Corporate disclosures around environment, social, and governance (ESG) factors are becoming increasingly important as organisations seek to ensure that public perceptions of a brand align with an organisation’s values. In part, this is driven by consumer demand for more ethical business. Yet there is also the increasing link between ESG performance and financial investment.
As ESG reporting grows in importance, there are multiple regulatory mandates which surround it. In the EU, for instance, the Corporate Sustainability Reporting Directive (CSRD) requires large companies to disclose information on exactly how they manage their social and environmental challenges. Meanwhile, in the US, the Securities and Exchange Commission (SEC) has published proposed rules that would require public companies to disclose extensive climate-related information in their filings.
How FP&A teams can help
As complex as these processes might be, help is at hand. Financial Planning and Analysis (FP&A) teams can help CFOs reach their ESG goals – by providing the insights and capabilities needed to deliver the types of reporting fit for internal stakeholders, customers, and regulatory bodies.
Why? Finance practitioners are privy to detailed information on profits and losses and performance. Armed with this understanding, they can offer guidance to a CFO as to how ESG planning and goals align with the business objectives, as well as overall performance. Finance professionals handle daily datasets supporting sales, supply chains and customers – all of which are essential to ESG reporting. Leveraging an organisation’s existing pool of financial experts is a simple and effective way to streamline and manage ESG reporting in a way that ensures company wide alignment.
Finding the right technology
However, if FP&A is to live up to this potential, CFOs must ensure their finance processes and workflows are fit for purpose. Spreadsheets and manual data processing (both essentially represent disjointed systems) are slow and lead to unnecessary errors. Instead, CFOs should seek to support their FP&A function through the use of automated data-capture tools as well as accurate reporting functions.
For example, finance must be able to integrate large amounts of data from multiple systems. This includes information on carbon emissions, environmental impacts of company operations, tax provisions and strategic workforce planning. Without effective processes in place, collecting this data from many business units will represent a significant challenge, as will collating it and then communicating the results to internal and external stakeholders.
Fortunately, cloud-based technology makes modernising FP&A processes viable and cost-effective. By investing in appropriate systems, CFOs can instantly connect to data from any enterprise management, human capital management, customer relationship management or other transactional system. This is what enables them to unify their ESG and financial metrics. The result is a complete and real-time view of performance against all measurement pillars.
Business leaders can utilise streamlined workforce reporting to measure ESG by integrating information about workforce composition, business health, diversity, and workforce investment. For example, in relation to workforce diversity, cloud technology can help businesses quickly see their worker breakdown by metrics like age and race/ethnicity to understand how they are compensating different employees, including base/bonus breakdowns and benefit enrolments.
Using cloud technology can also help business leaders select sustainable suppliers by increasing access to data that can provide insight on suppliers’ ESG policies, identify areas for improvement and report on Scope 3 emissions from suppliers. This can help businesses improve carbon emissions beyond their direct operation and utility (electricity, steam, heat, or cooling) in the use chain for sustainability and resilience.
Additionally, businesses can use cloud technology to provide an adaptable platform for managing their overall emissions reduction strategy, enabling them to see Scope 1,2,3 emissions in detail. Given the breadth of areas where data needs to be pulled from in order to measure the three scopes of emissions, businesses will benefit from a robust, cloud-led approach to managing this data so it can be actioned accordingly. In contrast, failing to do so risks inaccurate and cumbersome reporting.
Turning purpose into action
ESG reporting is likely to continue to demand more time and resources from CFOs and their teams. Businesses which elevate the role of FP&A, by enabling such teams with cloud-based tools, will establish robust ESG strategies and then report on these effectively.
With stakeholder needs on the rise, the expectation increasingly is that FP&A must be able to illustrate a company’s purpose – not just words but those actions which benefit the entire organisation. With regulations around ESG advancing rapidly in markets across the world, there is no time like the present to act and to invest in relevant could-based solutions.
Workday is a leading provider of enterprise cloud applications for finance and human resources, helping customers adapt and thrive in a changing world. Workday applications for financial management, human resources, planning, spend management, and analytics have been adopted by thousands of organisations around the world and across industries—from medium-sized businesses to more than 45 percent of the Fortune 500. For more information about Workday, visit workday.com.
