From San Francisco to Shanghai, and Stockholm to Sydney, major companies are faced with the looming shadow of mandatory environmental, social, and governance (ESG) disclosures.
While some countries and trading blocs have already implemented stringent regulations, others are on the horizon, and it will only be a matter of time before these standards are demanded by customers and stakeholders alike.
This is driving the need for organisations around the world to rethink their sustainability reporting strategy, and the people charged with ensuring that compliance.
Rewind just 20 years and the role of Chief Sustainability Officer (CSO) was unheard of, with Linda Fisher of DuPont widely regarded as the pioneer in 2004.
Tasked with an incredibly wide remit, and the growing pressure on external reporting rather than internal, it’s little wonder that the world’s biggest companies are bringing in specialists to ensure compliance and navigate this complicated, and evolving, landscape.
Welcome to the era of the ESG Controller – the person responsible for timely and accurate reporting of ESG data, similar to how CFOs play this role for financial reporting.
What does an ESG Controller do?
Scan the jobs boards and you will see ESG Controller roles popping up at an increasing rate. DuPont has again been fast out of the blocks, recently hiring its first ESG Controller. Alphabet and Halliburton have also made these appointments.
You may need to read between the lines on the job descriptions to spot the ESG Controller, with companies including Netflix, Mastercard and Delta Airlines all hiring for the position in all-but name.
So what does the ESG Controller do, why is it required, and how does that impact the CSO and wider sustainability team?
Christina Shim is Head of Sustainability Software at IBM. She says that as ESG and sustainability obligations have matured in recent years, we’ve started to see significant involvement of the controllership function, most often partnering closely with the CSO.
“Having an ESG Controller is saying to regulators, investors, and the market, ‘we take this seriously.’ The role is essential in developing ESG measurements, systems, and reporting processes that align with changing market dynamics and regulatory requirements,” Shim tells Sustainability magazine.
“It also signals that sustainability reporting is no longer solely about corporate citizenship but reflects that sustainability efforts are critical to business outcomes.”
Shim shares research from IBM that shows more than 80% of CEOs think sustainability investments will drive better business results in the next five years. This means ESG Controllers can help ensure assurance-ready disclosures regarding material impacts, risks, and opportunities, while also connecting sustainability information to business performance.
Shifting sands of sustainability
Matthew Sekol is Global ESG and Sustainability Advisor at Microsoft, and author of the upcoming book ESG Mindset. He says that when talking with companies and colleagues, he found the role of the CSO has dramatically shifted around the disclosures and regulations.
“Where a CSO previously had pursued purposeful work, now the metrics lead the attention, and the role of the CSO has shifted away from impact,” says Sekol. “CSOs using this data to inform potential strategies are now met with a management team who view their role as a compliance exercise rather than one that can deliver or protect business value.
“The ESG Controller should be focused on non-financial accounting, data quality, along with regulations and reporting. For now, this role does differ from a sustainability leader empowered to act on that data. The sustainability leader should be managing risk, driving improvements in operational efficiency and the like, and fostering new innovations.”
Mandatory reporting gained a foothold in the European Union with the Corporate Sustainability Reporting Directive (CSRD). This requires companies in scope to provide detailed reports on their operations and ESG impacts.
CSRD does not just impact listed companies, or indeed those headquartered in the EU. Large companies with more than 250 employees, turnover of more than EU40 million, or total assets of EU20 million are also required to report, plus non-EU companies with at least one subsidiary in the EU and a net turnover of EU150 million.
Whichever way you look at it, companies will need to have a firm grip on, and understanding of, their ESG reporting responsibilities in the very near future, if not right now.
Nancy Mentesana is the Executive Director of ESG at Labrador US, a global communications firm focused on corporate disclosure documents. She says we are in the midst of a transformation from fragmented to regulatory reporting.
“Instead of simply publishing a report focused on high-level CSR initiatives like employee stories or beach cleanup days, groups have become focused on the sophistication of their communication of ESG data, targets and progress over time,” says Mentesana.
“If companies don’t have targets, they are figuring out how to set them and, if they already have set targets, they are demonstrating them with verified methodologies.”
Clearly, the situation is complex, and there are people who believe this latest shift in the demands placed on sustainability teams is a natural evolution.
"In recent years, we've seen a shift from amateurs to subject matter experts,” says Elisa Moscolin, Executive Vice President for Sustainability at Sage Group.
“CSR – and now sustainability teams – have been historically staffed with people with tons of good intentions, but not enough expertise. Like any other area of business, having people with the right expertise and skills is key to successfully delivering on the strategy.
“When it comes to non-financial disclosures, it is essential to have someone who understands the reporting standards and can help the company respond. I see the ESG controller as a potential evolution of the Sustainability reporting expert, which given the complexity and sophistication of the emerging regulations, will be an increasingly important role.”
Finance critical to success
Moscolin highlights an important question for all organisations looking to bring in a dedicated ESG Controller – where does that person sit, and are they more aligned to the finance team than the sustainability team?
She says the convergence between financial and non-financial information “brings rigour to the disclosures. However, I would caution against confusing ESG controller/reporting with the role of a CSO, and I believe more work and discussions are needed to avoid decoupling data from strategy”.
IBM’s Shim says she has experienced various operating models, ranging from a Centre of Excellence combining sustainability and finance skills to having part-time or dedicated resources within the Controllership function.
“Right now, the ESG Controller role signifies the importance of getting a handle on the right data and enabling reporting and compliance,” she says. “But that’s not where it will stay. Moving forward, I think it’s clear that ESG Controllers will be instrumental in ‘actioning’ this data, embedding it into processes both to support meeting sustainability targets and as part of good business practices.”
Shim adds that every organisation is on its own journey, and whether or not they need distinct sustainability and financial controllers depends on many factors. Regardless of where they are, the collaboration between sustainability, finance, and many other internal stakeholders will be critical to ensure compliance and drive business value.
Microsoft’s Sekol backs up the importance of business value, adding that it is the “crux of the issue”. He says ESG Controllers aligning with the disclosures may report on material information and even the company's impact, but may need more agency to act.
“The new corporate sustainability due diligence directive in the EU is getting companies to adopt transition plans aligned with the Paris Agreement and deal with human impact, but regulations will likely never force companies to deal with their most material ESG matters,” he says.
“Yet, every company has unique intersections with this topic, and the role of the ESG Controller could surface those connections to the management team and business units via high-quality data and robust analysis.
“Whether those management teams will listen, fund, and act remains to be seen.”
It’s one thing listening to an ESG Controller, but finding that talent in the first place could be a challenge, says Sage’s Moscolin.
“The talent market is not mature enough; it is easy to find financial controllers and you can find some really good Sustainability reporting experts if you look hard enough, but finding individuals that are equally competent in both is simply a skill set that doesn’t yet exist and will take years to develop,” says Moscolin.
“It is critical that we continue strengthening the collaboration between sustainability reporting, finance and data teams.”
The need for robust ESG reporting is right here, right now. Is your organisation ready?
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