- As companies around the world strive to achieve their net-zero and other sustainability targets, they face a rapidly evolving regulatory landscape.
- Only 10% of CFOs report that their companies are prepared for detailed reporting mandates.
- Just 15% of companies use their ESG measurement and management capabilities to fast track their sustainability strategy and drive business value.
Adapting to New ESG Reporting Requirements
Companies worldwide are striving to meet net-zero and other sustainability goals amidst a rapidly changing regulatory environment. Key regulations include the EU’s Corporate Sustainability Reporting Directive (CSRD), the US SEC’s Climate-Related Disclosures (CRDs), and standards from the International Sustainability Standards Board (ISSB).
Key Regulatory Mechanisms
Policymakers employ three main mechanisms to achieve various objectives, which CFOs need to understand and align with:
- Enhanced Market Transparency: Mandating disclosures to highlight ESG risks and opportunities.
- Fair Trade Practices: Setting prices based on the carbon content of imports to create fair opportunities for domestic goods.
- Business Incentives: Offering grants and incentives for specific sustainable activities.
Challenges and Opportunities
Compliance with these new rules can be challenging for both finance and sustainability teams. However, these regulations also present opportunities to leverage new technologies for better information gathering and smarter business decisions, ultimately creating value from sustainability efforts.
By integrating technology and human ingenuity, companies can move beyond mere compliance. Research shows that companies excelling in continuous reinvention (Reinventors) significantly outperform their peers in revenue growth and profitability.
Rising Pressure, Unprepared Organizations
A significant majority of CFOs (78%) feel pressured by multiple stakeholders to take more action on sustainability issues. Despite the urgency, many companies are not fully prepared to meet these expectations. Only 22% of CFOs feel well-prepared to meet new reporting and assurance requirements.
Aligning Long-term Aspirations with Short-term Goals
Successful sustainability programs can reduce costs and increase revenues by enhancing production efficiency and opening new markets. Addressing previously overlooked areas due to new regulations can offer fresh insights and inspiration.
Developing Essential Capabilities
Research and client experiences highlight nine crucial capabilities to advance beyond compliance and create a competitive edge:
ESG Measurement
- Automated ESG data collection
- Robust data quality controls
- Integrated data availability across the organization
Change the World - Subscribe Now
ESG Management
- Linking non-financial KPIs to financial metrics
- Advanced analytical and forecasting technology
- Leadership access to ESG information for strategic decisions
- Integration of ESG considerations into business decisions
Talent Development
- Enhancing ESG skills within finance teams
- Strengthening financial expertise within sustainability teams
Varying Levels of Capability Maturity
Companies exhibit different levels of maturity in ESG capabilities:
- Weak: Partial automation, manual data quality controls, limited data accessibility, poor integration of finance and ESG skills.
- Moderate: Improved processes, automated data capture, robust quality controls, better data availability, and enhanced talent integration.
- Strong: Detailed ESG data collection, automated quality monitoring, predictive analytics, and comprehensive talent collaboration.
Digital Transformation for ESG
A strong digital core using cloud and AI technologies is essential for managing ESG disclosures. This digital infrastructure supports the transformation of ESG data into actionable insights, fostering sustainability as a value driver.
Taking Strategic Actions
To develop robust ESG capabilities, companies should:
- Define Ambitions: Clarify whether the goal is compliance or using ESG data to drive business.
- Prepare for Compliance: Be ready to provide audited ESG disclosures.
- Integrate Reporting: Align ESG data measurement with financial planning.
- Turn Data into Insights: Use advanced tools and IT architecture to automate data collection and generate insights.
- Engage with Regulators and Stakeholders: Communicate proactively to understand regulatory priorities and mobilize internal support.
- Leverage Talent: Develop ESG and financial expertise across the organization to integrate sustainability into business performance.
Companies that excel in ESG measurement, management, and talent capabilities can better identify opportunities, overcome barriers, and generate value through informed decision-making. CFOs who strategically build these capabilities will likely create a competitive advantage and accelerate their organization’s sustainability strategy.
Key Statistics from the Study
- 72% of respondents feel pressure from regulators to act on sustainability.
- 85% expect an increase in mandatory ESG disclosures within three years.
- 54% align ESG disclosures with international frameworks beyond requirements.
- 69% prioritize sustainability for their organization.
- 38% invest in sustainability to improve financial performance.
- 24% focus on business model transformation for sustainability in the next 18 months.
For more insights, read the full report by Accenture.
