Companies are increasingly expected to broaden the quality and scope of their corporate reporting to include enhanced environmental, social and governance (ESG) disclosures. Adopting an enhanced corporate reporting approach enables an organization to articulate a unique narrative on how the business is creating long-term value for its stakeholders. Boards have both a responsibility and an opportunity to challenge their organizations to transform into sustainable businesses and redefine reporting to address the wide-ranging insights that stakeholders are looking for.
To deliver enhanced reporting, companies need to think about transforming their finance operating model so that they can inject the same rigor and relevance of traditional financial reporting into ESG reporting. Boards should challenge their finance leaders to take a fresh look at how reporting is delivered by considering three key areas: data analytics, talent strategy and C-suite collaboration.
LEVERAGING ADVANCED DATA ANALYTICS
The use of advanced analytics is instrumental in extracting relevant ESG insights from data. Advanced analytics can help companies structure, synthesize, interpret and derive insights from voluminous data, and create credible and useful ESG reporting. Bearing this out, the EY 2021 Eighth Global Corporate Reporting Survey, which examines the perspectives of more than 1,000 CFOs, financial controllers and other senior finance leaders globally, found that the top technology investment priority for finance leaders over the next three years is advanced and predictive analytics.
Yet even as finance teams seek to build a more agile financial planning and analysis approach, several data challenges stand in the way. These include the sheer volume of external data, followed closely by data quality and comparability issues, according to the abovementioned survey. Boards should assess if finance leaders have adequate resources and budgets to address these challenges and increase their use of advanced data analytics to deliver more robust reporting.
A key way to leverage data analytics to enhance the quality of reporting is to introduce forward-looking insights, for example, by bringing in external data to corroborate and provide analysis on future trends. Thereafter, this downstream reporting outcome can be used to streamline upstream activities, such as capturing data in the right format to allow for efficient collection and analysis. This requires proper planning from data collection to reporting, with technology as a key enabler. Hence, this process should be considered part of an organization’s digital transformation journey.
FUTUREPROOFING FINANCE TALENT
With accelerated technology adoption, technology and data skills will become crucial for finance teams. Indeed, survey respondents identified understanding of advanced technologies and data analytics as the top two skills respectively that will be important for finance professionals to succeed in their roles over the next three years.
To make enhanced reporting a reality, the board should mandate the management to define a talent strategy that equips the finance team with the right skills for the future. This includes hiring of talent with essential specialist skills like artificial intelligence knowledge and experience as well as upskilling the current finance workforce.
To future-proof the existing finance workforce, boards can challenge finance leaders to rethink their talent strategy and build an investment case for a major upskilling exercise. They should also assess whether the finance leaders have taken key actions, such as performing a gap assessment of current staff skill sets and creating incentives to encourage existing finance staff to pick up new skills.
Closing the technology adoption gap between the younger and mature workforce is important for driving the right culture. The senior leadership can empower the younger workforce to champion new ideas on leveraging technology through work improvement initiatives and reward successful initiatives by following through on implementation, with its support.
COLLABORATING ACROSS THE BUSINESS
A significant amount of ESG data is owned by different parts of the business, making it an imperative to collaborate across the different functions. In this regard, CFOs play a pivotal role in advancing the ESG agenda and sustainability performance among their C-suite peers to drive a cohesive ESG approach. For instance, finance leaders should work with sustainability leaders and supply chain executives on environmental performance to understand more about how the company utilizes natural resources and the effect of its activities on the environment. Boards should direct finance leaders to proactively collaborate across the organization to drive effective ESG reporting and demonstrate the economic impact of different ESG strategies and related targets to stakeholders.
Boards should also expect finance leaders to work closely with them on sustainability performance management and oversight. With their deep understanding of the regulatory and reporting standards environment, finance leaders are well-placed to lead in building trust and transparency into ESG performance.
The integration of sustainability — and broader ESG factors — into the business strategy and enterprise risk management must be a board priority. In a world where stakeholder demand for reporting on nonfinancial information is growing, the board should challenge the management to redefine reporting and be prepared to disrupt the status quo. By accelerating the digitization of finance, defining a talent strategy that focuses on reskilling employees for a very different future and strengthening C-suite collaboration, companies will be well-positioned to deliver the insights expected by their stakeholders.
Boards should consider the following questions:
• How is the company using nonfinancial reporting to communicate how it is generating long-term value for stakeholders and does its ESG reporting meet stakeholders’ expectations?
• How is the board supporting and monitoring ESG strategy development and related goals and metrics, including the identification and integration of nonfinancial key performance indicators?
• How is the organization injecting rigor into nonfinancial reporting in terms of disclosure processes, controls and obtaining external assurance?
• What governance, controls and ethical frameworks are in place to oversee the use of artificial intelligence and other technologies in the finance function?
• What are the top skill sets needed to enable an enhanced corporate reporting approach and what are the skills gaps in the current finance team?
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co. and Ernst & Young LLP Singapore.
Aris C. Malantic is a partner and the Financial Accounting Advisory Services leader of SGV & Co. and EY ASEAN. He is also a Market Group leader in SGV & Co. Ronald Wong is a partner and the Financial Accounting Advisory Services leader of Ernst & Young LLP Singapore.