The European Union's
Under the new rules, companies are required to deliver a new level of accountability for their environmental, social and governance performance in the 2024 financial year by providing investment-grade detail on things like emissions, energy use, diversity and labor rights. This far-reaching legislation will impact approximately 50,000 EU-based organizations and 30% of U.S. companies with operations in Europe.
According to the new
Though CSRD compliance will require investment, it is vital from a competitive, employer and brand reputation standpoint. While accountants would not, ideally, be heavily involved in ESG reporting, they nonetheless have a key role to play.
Why finance?
Though it means additional responsibility for accountants and their finance teams, it's logical they would be essential to ESG reporting. Day to day, accountants are already involved in everything from improving energy efficiency to waste management, recycling and digital solutions. They already have the necessary processes in place, as ESG and finance reporting structures are similar.
Many ESG initiatives must be quantified, and because they relate to the publication of regulatory information, public reports or government returns, accountants often must produce and sign off on these items as the final accuracy check. If a business doesn't have this type of reporting expertise, it typically falls to the finance team and CFO, whose role has been expanding over the last few years.
According to Deloitte, the traditional CFO roles of operator and steward have expanded to include strategist and catalyst. It's not surprising that ESG, with its large financial and commercial implications — from investment and costs to reporting integrity — would naturally fall within the CFO space.
The right technology is key
To comply with reporting standards and meet CSRD deadlines, global businesses must put the necessary technologies in place to enable quick-turn ESG data analytics. This is easier said than done, as the average company's ESG framework involves complex qualitative and quantitative data encompassing the entire business model. Just the environmental portion of ESG alone requires companies to account for all their supply chain touchpoints, from shipping and packaging to employee commute. In some cases, companies will need to locate data that they are unaware of or start gathering some types of data from scratch.
The first step is to design and implement procedures that can effectively track ESG performance and integrate it into operations. With this extra layer of information, businesses can more simply and precisely monitor their ESG initiatives, analyze their success, make appropriate plans to stay compliant and eventually cut expenses overall.
An enterprise planning software platform can help companies plan and report more intelligently across finance and the office of the CFO, operations and supply chain. Like a pilot in an airplane, this type of platform can instantly reveal critical key performance indicators that show where the company is, and whether it's on track.
Here are some examples of how this type of platform can address ESG reporting pain points for accountants and finance teams:
- Automate CO2 calculations into a carbon dashboard, which allows for real-time visibility into carbon emissions that is comparable to that of other important business metrics. Tracking carbon emissions at an operational level allows for faster data collection that can help companies make faster decisions to address factors that may drive up emissions, such as surplus inventory.
- Through AI-driven analytics and real-time data, drastically reduce the time required to get an accurate accounting of Scope 3 emissions, which can be tricky since they're indirectly generated by things like employee travel and waste disposal.
- Minimize waste with a more accurate "surround sound" view of real-time product demand, so that production does not exceed demand.
Benefits beyond compliance
Getting ESG and CSRD "right" is about more than compliance with the law. Increasingly, ESG is important to multiple constituencies: customers, banks, boards and individual stakeholders, to name a few. Investors want to ensure businesses take ESG seriously, and consumers — particularly Gen Z — want the brands they purchase to reflect their values and social conscience. To compete and win in this market, companies must show that ESG is a top priority.
Accountants can play a critical role in influencing and driving business, namely by helping people understand ESG compliance is not only the right thing to do for future generations, but also can reap hard benefits for companies and employees.
Overall, ESG improves a company's market position in the eyes of stakeholders. When this happens, companies realize commercial benefits across employee and customer engagement, brand and corporate reputation, business value, company perception, the ability to win and retain business, and reduction of customer and employee churn.
Looking ahead
Depending on where a company is in the process and its level of ambition, commitment will determine the pace of progress. With new regulations — and especially with the unprecedented requirements of CSRD — it's always wise to expect the unexpected.
Suffice it to say, preparation for CSRD reporting will be a journey. Through ESG efforts, and with the right technologies in place, accountants can help their companies bring the same level of rigor to sustainability reporting and planning as financial reporting and planning, ensuring a fuller picture of the business, better visibility into existing costs and stronger consumer reputation.
