For real, accountable feel-good, the buck stops with finance

Are you surprised by how often the ESG acronym crops up these days? You shouldn’t be. Social consciousness is becoming a more important issue in the commercial world for stakeholders of all stripes: investors, lenders, shareholders, customers, and even employees.

No longer the mere feel-good factor it was viewed as a decade or two ago, ESG ­— enivronmental, social, and governance — now has a significant impact on processes, practises, and decision-making in enterprises large and small.

As it should. The majority of us want to live safely and well, and to support organisations that commit to basic human values and strive to make their operations more sustainable in the long term.

Upping the ante Down Under

Here in Australia, governments and regulatory bodies are intensifying their demands for businesses to quantify and report on their ESG efforts.

In December 2021, for example, then-ASIC commissioner Cathie Armour said it was focused on “ensuring that climate-related disclosures by listed companies comply with the law by being decision-useful for investors and support our objective of fair and efficient markets overall”.

An article entitled ’Mandatory ESG Reporting Gains Momentum’ published in the same month by Corrs Chambers Westgarth says it is clear mandatory reporting requirements are on the horizon.

“Companies who do not rise to meet demands for ESG accountability and transparency with adequate reporting face a risk of shareholder and employee activism, investor divestment and future regulatory action,” the firm’s head of responsible business and ESG, Dr Phoebe Wynn-Pope, and her fellow authors say.

The danger of doing too little

Is there an option to eschew the assiduous monitoring and management, and the spearheading of significant change, that genuine ESG leadership calls for?

It’s a brave — or foolhardy — leadership team that will seek to do so, given the range of risks not acting can attract. The most obvious one is falling foul of the standards bodies that will be responsible for establishing reporting criteria and ensuring they’re met.

Businesses that fail to come up to the mark can expect to be hit with a range of financial penalties. They include fines, higher insurance payments and reduced market value — the last courtesy of the fact that investors are becoming increasingly chary about putting their funds into firms that aren’t taking visible action.

Potential employees may also be wary about joining an organisation whose ESG credentials are less than stellar while customers, as always, will vote with their wallets.

Accepting the challenge

Against that backdrop, organisations are looking for leaders who can step up to the challenge of navigating the standards and frameworks that are evolving in the ESG space.

And there’s a strong school of thought that says finance professionals are the ones who should be doing that stepping.

More than two-thirds of executives surveyed by Accenture in 2021 say that the ultimate ownership of ESG should lie with finance. Deloitte’s 2021 report How CFOs Can Manage Sustainability Risks and Find Long-term Value comes to the same conclusion.

“At the intersection of sustainability and financial performance, the CFO is in the best position to define and communicate how a company’s management of ESG risks contributes to value creation,” it says.

Tools to make the task easy

Bottom line? It will more than likely be on the chief financial officer or senior accountant to assume the ESG management mantle. That means taking responsibility for liaising with senior leadership, assembling an ESG working group, and teaming up with the IT department to transition to technology that supports ESG monitoring and reporting.

It’s worthy, interesting, and essential work and many finance teams will relish the opportunity to take it on. Doing so, however, may see them placed under additional pressure. For some, having the responsibility for building and managing new ESG reporting models added to their already significant workloads may feel like a bridge too far.

Adopting finance automation can be one way to free up significant capacity, by reducing the amount of time finance departments need to devote to high-volume, repetitive work.

Deploying robotic process automation technology can slash the number of human hours required to complete these tasks, and drive the error rate down to near zero to boot.

That’s extra time finance teams can devote to ESG monitoring and compliance without having to increase their headcounts or make unreasonable demands on existing personnel.

Towards a more sustainable future

Being able to demonstrate ESG compliance will soon be an intrinsic aspect of doing business in Australia. Empower your finance team to take charge of the process and equip them with the tools they need to do so efficiently, and your organisation will be well placed to proceed with confidence. 

Claudia Pirko is regional vice-president Asia Pacific at BlackLine.