Who owns ESG reporting? (2024)

Robert Kerr | National ESG leader for ARA and Atlanta/Birmingham ARA leader

Who should own our ESG reporting internally?

As organizations are experiencing increasing regulatory requirements as well as the initiation, convergence, and evolution of environmental, social, and governance (ESG) standards and frameworks, how can companies design talent structures to address this new level of reporting? I’ve put together six questions to consider that can inform your approach.

1. What type of role may be responsible for ESG reporting requirements?

I have found sustainability has historically been a separate group, perhaps collaborating with the office of the CFO and controllership but more often focused on investor relations, community outreach, and more qualitative aspects of a company’s sustainability strategy. Because of the recent surge in ESG regulations requiring the reporting of ESG-related data to government entities and regulators, an increased requirement for the data to be consistent, accurate, and complete has arisen alongside. And that has introduced the need for more rigor around nonfinancial data, such as greenhouse gas emissions, and a skill set that has historically resided in the controllership function to be applied to data that traditionally has resided within the sustainability function. As a result, the need for what a lot of industry people are calling an “ESG controller” has emerged. It’s a talent that is a combination of controllership and sustainability subject-matter expertise that hasn’t previously been required to exist at scale.

2. How do ESG financial reporting responsibilities overlap or differ from the sustainability functions? Where do you draw the line?

In our view, one option is for ESG reporting responsibility to live in controllership but as a business partner to the sustainability area. There are regulations (for example, a 10-K for a public company) that controllership owns, but as regulations are increasing, voluntarily reporting and requests are, too. It’s not that regulations are pulling the sustainability function into controllership. It’s that regulations are creating a bigger need for controllership to be a business partner to the sustainability function to help support both its mission and the regulatory reporting.

The position could reside in the sustainability function as long as it’s someone with the controllership skill set. However, in part because of the expected SEC climate rule requiring 10-K disclosures and in part because of the assurance aspect of these regulations, more often what we are starting to see in the market is controllership is where it sits—as a business partner to the sustainability function. But there is no one right answer as it is a company specific determination.

3. How should companies create or identify cross-functional roles to manage ESG reporting requirements?

It’s all about identifying the relevant data, how it’s collected, and by whom. Using regulations as an example, potential steps to creating a sound ESG reporting process could be:

· Identify the entities in scope of the regulations;

· Identify the required or material topics;

· Identify the data that is relevant to those topics;

· Determine where the data resides; and

· Identify or design what processes controls are needed to ensure accuracy and completeness of the relevant data.

Some of that data is going to reside with the sustainability function; some with human resources or the talent function; some of it is going to rely on supply chain. One thing that is certain is the data will not originate with the ESG controller. It’s the responsibility of those functions to collect the data and coordinate as a business partner with the ESG controller role.

As a result, you’re going to need to upskill current internal talent or identify and hire new talent that can collect the data and work with the ESG controller. It’s not only controllership that will need someone there to assist with leading the charge on reporting, but each of the businesses where the relevant data is identified will need someone that knows how to partner with and collect the needed data.

4. What are the considerations for multi-jurisdictional companies?

One question we often get from clients is should responsibility for ESG reporting reside in the individual jurisdictions or should it reside centrally at global headquarters? The answer is both. We believe local jurisdictions should be responsible for data collection, but the overall ESG reporting program and consolidation should be managed and governed centrally to ensure consistent data collection and reporting practices globally due to the fact that similar mandatory regulations and voluntary requests are expanding at an exponential pace. What you want to avoid happening is that each jurisdiction works to comply with local regulations and requests and, when it comes time to consolidate information, the data is inconsistent.

Ultimately, this is going to create the need for a parallel financial reporting close process but with ESG data. This includes similar considerations for control design, technology implementation, and staffing needs. You’re going to want to consider having quarterly closes and consolidation processes that will need to allow for attestation. Otherwise, it’s going to be very hard to ensure the data is accurate, complete, and able to be subject to assurance requirements by their auditors.

5. What are potential consequences for companies that aren’t developing their talent strategy?

First and foremost, there will be challenges complying with regulations. From California to the EU, to the SEC and beyond, there are going to be deadlines to report, and almost all the regulations to date have an assurance requirement. If you cannot collect and consolidate your data on a timely basis and ensure it is accurate and complete prior to an audit, then you may have challenges.

Also, think about business strategy and setting targets. Increasingly, large customers are asking their supply chain to report ESG-related data (such as emissions) or commit to a science-based target to reduce emissions and measure against it. If you don’t develop this talent pool to ensure accuracy and completeness of the data—that’s foundational to being able to set a target measure against it—you can run into business challenges with your customers. This could impact your ability to do business. It’s not just about regulations. It’s about reputation with your stakeholders—including your customers.

6. ESG is here. How will you adapt?

Keep in mind that ESG reporting at this level of scrutiny is a new process and not a one-time undertaking. It’s going to be a journey as customers continue to request more sustainability-related data from their supply chains, as more regulations are enacted, and as ESG starts to permeate the entire business. Governance around ESG reporting will need to continue to mature, and at the center of all that is this ESG controllership role.

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