3 Considerations for Your ESG Program: How to Drive Financial and Operational Performance

There’s no doubt that ESG has impacted the finance and accounting landscape. With a rapidly changing regulatory environment, the pressure is mounting for organizations to get it right.

While ESG has presented many challenges, there are also several benefits organizations can recognize by implementing effective ESG programs. In fact, a recent Workiva survey revealed that the majority of the senior decision-makers surveyed noted a positive correlation between their ESG programs and business value.

But how do teams get to that point? Where does an organization even start when there’s a lack of global standardization? And why start now when regulations are still being finalized? That’s exactly what Stefan van Duyvendijk, Accounting Operations Evangelist at FloQast, Jeff Binford, Principal at Clearview Group, and Grant Ostler, Industry Principal at Workiva, discussed during the recent “How ESG is Altering the Finance and Accounting Landscape” webinar.

Here are a few of the highlights—and things to consider to help drive financial and operational performance with your ESG program.

How to tackle ESG in a fragmented landscape

Before going into the top takeaways, let’s address what Stefan, Jeff, and Grant first covered during the webinar: Why is ESG critical to start now? Between countless regulatory bodies and frameworks and a broad range of stakeholders, it may feel unsettling to tackle ESG without knowing all the specifics.

However, given the magnitude—and multitude—of pending and proposed regulations coupled with the effort it will take to prepare for the scrutiny of regulatory agencies, the “wait and see” approach to ESG won’t work to generate long-term value or meet stakeholder demands.

Given the numerous ESG frameworks from the Global Reporting Initiative and the Sustainability Accounting Standards Board to the Task Force on Climate-Related Disclosures and the UN’s Global Compact, Jeff said it can be difficult to pinpoint where to begin.

“So the question becomes what do we have to track? What framework is best for us?” Jeff also pointed out how similar this is to what companies went through when Sarbanes-Oxley (SOX) was first introduced and were working to get the right people, processes, and controls in place.

“It’s very similar to the world of SOX 20 years ago. We have a large understanding of the risks and controls that need to be documented. But what is key and what is non-key? What do we need to do? What’s relevant to our organization and our stakeholders?” That’s an area Clearview Group is working on as a firm and with their clients as they start to take a COSO framework approach to ESG, Jeff said.

Grant agreed, mentioning that regardless of where your organization is on your ESG reporting journey, there is enough guidance and understanding of what many of the regulatory bodies are trying to accomplish for teams to start, even without the SEC’s final climate disclosure ruling.

“We know there’s going to be something coming out around climate, around cybersecurity, around human capital—so while we don’t know the final rules yet, the frameworks we’ve discussed are applicable in all of those situations. Don't wait for the final rules to get started,” Grant said.

As you get started or mature an existing ESG program, here are three considerations to help build ESG programs that enhance business performance.

1. Take an agile, scalable, technology-enabled approach to ESG

In all the uncertainty, one thing is certain: Agility is key to building scalable ESG programs that help organizations achieve long-term performance.

Stefan emphasized the importance of being “flexible and agile” and came back to SOX as an example, pointing out that even after 20 years, organizations are still making changes to the way they execute SOX. He said the ESG reporting landscape will be just as dynamic.

In addition, with both structured and unstructured data coming from multiple sources, there will take a lot of effort to get your data to an audit-ready state.

“This isn't the same as your financial statements. There's no structure for this yet,” Stefan said. “There's a lot of compiling and reporting in this space, and it’s going to be a significant lift because it's not within your ERP,” Stefan said.

On top of that, attracting and retaining accounting, finance, and internal audit talent continues to be a challenge, which will make it even more difficult to keep up with ESG demands.

“We're in a huge crunch to find talented accounting and finance staff in the marketplace, and it's not going away,” Stefan said.

Along with the complexities of the ongoing talent shortage and disparate data sources, you’ll also need to establish the proper controls, continuously mitigate risk, and ensure the integrity of your ESG data. Taking all of this into account, Stefan stresses the importance for organizations to understand and acknowledge how complex ESG is. And unlike when SOX first came out, companies don’t have the same access to resources like they did then.

“In our current marketplace, you likely don’t have the extra headcount to help with this. You have to look at other assets you can leverage for ESG,” Stefan said, mentioning bringing in technical expertise and technology to help.

Grant agreed that the data aspect will be a huge lift for teams. In fact, according to a Workiva survey, roughly 8 in 10 decision makers surveyed believe technology is key for compiling ESG data and validating it for accuracy.

“You can’t do this with just spreadsheets and manually emailing back and forth,” Grant said. He said ESG will take technology that can connect directly to source data, automate manual tasks to reduce human error, and enable cross-team collaboration.

The good news? Jeff said given there are well-established processes for areas like financial reporting, internal audit, enterprise risk management, ISO, and more, organizations have a good starting point that they can work from to create new processes.

“It’s about having a good standardized process in place so that when an applicable regulatory framework comes into play, you’ll have the right people, the right tone, and the right data flow” so you can move quickly, Jeff said.

2. Make ESG your competitive advantage

Regardless of your organization’s size, starting your ESG journey now will not only help you get ahead of regulations but also help you gain a competitive advantage and drive better decision-making.

Stefan notes that the growing need for ESG reporting, which will likely be mandatory for larger public companies that have downstream customers they need to report to, means that smaller companies that might be an upstream supplier should start to consider the impact reporting ESG metrics could have from a competitive standpoint.

“If you have this information readily available, you can report on it, you can certify it, you can validate it for them. That will give you a competitive advantage over other organizations,” Stefan said.

In addition, this is a great opportunity for accounting, finance, and internal audit professionals to be a more strategic partner in the business, Stefan said.

“As accounting and finance professionals, there are a lot of times we want to be a bigger strategic player in our organizations. We wish we could drive transformation,” Stefan said. “So how do we become that strategic player? Well guess what, the marketplace has put it right in front of us.”

Another area of opportunity to not be overlooked? Access to more data that help you inform smarter operational business decisions.

“With increased data and a better understanding of the flow of data outside the typical financial space, you now have more information for operational decision-making,” Jeff said.

3. Create the right team with the right mix of expertise

Who owns ESG? Many organizations have been asking this question, but there’s no one size-fits-all answer.

One thing Stefan, Jeff, and Grant agree on is that no matter what department actually owns ESG, a cross-functional team needs to be accountable for it.

“We are in a situation now with the emergence of CSRD and other regulations, that we are going to have to come together and play nicely,” Grant said. He said bringing together different backgrounds and diversity of thought will help organizations reap the most benefit from their ESG programs.

“I look at the importance of bringing ESG professionals, financial reporting, and audit and risk teams together,” Grant said. “They have various perspectives with existing expertise that will add value to ESG processes.”

There is a delicate balance to how many teams get involved though, Jeff said.

“I think it's very easy to say, ‘Well, ESG covers everything so we need a representative from every single division.’ It doesn't need to be everyone—it needs to be the right mix.”

Given the breadth of collaborators involved, Grant points out that many teams have never been audited before, so from an auditor perspective, it’s crucial to help coach these teams and prepare them to be audit-ready.

In conclusion, Stefan emphasized the importance of maintaining ESG programs long term. As you map out your processes and continue to build your ESG program, “do not underrate that. It's key to organizational success,” Stefan said.

And there’s more where that came from! Check out the full conversation and get additional tips from Stefan, Jeff, and Grant by watching the “How ESG is Altering the Finance & Accounting Landscape” webinar on-demand here.