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Why CFOs need an effective ESG reporting strategy to satisfy new compliance requirements

Reporting and compliance can be tough to satisfy with legacy systems. However, as Environmental, social, and governance (ESG) reporting is set to become stricter in 2024, the need for digital transformation is stronger than ever.

This is particularly relevant as the office of the CFO continues to evolve from a financial control function, into a trusted strategic adviser.

In this blog, we will discuss how stricter ESG compliance will affect the office of the CFO, and how they can satisfy this increased compliance with modern digital tools.

What is ESG reporting?

Environmental, social, and governance (ESG) reporting is becoming a key way for governing bodies to quantify the effect an organization has on society and the environment, as well as an organization’s transparency and accountability in this.

This isn’t only of interest to governing and standards bodies, but also to investors. Environmental stewardship, social responsibility, and corporate governance will become key factors that will weigh heavily on potential investment into an organization in coming years.

Investors and governments alike are placing increasing importance on the degree an organization is aware of these factors and will punish those who struggle to report on this.

Current ESG reporting challenges

  • ESG data and compliance will be used by potential investors
  • New regulatory impact from 2024
  • Most organizations aren’t prepared for ESG reporting compliance
  • ESG reporting compliance will require an integrated and cross-functional response
  • Many currently don’t report ESG compliance and many data leaders could be caught unaware.


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Why is ESG reporting important?

Put simply, many governing bodies will soon enforce compliance with ESG reporting standards.

  • While they will harmonize on standards and compliance rules, both the International Financial Reporting Standards Foundation and the European Union will enforce ESG reporting compliance in 2024.
  • In 2022, the Securities and Exchange Commission in the US also reported stricter rules around climate disclosures, with a roadmap for implementation to follow.
  • From January 1, 2024, the International Sustainability Standards Board will enforce its ESG reporting standards: IFRS S1, and IFRS S2

As compliance with ESG reporting becomes stricter organizations need an effective strategy to match the data management needs this will require. This said, many organizations do not currently have any ESG reporting strategies at all.

If left unprepared, organizations of all sizes will suffer from the enforcement of these reporting standards without a succinct way to manage the necessary data.

Even small to medium enterprises (SMEs) should take note. While SMEs are exempt from the full complexity of certain reporting requirements, these rules will soon be enforced on them.

Note that the EU’s Corporate Sustainability Directive will apply to listed SMEs. While they currently have three years to comply, they still need effective data management strategies to be in place to report on historical data.

Enterprises of all sizes will soon be required to have a data management strategy to comply with strict ESG reporting standards.

How will this affect the Office of the CFO?

Those within the office of the CFO ought to take a keen interest in the regulatory impact of ESG compliance on their current data management systems.

In June 2023, a Dresner Advisory Services survey on ESG reporting compliance found that when asked where responsibility for ESG reporting compliance would lie, while most answered “don’t know”, 13.3% of respondents pointed to a “cross-functional team”, and 12.4% suggested the “CFO and finance team”.

Dresner’s survey suggests that ESG reporting and compliance will become part of the increased responsibility of the office of the CFO to be strategic, and cross-functional. Forbes concurred this in a recent article, pointing to digital tools as a solution:

As the role of the chief financial officer (CFO) continues to evolve, today’s CFOs find they are involved in everything from digital transformation to talent development initiatives.

Increasingly, that list includes helping the company prepare for a future of continuous management and accurate reporting of environmental, social and governance (ESG) issues

It’s clear that many CFOs are taking ESG compliance seriously, and those who aren’t yet should follow suit. 

An Ernst and Young poll from August 2023 found that 51% of CFOs interviewed, of which there were 1000, hold ESG reporting compliance as utmost importance, with global CFOs prioritizing its funding.

In this same poll, the CFOs interviewed rated ESG as their top priority, alongside technology and digital innovation. This represents the importance of modern data solutions to help satisfy the complexity of ESG reporting that will soon be enforced,

Forbes reports that ESG compliance should be a priority for all those within the C-suite, and should encourage cross-functionality, as there is a strong connection between ESG reporting and the long-term financial performance of the business.

Forbes also notes that:

“Regulatory mandates, and the potential financial implications of noncompliance, are enough to catapult CFOs to the front line of helping their companies build successful ESG programs, processes and practices.” 

This suggests there will be executive support for CFOs taking on the responsibility of ESG reporting.

How an integrated data model can help with ESG compliance

ESG reporting is quite complex as it requires visibility across all organizational data, which is a struggle for legacy systems. It’s clear a cross-functional response from an organization is required to satisfy all elements of ESG reporting standards.

Cloud-based ERP could be the solution as it can easily gather and distribute data from all of an organization's functions such as HR, Finance, Procurement, and more. Moreover, it has additional features such as AI which can help optimize productivity to focus on report generation.

Dresner ranked Unit4 as the 3rd most appropriate vendor, out of 10, due to its ERP cross-functionality and integrated FP&A solution. With Unit4 reporting can be much easier and more succinct by compiling data across all departments and offices.

Consult our website to learn more about how our FP&A for ESG product can help generate the cross-functional response required to satisfy ESG compliance for the future.

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