As climate change concerns grow and the calls for sustainable business operations become louder, organisations are making strategic decisions to protect the environment and transparently report their environmental, social and governance (ESG) efforts.
The Regulation EU 2020/852 framework for facilitating sustainable investment identifies six targets:
- Climate change mitigation
- Climate change adaptation
- Sustainable use and protection of water and marine resources
- Transition to a circular economy
- Pollution prevention and control
- Protection and restoration of biodiversity and ecosystems
To be environmentally responsible and socially responsible to employees and subcontractors, organisations must map ESG targets.
And the Association of International Certified Professional Accountants is determined to play a central role in the development of the sustainability space. We aim to achieve a balance of sustainability reporting and assurance alongside data-driven insights so that resilient organisations and finance professionals can address future prosperity, planet and people challenges.
Collecting and reporting ESG data
On 20 January, CIMA and WHU – Otto Beisheim School of Management in Germany organized its 10th virtual CIMA & WHU Campus Talk 'ESG in Finance: From Carbon Accounting to Integrated Reporting’, which I had a privilege to open. Our keynote speaker – Dr Klaus Hufschlag – explained how ESG reporting became part of the Finance Function at Deutsche Post DHL Group and shared practical insights from his implementation experiences with regards to measuring, reporting and steering of non-financials. As the senior leader in business intelligence and analytics at the Deutsche Post DHL Group, Dr Klaus Hufschlag has been instrumental in developing key performance indicators (KPIs) and strategies to measure their impact.
Below are some highlights:
To begin, it’s worth to determine the ultimate goal — say, net-zero carbon emissions by 2050 — and then set milestones such as dates and targets.
You’ll want to develop concrete targets that can be measured from the beginning, and the data you collect should be meaningful, practical and auditable.
- Meaningful data is clearly defined, internally and externally relevant, and measurable.
- · Practical data means information is gathered frequently, following existing resources and processes, with the appropriate detail that reflects the company’s needs and goals.
- Auditable data must include the mandate for data collection, the internal control framework, and clear ownership and responsibilities for data sources.
Gather ESG data in a meaningful, practical and auditable way, so it can then be reported transparently. You’ll want granular-level data frequently — monthly or quarterly, at least, but real-time data is best.
To create a holistic report that presents the same matter from different angles, connect points between different reports, including your annual report, and create an integrated report. There are global reporting initiative (GRI) standards to guide you.
What’s more, as highlighted in the Sustainability and business — the call to action; build back better report, the AICPA & CIMA have embarked on a thought leadership programme that explores accountancy and sustainability. This is part of a series of briefs exploring the topic of sustainability, business and the finance professional’s key role. They will help organisations consider the sustainability issues, how to integrate them into their long-term decision-making, and how to incorporate these issues into internal and external reporting. The first one Sustainability frameworks & Standards: Sustainability Accounting Standards Board – written from the management accounting perspective – is designed to present a summary of the SASB standard.
The finance professionals’ role
There’s a practical reason to have finance professionals implement ESG targets, says Dr Klaus Hufschlag: they understand process infrastructure, data collection and reporting.
They are analytical, with a data-centric mindset and a clear understanding of the impetus for and the effects of KPIs. They know reports and audits.
Businesses are increasingly being evaluated on their sustainable business practices, and finance professionals know the company’s existing structure, processes and systems. Analytical minds are necessary to run and govern the imperative process of collecting and reporting ESG data.