Over the years, ESG (environmental, social, governance) issues and sustainability have become more important to consumers as they adjust their purchasing behaviors to factor in the environmental and social impact of the companies they patronize.
When you think about departments to approach to discuss sustainability at your company or organization, the finance department may not be the first one that comes to mind. However, it’s common for business leaders to look to their F&A teams for advice and a better understanding on how embracing sustainable practices will impact the bottom line. What’s more, investors and regulators increasingly expect publicly traded companies to measure and report on their efforts to keep a healthy triple bottom line—profits, people, planet.
Do Consumers Really Care About ESG?
They sure do. According to PwC’s 2021 Consumer Intelligence Series survey on ESG, consumers want businesses to play a bigger role in accelerating progress on ESG concerns—more than 75% say they’ll reward companies that do so. And businesses are listening, as 91% of business leaders believe their company has a responsibility to act on ESG issues.
The focus on ESG can have a significant impact on the bottom line for organizations that fail to keep pace with the evolving market and invest in more sustainable and environmentally friendly practices. It can also impact retention and hiring practices, as 86% of employees prefer to support or work for companies that care about the same issues they do.
What Do Finance & Accounting Have to Do With ESG?
As F&A teams advance and serve more strategic roles in the business, it makes sense that they would become more involved with a strategically important topic like ESG. Accountants and finance professionals are increasingly taking a leading role in developing, measuring, and reporting on ESG standards. Why?
Accountants have keen analytical skills, deep knowledge of the business, and the ability to understand and apply reporting standards
Accountants are equipped to lead, or at least contribute to, new business processes
F&A teams have an intimate knowledge of where a company’s money is going, including sales, customers, the company’s supply chain, vendors, and more
Reporting on ESG and sustainability metrics is crucial, and the finance team is perfectly set up to manage that reporting and performance, because it can be directly translated in financial results, language, and metrics
When It Comes to ESG, Where Do F&A Leaders Start?
The challenge, as is often the case, is knowing where to start.
Finance teams are juggling changing business requirements while trying to understand what is needed for more sustainable accounting. These teams are also exploring how they can be more relevant to what is needed across the organization. This can lead finance leaders and CFOs to struggle with their first move.
It may help to first identify some key areas where F&A teams can help with ESG initiatives. KPMG proposes four key areas to consider:
Corporate Strategy—to build ESG into your organization’s strategy, the company will need to establish sustainability guiding principles and prioritize strategic initiatives. Some ways to get started here are to incorporate ESG drivers into business cases and begin to quantify sustainability impacts.
Investments—ESG initiatives can increase top-line growth, reduce costs, and decrease investor, regulatory, and legal interventions.
Reporting—companies, especially public companies, are expected to report ongoing progress on ESG goals to boards, shareholders, investors, and customers. You’ll need comprehensive, accurate, and timely information to demonstrate the impact of ESG efforts.
Risk—risk management is a key F&A role, and CFOs and CAOs should understand and be able to manage the financial and non-financial risks around ESG.
Once you’ve considered those areas, you can pose questions to help guide priorities. KPMG has some more advice on what to ask:
Where can your department make the biggest ESG impact? Does this align with your company’s area(s) of focus when it comes to ESG?
How can you integrate ESG into your value identification and measurement processes?
Is your department adequately integrated into ongoing and potential ESG initiatives? If not, how can you address this?
Does your team have the necessary data and reporting capabilities to track and report ESG impacts, including measuring successes and identifying gaps?
As companies take a more active role in ESG initiatives, it makes sense that finance and accounting will be involved along the way. Hopefully these areas and questions will help you assess your capabilities around affecting ESG initiatives at your company.
Learn more about how your team can support strategic ESG initiatives, enhance your capacity, and rethink your accounting work with BlackLine.