April 2021 marked the 51st anniversary of Earth Day. The theme — Restore Our Earth — focuses on restoring global ecosystems through natural means, green technology and innovation.
Businesses are increasingly being called upon to report on their environmental, social and governance (ESG) efforts due to these factors:
Investors wanting ESG data to make their own judgements as to whether a company is doing the right things to manage their risks and build long-term resilience.
Regulators and governments setting bold targets to cut greenhouse gas (GHG) emissions.
Customers and consumers demanding greater social and environmental responsibility from businesses.
Scientific studies raising concerns of climate change and biodiversity loss.
ESG is coming to the mainstream of the accounting profession
There’s a practical reason to have accountants and finance professionals implement ESG targets: You understand process infrastructure and data collection; you are familiar with reporting and assurance.
A systems-thinking approach is necessary to run and govern the imperative process of collecting and reporting ESG data.
Accountants and finance professionals can make significant contributions to organizations by:
Maintaining internal data-processing systems
Advising leaders on business decisions
Reporting to stakeholders
Performing assurance engagements on ESG information
You may be familiar with the United Nations’ sustainable development goals; if not, familiarizing yourself with the SDGs is a great place to start to understand the big picture.
When you’re ready to expand your ESG literacy and knowledge of the accountant’s role, resources are available.
Understanding the E, the S and the G
To understand long-term value creation, we’ve identified three spears of environmental, social and governance efforts:
Coherent ESG identification
Coherent ESG integration
Transparent ESG communications
Part one of our series, Putting the E in ESG, includes a maturity model that will help you map your journey.
The 2nd guide ,Putting the S in ESG, includes the social issues finance professionals
must be focused upon to make a difference.
Keep an eye out for the last part of our introductory guides Putting the G in ESG that will launch in June. In the meantime, feel free to explore:
ESG Identification, integration and transparent communications
To improve an organization’s ESG efforts, start with the four lenses:
Metrics and targets
Many companies are prioritizing waste and plastic reduction, and setting goals with clear timelines, such as net-zero carbon emissions by 2050.
You’ll want to develop clear targets that can be measured. And you want to gather ESG data in a meaningful, practical and auditable way.
To report transparently, create a holistic report that presents the same matter from different angles. You can connect the points made in different reports, including your annual report, to create an integrated report.
ESG reporting in 2021
As you know from financial reporting, reliable data are essential. The same rigor and attention to detail must be applied to ESG reports.
To develop your approach to ESG risk management, metrics and targets, strategy and governance, these steps can serve as a guide:
Add ESG risks and opportunities to the organization’s enterprise risk management strategy
Determine the key performance indicators that will be measured and reported
Develop the metrics and select the reporting standard or framework
Identify the sources that will provide reasonable, accurate, timely and reliable data
Data must produce consistent and comparable results.
Internal controls on data gathering and reporting must be developed and documented to ensure accuracy.
Review your company’s policies on data gathering and reporting to determine if they need to be adapted to include ESG reporting
Establish the governance board that will oversee ESG reporting
Also make sure your audit committee or governance board is engaging an accounting firm to perform a readiness assessment as you develop processes and procedures to implement and monitor ESG reporting.”
It will take the courage, creativity and curiosity of all of us to manage ESG-related risks and develop resilient businesses.
Start building your ESG knowledge today.
You can learn more about how accountants are making a difference in this LinkedIn interview.