This November 7-8, Financial Executives International held its Corporate Financial Reporting Insights Conference in New York City. Thousands of finance professionals were in attendance to collaborate on challenges and opportunities they are facing as they prepare financial reports for their organizations. Repeatedly, ESG and climate were highlighted as key topics as regulators, investors, and other stakeholders increasingly demand such information. Here are our top 10 takeaways from the ground and the financial leaders themselves:
- Climate and ESG disclosures are top of mind for corporate finance professionals, government agencies, and standard setters. CFRI set the stage for a climate-focused conference with more than half of the agenda focused on carbon accounting, the SEC Climate Proposal, and the intersection of climate, ESG, and financial reporting. Deloitte led a session on how financial professionals can best get started and how to implement and frame assurance readiness and the Persefoni team joined Workiva for a session on how GHG emissions are a key reporting metric for investors and stakeholders and ways to best collect and report reliable carbon data. We also hosted an interactive discussion of our own with leading experts from the IFRS Foundation’s International Sustainability Standards Board (ISSB) and the Center for Audit Quality on the processes required to collect investment-grade, reliable, and assurable climate data.
- Preparers are routinely looking to TCFD and SASB to satisfy investor demands. Finance professionals preparing ESG reporting are currently using the Task Force for Climate-Related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB) to respond to investors' expectations for comparable, reliable ESG-related information. To the extent that a company is including climate-related information in its disclosures, it is expected that the information is aligned with TCFD. More specifically, investors and other stakeholders are looking into Scope 1, 2, and 3 emissions and how the company is integrating climate-related risks and opportunities into their business and risk management strategies. In order to report on industry-specific, broader ESG metrics, preparers are using the SASB standards. Rather than looking at disclosure as a purely compliance-driven activity, finance professionals at the FEI CFRI conference recognized that the market is demanding more information and that it is an opportunity to tell a company’s story more completely while unlocking new opportunities.
- Inter-departmental collaboration is crucial. The sentiment across financial professionals is clear regarding sustainability data: bring us into the conversation earlier. Financial professionals have extensive knowledge of proper control processes for data management and reporting. Managing your climate data with the same rigor as your financial data will help build trust and transparency. In order to work successfully together, both financial and sustainability teams need to collaborate on what they know best to provide reliable and decision-useful carbon data.
- Regardless of what happens with the SEC’s proposed climate rule, international regulations, standards, investors, and customers are increasingly driving demand for reporting. Outside of the U.S., finance professionals are closely monitoring the EU’s Corporate Sustainability Reporting Directive, the UK’s Climate-Related Financial Disclosures (CRFD), and the development of the International Sustainability Standards Board’s (ISSB) global baseline standard. The development of these requirements and standards will have major implications for multinationals doing business internationally. That is why financial professionals are urging companies to begin preparation now, despite the urge to wait to see where the SEC’s rule lands. For example, the ISSB has voted unanimously to include Scope 3 emissions in their disclosure standards. While the ISSB standards are not mandatory at this juncture, investors will keep asking for this information. The SEC and other jurisdictions will take this into account as they also wrestle with how to meet investor needs.
- Secure software systems and automation are essential to building an investor-grade carbon accounting and reporting process. Given the complexity of carbon accounting and reporting, it’s critical to utilize secure IT systems of record to build carbon emissions in a transparent and well-controlled manner. This will allow your organization to build IT based controls on how data is ingested and manipulated in the platform. The best carbon accounting technology tools also include the automation of your data ingestion and footprint calculations. This ensures complete and accurate data is brought into the system and can be relied upon by reporting teams. Persefoni automates the carbon accounting process from activity to reports streamlining and de-risking your process end-to-end. This allows your organization to ensure compliance and focus on high quality data to drive decarbonization tactics.
- Finance professionals are increasingly expanding their professional roles into ESG issues as they work to comply with evolving requirements. With new international ESG reporting regulations emerging, the finance function is increasingly involved in controlling ESG data and overseeing the preparation of ESG disclosures. In our survey of finance professionals conducted with FEI’s Financial Education & Research Foundation, every respondent confirmed what we heard throughout the conference: their departments will have an increased role in designing, implementing, and maintaining controls of ESG data to prepare their organizations for new climate disclosure requirements, such as the SEC’s Proposal, on the horizon.
- New roles, such as the “ESG Controller” are emerging in the finance function at major corporations. Many companies already have a team and established processes responsible for working toward an annual ESG report. But as demand for investor-grade ESG data grows, so does the business case for a dedicated ESG controller. This new role is responsible for leading ESG reporting efforts, from establishing new processes and internal controls, to implementing new teams and technologies. The ESG controller understands the operational and financial components involved and can bring it all together with a high degree of trust and the least amount of disruption to existing processes.
- FEI and the entire finance profession are focused on developing ESG-competent talent. As climate-related information is increasingly being incorporated into financial statements, it would be ideal that the talent pool for companies hiring employees to prepare reports would be experienced in both ESG and finance. That is unfortunately not always the case – the talent pool with this mix of experience is quite rare. As outlined above, this is a fairly new function, with new roles being created to meet the demand. In response, companies are providing training to employees on finance, ESG, and the voluntary reporting landscape. As well, they are building multi-functional teams with a combination of finance, audit, and ESG.
- Companies are in various stages of preparedness for climate reporting but the resounding message is ‘the time is now to prepare.’ It was clear from the audience at the FEI CRFI conference that each company is at a different stage of readiness for sustainability reporting. Some companies are in the ‘wait and see’ mode, watching to see what happens with the SEC. However, most companies are not waiting around. The practical advice given by finance professionals was to first understand the company’s current state by looking at how data is being gathered and reported on. From there, look at where your gaps are.
- “Just get started!”. Accounting for and disclosing carbon emissions is quickly becoming the remit of the finance profession due to global regulatory developments. With mounting pressure to deliver on new carbon reporting requirements, finance can tap a range of internal and external resources to help measure, manage, verify, and disclose GHG emissions. Software-as-a-service solutions such as Persefoni’s Climate Management & Accounting Platform provide a single source of carbon truth across the organization, enabling users to manage their carbon transactions and inventory with the same rigor and confidence as their financial transactions.