ESG Reporting – A High Tech CFO’s Imperative
March 25, 2022
A combination of forces from climate change to the pandemic have brought us to an inflection point in the way enterprise stakeholders judge corporate performance. Investors, employees and the public at large are scrutinizing environmental, social and governance (ESG) performance like never before and they all have the power to bring their own kind of pressure to effect change.
Consider the following:
Employees: 65% believe organizations should be responsible for leaving their people “net better off” through work, while 83% want the flexibility to be productive anywhere.
Consumers: 66% plan to make more sustainable or ethical purchases over the next six months, and 74% believe that ethical corporate practices and values are an important reason to choose a brand.
Investors: 81% of sustainable stock indices outperformed their peer benchmarks in 2020, and signatories in 2020 to the UN’s Principles for Responsible Investment saw a 28% increase.
Sources: Accenture Future of Work Study; Accenture Covid-19 Consumer Pulse Study: Principles for Responsible Investment; Accenture Global Consumer Pulse Research; Blackrock
Operating sustainably has become a business imperative. Certainly, every executive needs to be committed. But who owns the programmatic aspects (e.g., metrics, standards, compliance, audit and reporting) at the C-suite level? This is a particularly important question for the high tech industry, where sustainability is a sword that can cut both ways. On one hand, technology can be a force for innovation to drive green solutions. However, the industry is also a major consumer of energy and has a massive carbon footprint across the value chain from the semiconductor fab to the cloud data center.
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High tech companies need to address ESG issues, led by the Chief Financial Officer (CFO).
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We believe the high tech CFO is ideally positioned to organize, articulate and manage ESG strategies, execution and results. This shouldn’t be viewed as an onerous task but a key role in building sustainable performance as part of the CFO’s overall growth agenda.
The key steps to achieve these goals include:
- Establishing ESG business metrics and key performance indicators (KPIs) for the profit and loss (P&L) and commercial-impact analyses
- Quantifying the proposed impact of activity on these ESG KPIs
- Measuring and tracking ESG performance during and after implementation
- Using that data to generate insights that feed into ESG strategy development and external reports
- Establishing an ESG value-realization office
Why now?
The high tech industry is expanding and integrating public commitments to sustainability, to COP26 targets and improved sustainability performance with a variety of initiatives. Companies have aggressive goals to achieve net-zero operations.
- HP Inc. plans to reach net zero emissions by 2040.
- Cisco committed to net zero emissions by 2040.
- Dell committed to three waves of net zero progress by 2030, 2040, and 2050.
Some companies have linked executive compensation to sustainability and diversity targets; many are working with their supply chains to assess and reduce carbon emissions.
As this new imperative becomes a means for judging corporate performance – with metrics and reporting requirements – the CFO’s involvement is a natural extension of established executive responsibility and authority. Business performance measured by revenue and profit has always been rewarded. Now with the focus on ESG, companies need to also present results against sustainable performance. The International Sustainability Standards Board is working on sustainability reporting standards for companies to report their performance to investors.
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Responsible business action is now being rewarded as part of business performance, and data points to the COVID-19 pandemic as a trigger. In addition, about 55% of investors agree that action and awareness of long-term sustainability risks are likely to increase in the aftermath of COVID-19. Meanwhile, 71% of investors believe that the pandemic will increase awareness and actions globally to tackle high-impact/high-probability risks such as those related to climate change and biodiversity losses. Investors, customers and employees are increasingly evaluating ESG performance and putting their dollars and loyalty into action.
Rising to the occasion
The CFO’s job description has been evolving for years, from cash management to inventory control to compliance, all while serving as public spokesperson to the investor community and other stakeholders. Today, high tech CFOs have an opportunity to significantly impact the company’s ESG performance and profitability while empowering their department. The new role draws on the resources of the modern finance organization to shape the ESG and sustainability strategy and establish the capabilities to target, track metrics (including any financial impact), monitor and report progress and generate insights to further improve sustainable performance.
Every organization’s situation will be different. The CFO should create a responsible business framework of risk, regulations and returns to focus the attention of the C-suite and build the authority to take control. Filling in that framework requires the development of an ESG impact assessment and transition strategy. This exercise involves gathering data to assess risk and exposure across the enterprise value chain. These insights can be used to identify key impact areas for the business and structure a transition that can both mitigate risk and take advantage of opportunities to drive sustainable business performance.
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The assessment equips the CFO to build an ESG measurement and operating model. This framework establishes what will be measured and how it will be measured, as well as setting goals for performance improvement. A key step is to create an ESG office responsible for overseeing the program moving forward, including ESG data management, analytics and reporting. This team will develop platforms for capturing data, transforming it into insights and supplying dashboards and other tools for accessing and acting on the data flow. Both new and emerging technologies will be part of this platform, from the network edge to the cloud and artificial intelligence (AI) engines.
Like collecting and reporting financial data, this process must be disciplined and methodical. Compliance regimes are already in the works to codify the corporate responsibility associated with ESG metrics and reporting.
The new business imperative
As companies are increasingly judged by all stakeholders on their ESG and sustainability performance, the CFO must step up to make the effort a systematic program across the enterprise. The outsized profile of the high tech industry increases the CFO’s potential responsibility and impact.
Like any duty of the modern CFO, ESG is a journey without an end. Yet, that journey does begin with certain steps as detailed in this blog: performing the assessments, establishing the metrics and programmatic office, and setting the KPIs and goals.
What’s your ESG and sustainability strategy? How will you implement it? Let’s collaborate.
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