The demand for reporting that transcends traditional financial facts and figures is growing louder from a wide range of stakeholders. Banks, shareholders, institutional investors, equity analysts, and consumers alike want to see how and where companies are creating long-term economic value for society. They are looking for transparent reports that cover the “triple bottom line” of economic, environmental, and social performance. And CFOs are taking notice.
The accounting side: the CFO’s wheelhouse
From both risk and regulatory perspectives, accounting systems need to track sustainability activities that can impact financial reporting. According to an EY report, How Sustainability Has Expanded the CFO’s Role, “the line between accounting records and sustainability records has begun to blur – sustainability activities must now be treated like financial activities, with a controller to monitor and account for them…CFOs will have to pay closer attention to the sustainability aspects of company operations.”
The report goes on to pinpoint three related action steps for CFOs:
- Analyze data that contributes to the company’s environmental impact
- Create statistical models that help quantify the costs of disparate sustainability data
- Stay abreast of environmental regulations and other issues that impact supply and distribution chains
Sustainability reports are on the rise
In June 2015, a Governance and Accountability Institute analysis of S&P 500 companies found that 75% had published a sustainability or corporate responsibility report, up from only 20% in 201l and 53% in 2012.
As sustainability initiatives become more widespread and sustainability reporting becomes more detailed, the CFO can play a vital role. For example, whether sustainability reports stand alone or are integrated into financial reports, third-party assurance enhances both transparency and credibility. And CFOs have vast experience selecting and working with third-party assurance providers.
Typically, sustainability information is released through a variety of business units, especially in large, multinational corporations. The potential for inconsistencies in reporting is huge. By incorporating sustainability reporting into financial reporting under the watchful eye of the CFO and the finance team, the risk of inconsistencies and embarrassing restatements is cause for much less concern.
The need for integrated reporting
One of the surest ways of maintaining productive and regulatory-compliant sustainability initiatives is having the right expert handle the right task. According to the EY report, CFO competencies can help ensure that:
- Information on corporate sustainability performance is accessible and transparent for a variety of stakeholders
- Facts, figures, and findings are reported consistently across business units
- Reliable third-party assurance providers add credibility to the reports
- Proven accounting principles are at work in analyzing and assessing sustainability initiatives
- Performance metrics are used for environmental and sustainability issues
Stakeholders of every ilk want transparency and reliability in corporate sustainability reporting. The CFO and the finance department are ideally positioned to answer that call for more unified and transparent reporting, contributing the much-needed disciplines of accuracy, reliability, completeness, and consistency. For more on this topic, please read Taking A Stand On Sustainability: How CFOs Can Make An Impact in the Nov. 18 issue of the Digitalist.
Learn more about how finance executives can incorporate sustainability initiatives into their overall strategy.