ESG becomes top priority for finance leaders

Grappling with environmental, social, and governance (ESG) risks and opportunities has been a focal point for finance leaders over the past few years as regulatory requirements increase. As a result, more CFOs are looking to incorporate ESG metrics into their long-term strategic operations.

The 2023 Global Finance Trends Survey Report by global consulting firm Protiviti found that "ESG metrics and measurement" is the top priority for both public and private company CFOs and finance leaders in the coming year. Protiviti surveyed more than 900 finance leaders worldwide. ESG metrics ranked 14th on the list of priorities the previous year.

"Three out of five (60%) of organisations indicate a substantial increase in the focus and frequency of their reporting related to ESG issues," the report said, "and there is a notable jump in finance groups in which measuring and reporting on ESG risks and issues is becoming part of their role."

The report said that "leading CFOs are fostering new and more cross-functional collaboration and training on ESG matters", but challenges remain. "Supply chain teams may need support with sustainable sourcing strategies. Business-to-business partnerships may require the organisation to publish an ESG report periodically, addressing … the organisation's carbon footprint."

A strategic view

Framing ESG considerations in the same way as everything else involving allocation of capital is an area of importance for CFOs, according to the report. They are concerned with the strategic opportunities those investments can bring and how the return on capital will be measured.

CFOs surveyed also say that they view sustainability as a compendium of risks to the organisation, the report said, citing factors such as talent retention and board composition.

In response, "finance leaders add these risks to the scope of enterprise risk assessments and integrate them into strategy-setting, performance management, and, if needed, periodic reporting to the executive team and board."

Accountability is key to the success of ESG reporting, the report said. Finance leaders who guide and shape high-performing ESG programmes also establish accountability for results while finding new ways to ensure the accuracy, efficacy, and relevance of ESG data that resides outside their control.

The report recommends that organisations build internal and external partnerships when establishing an ESG reporting function: "External service providers, data vendors, and research groups can help with data gathering and structural work, while internal collaborations among finance, tax, legal, human resources (HR), ESG, operations, internal audit, and other teams are crucial to satisfying comprehensive reporting requirements."

Debt is inhibiting transformation

Forty-five per cent of organisations are investing in new technology to assist with measuring and reporting on ESG risks and issues, but leaders say that technical debt is stalling innovation in their companies.

"Companies spend an average of 30% of their IT budgets and invest a fifth of their IT HR on technical debt management," the report said. "Seventy per cent of IT leaders view technical debt as a significant drag on their organisation's ability to innovate."

Companies should advance the finance organisation's digital maturity, the report said, to meet the growing demand for new financial insights, analyses and reporting rigour from supply chain operations, HR groups, ESG teams, and other parts of the organisation.

— To comment on this article or to suggest an idea for another article, contact Steph Brown at Stephanie.Brown@aicpa-cima.com.