Editor’s note: Alessio Lolli is vice president of corporate performance management in North America at CCH Tagetik, a unit of the Netherlands-based Wolters Kluwer Group. Views are the author’s own.
CFOs of large multinational companies are facing a perfect storm when it comes to the new rules around environmental, social and governance reporting. Such reporting is complex, time-intensive and constantly evolving. It also requires internal teams, functions, regions and businesses to collaborate in new ways to collect, report, analyze and assure the accuracy of large swaths of data, much of which resides across disparate technology systems and spreadsheets.
Globally, 600 ESG standards are in play, and this number is growing. Alongside regulators and standard setters, we also see investors, analysts, customers, and employees are increasingly demanding reliable ESG data. CFOs have a lot riding on getting their ESG reporting right, and it’s clear that, even though the ESG reporting momentum may have slowed, it is a force here to stay.
Fortunately, although ESG reporting may be a relatively new challenge, there is nothing new about C-suite leaders facing transformative, “perfect storm” reporting requirements. To illustrate this point, we need not look any further than when the Sarbanes-Oxley Act was implemented in the early 2000s. Here are three key SOX lessons that today’s CFOs can use to weather the ESG reporting storm:
1) Mentality is everything: Reporting must be more than a check-the-box exercise. ESG reporting standards cover a far broader remit than SOX, but the goals are essentially the same. Like SOX, most ESG reporting standards and regulations aim to increase transparency, drive the development of more reliable ways to ensure data accuracy, and prevent companies from (knowingly or not) sharing misinformation with key stakeholders. SOX and ESG reporting both place a heavy burden on corporate finance teams. However, in the early days of SOX implementation, many CFOs quickly understood that the challenge of compliance could also lead to significant opportunities. With that mindset, progressive C-suite leaders saw the opportunity to do more than simply check the box and “comply” with SOX. They used SOX requirements as an impetus to put in place new safeguards, processes and governance practices that supported the long-term health of their organizations. The same mentality is essential for optimizing the potential positive business impact of ESG reporting.
2) Your initial ESG data may not paint a perfect picture, and that’s OK. You’ve got to start somewhere Many SOX compliance pioneers will tell you that once they started collecting and processing more expansive, more accurate financial data, they found significant (and sometimes even alarming) weaknesses and gaps. The SOX reporting process seemed daunting, in part because it uncovered so many processes, policies and practices to improve. It is vital that finance leaders do not get mired down — or overwhelmed — by the challenges or risks that can be uncovered through the discovery phase of addressing new ESG reporting requirements. Value can be unlocked by viewing the entire ESG reporting process as an opportunity to reduce risk and uncover new insights that can inform your business strategy.
3) Stay ahead of exponential change by leading with a digital-first mindset. Considering the high stakes of ESG reporting, it is surprising that KPMG’s 2024 ESG Organization Survey found that 47% of companies still manage their ESG data with spreadsheets. The promising news is that the same report found that in the next three years, 40% of organizations plan to invest in ESG-specific software, and 37% plan to invest in data collection and management tools. I would argue that those investments cannot be made soon enough. Pioneers of SOX implementation had somewhat limited technology support at their disposal. However, those who acted fast to leverage available Corporate Performance Management (CPM) technology to enhance financial data collection and reporting and lower the resource burden of compliance were at a distinct advantage. Similarly, today’s finance leaders who accelerate investment in advanced CPM platforms will be in the best position to drive efficient and fast progress in ESG reporting. Integrating ESG data through a CPM framework enables organizations to automate reporting, cut through data complexity, mitigate risk, and comply with the ever-changing ESG regulatory environment, while identifying new opportunities to advance their sustainability strategy.
ESG reporting is not the first “perfect storm” CFOs have faced, and it won’t be the last. But “perfect storms” aren’t just challenges — if weathered correctly, they can be opportunities too. By viewing ESG reporting as greater than a “check the box” exercise, and leading with a digital-first mindset, CFOs can harness the power of ESG reporting to build stakeholder confidence, positively impact their corporate valuation, and amplify the value they bring to their organizations.
