• Study finds financial teams are building specific infrastructure and strategies with a renewed focus on data to accommodate climate reporting.

The Financial Education & Research Foundation, the independent non-profit research affiliate of Financial Executives International, has released the findings of its latest Environmental, Social, and Governance report, How Finance Will Transform ESG with Persefoni, a leading Climate Management & Accounting Platform for corporations, financial institutions, and government organizations.

The report examines how ESG continues to hold an important and growing role for companies, how the Securities and Exchange Commission’s prioritization of ESG reporting has impacted reporting efforts, and how finance functions are evolving in response to the SEC’s climate proposal. In expectation of the new requirements, financial teams are taking a close look at their existing and planned infrastructure for reporting, as well as addressing the challenges posed by reporting on climate, a subject still challenging to many organizations.

The survey results, coupled with insights obtained from interviews with finance executives, point to a strategy in various key areas to meet the necessary requirements, as outlined by the SEC, as well as relevant concerns, including:

• Building infrastructure and putting the right processes and systems in place
• Addressing the talent gap and enhancing training
• Incorporating SEC’s proposal on climate
• Understanding the role of climate and sustainability as part of a company’s governance

While still under review, the SEC’s proposed regulation would mean several aspects of ESG reporting will no longer be voluntary, but regulated, requiring businesses to adhere to certain disclosures related to climate in financial statements and filings as well as other regulatory statements. It creates additional complexity from how climate change might affect the organization. Companies are still navigating the complexities of ESG and their efforts at implementing a strategy are nascent, with only eleven percent of S&P 500 companies listed among signatories of the Taskforce on Climate-related Financial Disclosures as of December 2022.

Establishing controls over climate related data is of great concern, with fifty-eight percent of those surveyed expressing concern regarding the complexity (and accuracy) of their climate data according to the report. Now more than ever, ESG becomes an integral part of an organization’s digital transformation journey – creating a digital infrastructure and process that reinforces the data’s integrity should improve the quality of reported data in the short term and in the long term, it would increase the automatability of the ESG data and processing.

“It is clear that there is a new sense of urgency to ESG in light of the SEC’s proposed climate disclosure rules,” said Andrej Suskavcevic, CAE, President and CEO of Financial Executives International and Financial Education & Research Foundation. “Our latest ESG report is specifically designed to help our members better navigate these uncharted waters. We expect that this latest research will serve as an essential guide for all financial teams and organizations working to develop best practices and implement the most relevant metrics and controls needed for accurate and transparent financial reporting.”

Key Findings Include:

• Finance teams are laser focused on building an ESG reporting ecosystem: Finance is working to control ESG (100%), developing oversight of ESG reporting (97%), and increasing its role in preparing disclosures related to the SEC’s proposal (93%).
• Eyes on the process: Eight out of ten finance professionals reported being most keenly focused on building the complex processes needed to address organizational ESG reporting.
• Climate data continues to perplex many: Respondents named difficulties in obtaining scope 3 data (77%) and the general complexity of the climate data (58%) as the most significant challenges to meeting the SEC’s climate proposal.

“There are no organizations more respected among the world’s financial leadership than FEI, and we are honored they trust Persefoni to share climate accounting and decarbonization strategies with their members,” said Persefoni CEO and co-founder Kentaro Kawamori. “As CDO of a Fortune 300 at the end of the last decade, it was apparent to me that Finance teams were quickly going to play a critical role in ESG; engaging even deeper with FEI members and sharing our market learnings is exactly what Persefoni is built for.”

Source: FEI