Environmental, social and governance – ESG – has been a hot topic in the Pro Groups this Spring.

We tapped Pro Group member Mandi McReynolds, Workiva’s first Senior Director of Enterprise ESG, for her perspective about the role of finance and internal audit in the new world of ESG reporting.

Mandi is new to Workiva, but in the world of ESG, she is an elder. For nearly six years, she worked for a Fortune 200 company in several ESG-related roles. Before being named as that company’s first Director of ESG, she led an enterprise-wide ESG Task Force initiative and managed global community relations and a $200 million asset under management global foundation.

Over these last six years, ESG engagement dramatically accelerated, as investors, consumers, employees, and other stakeholders like the SEC, have become fully engaged in the ESG conversation. 

“Now that we’re seeing the focus of ESG reporting move into the finance organization, it’s becoming clear it’s a business strategy, not a stand alone glossy report,” she says. “High integrity reporting is the next step in telling your ESG value-creation story. This is where investors will be looking for ESG growth catalysts.”

Mandi offers Pro Group members these tips to help you get ESG-reporting ready.

1. ESG is a team sport. 

It takes a team to develop an ESG reporting strategy that can meet investor demand for more and more detailed disclosure about the financial implications of a company’s ESG practices. A diverse, enterprise-wide, cross-functional team could include risk and compliance officers, HR, diversity and inclusion, employee health and safety, operations and supply chain, and marketing and communications to represent the corporate brand. Ideally, the task force feeds into a committee of the board of directors. 

Finance is a critical player on this team. Your expertise in SEC filing is directly applicable to ESG reporting. Materiality assessment, disclosure, and controls are the foundation of ESG.

2. Invest upfront time in stakeholder engagement and framework identification. 

To clarify what’s most important for long term business success, start with understanding your stakeholders. Put a process in place for collecting data from your stakeholders – investors, employees, customers, consumers at large – to understand what’s important to them. 

Once stakeholder engagement is complete, check third-party reporting frameworks and ESG ratings because they provide comparability between groups of companies. For the ESG reporting team, they can be a useful reference to gut check your own plan and necessary disclosures.

3. Prioritize risk 

A critical element of your ESG reporting strategy is prioritizing risk. The chief risk officer, chief compliance officer, and risk management teams should assess the risks of the ESG material issues. As key performance indicators (KPIs) are set, the team must identify key risk indicators for those KPIs . 

It’s tricky business. Today a lot of emphasis is on climate risk. Climate may be lower on your company’s list of ESG risks based on the industry. It’s your job to balance what investors want with knowing material ESG risks your company faces and the order in which you will run scenarios and risk testing against those risks.

4. Extend your capacity with the right technology tools

Just like financial reporting and compliance, the burden is on you to collect, manage, and report ESG data that stakeholders can trust. Technology tools are necessary to extend the capacity of your teams, to ensure data integrity, and to position your ESG reporting for the future.

  • Automate and integrate front-end data collection. You likely will be collecting data from multiple systems, people, and locations. As in other areas of finance, automated reporting technology can
    collect data directly from your source systems and consolidate it in your centralized ESG data management tool. Your job is to validate the data connected to your material issues, KPIs, risk indicators, and strategy, and to prepare internal and external stakeholder reports on a monthly, quarterly, or annual timeline.

     
  • Data integrity. Working in a centralized, integrated ESG data and reporting system eliminates data discrepancies. Linked data isn’t confined to SEC documents; it can be linked to high profile, sensitive documents, like the proxy statement and annual report. This is what data integrity looks like, and it’s what builds stakeholder confidence and trust.

5. Assurance will become more common. 

Of course, with ESG reporting also comes the need for assurance over the reporting process, which will require effective controls. Already, some U.S. companies voluntarily provide a limited amount of audited ESG data disclosed in their SEC filings. As this type of limited audited ESG information becomes more common in the U.S., reporting companies could benefit from technology that can produce assurance-ready reporting for both financial and non financial data. 

“ESG is an exciting frontier,” says Mandi..” Let's unleash more ESG teams to be free from the frustrations of reporting and allow them to drive strategy, growth, and forward-looking authentic action.”

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