Principles of ESG: strategies for accountancy and finance practices

Of the many pressures facing business leaders, implementing environmental, social and governance (ESG) strategies is uppermost. As financial organizations grapple with the seeming intangibilities of the subject, let’s look at current integration challenges and what to expect on the road ahead.

4 mins read
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In recent years, corporate transparency has become an integral part of business operations. Through the ESG umbrella – which incorporates environmental impact, a company’s contribution to society and ethical practices - businesses are now held accountable for not just their leadership style but also how they interact with employees in terms of duty of care and initiatives that benefit both local as well global communities such as apprenticeship schemes or charity work.

As the business world shifts towards more ESG-focused practices, accountancy and finance firms have been put under close scrutiny to ensure they are keeping up with global standards.

Educating themselves on this evolving concept is essential for professionals in these fields if they wish to provide sound advice so their clients can maximize success by demonstrating their commitment to making positive change.

ESG reporting: setting the standard

The Financial Reporting Council (FRC) – regulator of auditors, accountants and actuaries – has recently published the first in a series of three reports on improving ESG data production. This report outlines how businesses can identify and collect relevant information, make operational changes from their findings, and share knowledge with stakeholders via an yet-to-be specified universal standard. Ultimately these steps will help companies establish best practices for producing robust environmental, social and corporate governance reporting that must be adhered to going forward.

Investors, consumers, and other interested parties now have access to the International Sustainability Standards Board (ISSB) – a library of detailed ESG reporting standards from the International Financial Reporting Standards Foundation. Through this system, companies can be assessed against global sustainability criteria so stakeholders make well-informed decisions with confidence before engaging them or assessing their competitors' progress.

The FRC is taking action to ensure ESG data production meets rigorous codes, standards and expectations that will positively influence strategic decision-making.

These developments are set to save time and money while uncovering areas such as supply chain risk analysis, sustainability opportunities, employee wellbeing initiatives and energy consumption levels. Additionally this forward thinking approach promises organizations greater assurance in these increasingly vital areas of business operations.

ESG data: why we need it

In their work, the FRC has identified three elements of ESG data production to explore the current landscape, the challenges, and positive actions to address them:

  • Motivation – what motivates the company to collect ESG data and how does it identify what is needed?

  • Method – how is ESG data collected?

  • Meaning – how is the data used within the company and how does it impact decision-making?

In a podcast ‘Improving ESG data production’, Phil Fitz-Gerald, Financial Reporting Lab Director at FRC, said: “Company systems and controls [for ESG data] are not as mature, perhaps, as for more established financial data. This is about companies organizing themselves to produce data they can rely on in the same way they have for financial data.

“Companies need to think about where they’re setting long-term targets or making adjustments to their business model or strategy, and how they are going to measure the success of that in a consistent way over a period of time. I think in collating ESG data, or developing company systems and controls around it, companies can learn a lot from the way financial data has been processed in the past. In doing that we’ve heard from companies that there’s a much closer relationship between finance and sustainability teams in order to enhance the processes and controls and the connections between the data.”

ESG data: collection strategies

Financial organisations face a unique challenge in addressing climate risk - the lack of available relevant data. But KPMG, one of the Big Four accounting firms is taking big strides to tackle this head on and setting an example for others to follow with their advice-based approach.

The firm’s Paul Henninger, Head of Connected Technology in the UK, said: “To progress the ESG data conversation, KPMG have collaborated with Google Cloud to develop a [Closing the disconnect in ESG data – Financial Services] report that looks at today’s ESG landscape and dive into some of the data challenges that businesses face. Within this, we look at why financial service firms desperately need more ESG data, where they currently lack the data and analysis they crave, and how they might begin to close some of these gaps. A good starting point is to look at existing systems and processes. Legacy systems and records that are out of date are already driving remedial actions. Inconsistency, a lack of standardisation, self-assessed disclosure and patchy coverage are all big issues when gathering and comparing data. As we dig deeper into these problems, we gain a better understanding of the problems and we start to create a roadmap to the answers.”

As KPMG’s report states: “The business case for transforming ESG data capabilities is compelling. Financial institutions have an opportunity to secure competitive advantage while simultaneously improving their chances of delivering positive societal outcomes.

“Perhaps most excitingly of all, ESG data transformation creates opportunities for financial institutions to build new value propositions – to develop new products and solutions for clients that add value and drive revenue growth.”

To find your next accountancy role, or the best candidates to fill your open position(s), contact us.

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