Surveying the forest without losing sight of the trees: CFOs deploy ESG strategies

CFOs’ ESG priorities go beyond disclosure requirements

All eyes are on the SEC's upcoming climate-related disclosure requirements — but the latest CFO survey shows financial leaders are thinking beyond climate in their ESG strategies. Less than one fifth (19%) of CFOs ranked climate change as a top ESG topic for their organization. About a third considered employee health and safety (32%) and diversity, equity and inclusion (DE&I) (29%) in their top three priorities, and over a quarter included technology and innovation (27%) as an important element of their implementation plan.

CFOs also noted the benefits of incorporating ESG initiatives into their business practices — particularly, its role in safeguarding against reputational risk and associated financial consequences. Today, brand reputation means more than good PR — it is a major factor in a company’s sustained valuation. More than half (56%) of survey respondents said improving the reputation of their brand is a benefit of an enhanced ESG program. Other benefits ranked highly include enhanced trust among stakeholders (45%) and attracting and retaining talent (38%).

CFOs are attaching the benefit of ESG to their reputation likely because they believe it’s a priority for their stakeholders, too, as stakeholder groups that play a role in advancing ESG are shifting across organizations. In the latest survey, 39% of CFOs said customers are one of the stakeholder groups pushing them to enhance their ESG programs. That’s up from 28% who said the same in Q3 2021. In this survey, CFOs put customers only behind leadership (44%) and employees (43%) as the stakeholder groups motivating their ESG program. That is likely because the younger generation is taking up more space as both employees and customers, prompting organizations to take ESG topics that group cares care about more seriously.

Looking ahead to the next generation

The oldest members of Gen Z turn 26 this year. They’re participating in the economy as customers and investors, and in coming years, they’re expected to make up roughly a third of the workforce.

So, when the majority of CFOs acknowledge brand reputation as a benefit of incorporating ESG initiatives into their organization, they’re looking past check-the-box activities such as an annual report. Embedding ESG into their culture, brand and even supply chain — and tracking it — will become increasingly important to the next generation.

“The next generation — as consumers, employees and investors — is looking at organizations holistically. Not just as a business that provides a service, product or job opportunities, but as an organization that embodies their values in the way that they operate day-to-day. And they’re looking to align themselves with those values,” said Suha Gillani, director of ESG & Sustainability at Grant Thornton.   

Reporting: An opportunity to showcase strengths

No one wants to scramble for a deadline. If that’s how an organization managed their ESG reporting up until this point, it will be nearly impossible to put their best foot forward when sharing progress with stakeholders, as well as for mandatory disclosures to the SEC.

“Many managers don’t have a built-in process for ESG reporting the same way they would for performing something like cash reconciliation. When it’s an all-hands-on-deck situation, there are likely reporting issues and mistakes in the data,” Sloan said. “ESG reporting needs to be built with the same rigor as their regular financial reporting. If not, then it continually becomes a burden — and they lose their own effectiveness and efficiency in collecting data.”

Luckily, the majority of CFOs surveyed — 57% — report they have clear ESG goals and are at least building their reporting capabilities against these goals. And they’re taking action to strengthen their ESG programs in various ways — from identifying priorities through a materiality assessment (48%), developing a gap analysis against current disclosure requirements (47%), conducting assurance readiness over reported metrics (34%) and obtaining independent assurance (31%). Just 18% of CFOs aren’t doing any of these things. And to prepare to report on new ESG-related regulatory requirements, such as CSRD and the proposed SEC rule, more than half (51%) are getting their reported data validated by a third party, with 27% using a CPA firm.

Still, CFOs foresee some challenges when it comes to ESG reporting. Nearly half said ensuring accurate and reliable data collection (46%) and maintaining compliance across multiple jurisdictions with different reporting requirements (44%) will be challenges as their organization increases its focus on ESG initiatives. But rather than consider ESG reporting daunting, leaders can view it as an opportunity to show their strengths — using information they already have.

“When we see CFOs prioritizing employee health and safety, tech, DE&I... it shouldn’t be daunting to think about extracting that information,” Sloan said. “Your organization likely already has much of this data. Wouldn’t it be great if you could reliably and consistently come up with it, have it assured and show your stakeholders what a great job you’re doing?”

With a focus on the big picture, organizations can make their ESG program work in their benefit. As CFOs guide their organizations through ESG strategy, operations and reporting, they have the opportunity to take their ESG programming beyond compliance and use their data to tell their stories, engage their stakeholders and improve their double bottom line.