willingness to embrace change are also critical attributes for accountants in the evolving landscape of ESG. As sustainability priorities and reporting standards continue to evolve, you must remain agile and proactive in updating your skills and knowledge base accordingly. This may involve seeking professional development opportunities, staying abreast of industry trends and actively participating in relevant networks and forums.
The challenges of a shift to ESG can come with rewards too, no matter where you are in your career. Excitement and opportunity await, but so does the satisfaction in working on issues with an importance that extends far beyond the world of business.
The ESG Reporting Endgame from Robert Half’s US team offers advice for accountants in terms of approaching ESG reporting
- Start with purpose. This should begin with a discussion covering questions such as: How do ESG disclosures help articulate your business? How do ESG metrics help you validate what the organisation views as materially important? Without a direct link to purpose, ESG reporting becomes merely another presentation of compliance information.
- Compare your ESG metrics to the competition. Forward-looking finance professionals have already pored over the disclosures and best practices of competing companies to identify what they are tracking, which helps generate ideas for improving their respective company’s reporting.
- Work with your audit team. Internal auditors can scrutinise the data collection processes and underlying controls over those processes to provide comfort to the management concerning data quality and consistency.
- Use real-time monitoring. Monitor ESG metrics in real time and integrate them with performance management, and management can use the ESG data to make better decisions.
- Link ESG to the MD&A (management discussion and analysis) section of the company’s annual report. This helps to shed light on why a company is more or less profitable due to decisions and actions related to ESG matters.
Author: Beth Holmes, writer
More information
This article was first published in Student Accountant in May 2024 | Get the SA app now