Only 9% of finance departments have primary ESG monitoring: survey

Diving Brief:

  • While 65% of financial reporting teams plan to support more environmental, social and governance (ESG) programs in the future, less than one in 10 companies surveyed gave finance departments primary responsibility for overseeing reporting and tracking ESG programs at their companies, according to a survey of Investor Relations Officers (IROs) from the National Investor Relations Institute and Donnelley Financial Solutions.

  • The main corporate departments in charge of ESG reporting and monitoring are sustainability (27%), investor relations (24%) and legal (23%), followed by finance (9%). Nearly half (44%) of respondents said ESG data is hosted and shared through programs such as Microsoft Teams, Google Drive and Dropbox rather than on a secure platform, according to the survey.

  • Companies are using a “bit of wire and gum” approach, Frank Kelley, director of ESG & Compliance Services of Chicago-based Donnelley said in an interview. “Generally speaking, there are rigid financial controls over accounting and financial metrics and disclosure and what the report found is that those controls are seriously lacking in the ESG space.”

Overview of the dive:

The report’s findings on loose internal controls related to ESG data come as the potential cost of poor ESG reporting rises amid heightened regulatory scrutiny.

The Securities and Exchange Commission aims to require companies to describe on Form 10-K their governance and their strategy in the face of climate risk and launched a working group responsible for identifying anomalies in the ESG information of issuers. Meanwhile, youThe International Sustainability Standards Board (ISSB) mobilizes regulators from the United States, Europe, Japan and other jurisdictions around common rules for the disclosure of climate risks and other ESG issues.

These changes contribute to a paradigm shift in the way companies and their leaders approach ESG. In recent years, corporate boards have played a central role in programs, and input from CFOs is increasingly needed as expensive programs become a capital allocation issue, Kelley said.

“It’s about moving from a communication tool where you say ‘we’re doing this awesome stuff,'” Kelley said. “While the SEC and broader stakeholder groups focus more on ESG, it is more about disclosuree document… for which you need proper controls.

CFOs should start small when considering technology for their ESG initiatives, said Kelley, whose company provides software and systems that can be used to ESG initiatives. Leaders can start by hosting data in a secure, cost-effective data room and establish two years of baseline metrics before considering more complex platforms, he said.

Companies should “not get ahead of their skis,” Kelley said. “If they don’t have at least two years or report measurements, [the technology] is often unnecessary and underutilized.

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