Gone are the days when concepts like transparency, sustainability, and responsibility were optional for a business. These days, customers, shareholders, and employees are demanding visible and measurable improvements in how organisations comport themselves, resulting in a new way for companies to gain a competitive advantage.
Sustainability can offer direct value through market recognition, providing another way for companies to outperform their peers. A well-managed sustainability strategy therefore has the potential to reshape value chains upstream and downstream, and with increasing regulatory pressure focused on sustainability demands, putting the right capabilities in place for reporting can also equip organisations to drive business performance.
Recent research from OneStream found that 90% of the FTSE 100 will only work with suppliers who share their Environment, Social and Corporate Governance (ESG) credentials. A further 3% are integrating the requirement into their operations. When asked how concerned companies are that they do not have the right technology in place to support ESG reporting that meets regulations, 49% of organisations are somewhat concerned and 25% are highly concerned. Only 4% reported not being at all concerned.
Transforming ESG
Many companies have started looking at Enterprise Performance Management (EPM) to make their ESG reporting simpler, faster, and more effective. Historically, EPM was focused on the financial health of an organisation, looking at revenue and sales growth, profitability, working capital, and the analysis of operational drivers for financial performance. As sustainability commitments evolve, the definition of EPM practices is also evolving.
EPM can help transform sustainability from a worthy idea into a tangible business activity, according to a Deloitte report, “Finance for a sustainable future”. Leveraging the principles of carbon accounting, it can become an arena where carbon footprints and greenhouse gas (GHG) emissions are quantified as are other performance metrics such as profitability; where diversity, equity, and inclusion goals are measured and evaluated; and where stakeholder engagement and new value streams are managed and monitored. EPM can be expanded to have broader organisational implications, provide a pulse on overall business health, and inform the path to a sustainable future.
The integration of sustainability into EPM is a long-term commitment, rather than a once-off event. Starting with regulatory requirements, leaders can move on to other vital areas as they mature their ESG practices. The end result will be far more encompassing than just an analysis of the environmental aspects (e.g., emissions/pollution/waste), and should eventually include a wider focus on the people impacted by an organisation and demonstrated governance and leadership.
CFOs must take the lead in this process. Responsible for translating the organisation’s vision, strategies, and activities into actionable quantitative terms, CFOs are the logical choice to measure and drive performance on the emerging sources of value presented by sustainability. For example, CFOs can lead in quantifying sustainability risks and impacts, defining and managing carbon budgets, defining and managing sustainability-related performance metrics, producing insights from sustainability data, and embedding sustainability considerations into investment decisions.
Maximum confidence and reliability
Many of the existing ESG reporting solutions are focused on only a specific aspect of ESG, such as environmental, health and safety (EH&S) compliance. That means the solutions aren’t suited to the broader requirements of setting ESG goals and targets, tracking progress against targets, and modelling the impact of ESG initiatives on future financial results.
EPM is the ideal solution for ESG reporting and planning, easily overcoming these challenges. With a unified EPM platform aligning ESG and financial reporting, all processes are handled within a single application and instance. ESG data is collected using the same process used to collect financial reporting data and can be viewed and analysed in the same dashboards, helping to eliminate duplicate data collection, consolidation and reporting processes.
EPM can improve the accuracy and integrity of ESG and sustainability reporting. With effective data collection with strict audit controls alongside a standard, defined and repeatable reporting process, EPM ensures that ESG initiatives can be managed with maximum confidence and reliability.
