Gearing Up for ESG Reporting: Insights from Public Company Executives

27 03 2023

Image credit: Andrea Piacquadio/Pexels

By Kristen Sullivan from triple pundit.com • Reposted: March 27, 2023

Committing to meet environmental, social, and governance (ESG) objectives and targets is one thing. Acting on them is quite another. What are businesses doing to prepare for high-quality sustainability and ESG reporting, and what challenges are they uncovering along the way? To find out, Deloitte surveyed 300 public company executives to get a pulse on current trends and sentiment. Here are five takeaways from the front lines of real-world change.

Embed ESG in the corporate strategy

Nearly 3 in 5 executives (57 percent) say their company has established a cross-functional working group to drive strategic attention to ESG, an increase of 21 percent since last year. Another 42 percent say they’re in the process of establishing one. 

A typical ESG working group includes executives from finance, accounting, risk, legal, sustainability, operations, supply chain and other functional areas. Increasingly, accountability for ESG performance can be most effective with an integrated governance structure that brings together all business functions. A philosophy of ownership across the business, paired with a strategic approach to governance, can establish ESG as a strategic priority highly aligned to corporate strategy. 

Assign roles and responsibilities

Only 3 percent of executives say their companies are prepared for potential increased ESG regulatory or other disclosure requirements, but many are getting ready. For instance, 81 percent of companies have created new roles or responsibilities, and 89 percent say they’ve enhanced internal goal-setting and accountability mechanisms to promote readiness. 

Who has management responsibility over ESG disclosure? Today, in many cases, it’s the chief financial officer (CFO) or chief sustainability officer (CSO), but many respondents indicate that increasingly there is shared responsibility for ESG reporting across the executive leadership team, human resources, supply chain and other functions. 

Of those executives surveyed, board-level oversight has been predominantly assigned to the nominating and governance committee, but we are seeing a trend of expanded oversight responsibility across all committees, aligned to respective remit, to drive greater integration and oversight of ESG risks and opportunities. 

Increase focus on assurance 

Nearly all (96 percent) surveyed executives plan to seek assurance for the next ESG reporting cycle. To prepare for a reasonable level of assurance, 37 percent of companies are starting to apply the Committee of Sponsoring Organizations of the Treadway Commission (COSO)’s internal control guidelines, which can help companies measure, manage and validate ESG information with the same rigor typically applied to financial reporting.  

Respondents shared that they use a range of different frameworks and standards for their disclosures. The most common is the Task Force for Climate-related Financial Disclosures (TCFD) (56 percent), closely followed by the Sustainability Accounting Standards Board (SASB) (55 percent). Around half of respondents also use standards from the Greenhouse Gas Protocol, International Integrated Reporting Council (IIRC), and Global Reporting Initiative (GRI).

For multinational firms, the rapid progress of the International Sustainability Standards Board (ISSB) signals optimism for convergence of a number of leading sustainability reporting standards and frameworks and the creation of a global baseline for sustainability reporting to help meet the information needs of the capital markets, as well as serve as the basis upon which other jurisdictions can build. 

Develop a workable solution for data gaps

When it comes to sustainability reporting, access to quality ESG data now appears to be a bigger challenge than data availability. Still, a majority (61 percent) of respondents indicate their companies are prepared to disclose details about the greenhouse gas (GHG) emissions they directly produce, known as Scope 1. Even more (76 percent) say they’re ready to disclose details of their Scope 2 GHG emissions, or emissions generated by the electricity a company purchases, a substantial increase from the 47 percent who said so the previous year. 

At the same time, Scope 3 emissions — which account for GHGs produced along a company’s entire value chain — appear to remain a challenge. Most respondents (86 percent) indicate they’ve run into challenges measuring them, and only 37 percent are prepared to disclose them in detail. 

To close any gaps, companies may consider focusing on the Greenhouse Gas Protocol, which currently serves as the leading standard for measuring greenhouse gas emissions and provides for methodologies to promote consistency of measurement with due consideration to the level of measurement uncertainty and data availability. 

Invest in technology for ESG reporting, disclosure and action

New technology is on the horizon for many companies as they embark on their ESG integration and disclosure journeys. Nearly all executives (99 percent) are somewhat likely or very likely to invest in new technology to prepare to meet stakeholder expectations and future regulatory requirements. 

Technology solutions can assist in accelerating preparedness in moving from reporting in accordance with voluntary sustainability standards and frameworks to enhanced disclosure in accordance with authoritative ESG standards and new regulation. 

No matter where a company is in their sustainability journey, strategic attention to ESG integration and disclosure today can help to deliver long term value to  stakeholders into the future. By implementing the insights shared by public company executives, companies can gear up for ESG reporting and work to meet stakeholder expectations while also creating long-term value. 

Kristen B. Sullivan is a partner with Deloitte & Touche LLP and leads Sustainability and ESG Services, working with clients to help address their sustainability and non-financial disclosure strategy needs. 

To see the original post, follow this link: https://www.triplepundit.com/story/2023/ceo-insights-esg-reporting/769591

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Categories : corporate social responsibility, ESG

The 8 Responsibilities of Chief Sustainability Officers

6 03 2023

Image: Anton Vierietin/Getty Images

By Elisa Farri, Paolo Cervini, and Gabriele Rosani from Harvard Business Review • Reposted: March 6, 2023

The word “sustainability” has never been more popular in the corporate world. The number of companies appointing a chief sustainability officer (CSO) is rising rapidly: In 2021 more CSOs were hired than in the previous five years combined.

But despite good intentions — and widespread acceptance of the importance of sustainability — there is still a lack of clarity about a CSO’s tasks and accountabilities. For example, at one large European consumer goods firm we consulted with, there are numerous job titles in a variety of units that include the word “sustainability.” The result is fragmented ownership, internal competition for visibility and resources, and inefficiency with a great deal of overlap and duplication.

The confusion is not surprising. While other functions and roles, such as the CFO or CMO, are well established, the CSO role was virtually unheard of until recently. History and benchmarks are limited. This partly explains the inconsistent job descriptions, the different mandates and accountabilities, as well as the variety of reporting lines. Despite their increasing profile, only a minority (35%) of CSOs report directly to the CEO. In most cases, the person responsible for sustainability is constrained by a limited and different remit — reporting to the COO when emphasizing an efficiency role; to the CFO when the focus is on investor relations; to the chief communications officer when PR is important; or to the general counsel when attention is on compliance. In other cases, the role is distributed over two or three different departments. ESG separation is not uncommon: the “E” of environmental under the COO, the “S” of social under the CHRO, and the “G” of governance under corporate legal.

We’ve been here before. Fragmentation and a lack of clarity is common when new roles are introduced; think for example of the rise of the chief digital officer or the chief innovation officer in C-suites over the last decade or so. In the beginning their tasks and responsibilities were not well codified, creating confusion about accountabilities, fragmentations, and even tensions with other overlapping functions.

To clear the fog and help C-suites define the position and responsibilities of the CSO, we created a simple visual framework.

Eight Critical Tasks for CSOs

We originally designed our “8-task spider graph” for the role of chief innovation officer. As the tool proved powerful, we revised it for the newly created position of the CSO. It breaks the CSO role into eight distinct tasks:

  1. Ensuring regulatory compliance. Anticipate regulatory trends and their implications. Establish adherence to the sustainability laws and regulations that apply to each industry, process, and type of business. Assess risk management. Enact internal policies.
  2. ESG monitoring and reporting. Collect data and metrics following the reporting standards. Benchmark with industry peers. Prepare the completion and communications of company ESG report.
  3. Overseeing the portfolio of sustainability projects. Act as a project management office: planning, coordinating, reviewing progress, and tracking results to coordinate various operational efforts.
  4. Managing stakeholders’ relationships. Promote ongoing dialogue with internal and external stakeholders in order to develop constructive, transparent relationships.
  5. Building organizational capabilities. Identify gaps and adopt appropriate educational initiatives for upskilling and/or sourcing the missing capabilities. Identify innovative ways to scale the new capabilities. Share and disseminate knowledge and best practices.
  6. Fostering cultural change. Help define and communicate purpose to drive the transformation. Champion cultural change across the entire organization also through education. Promote mindset shifts based on concrete behaviors. Establish routines to reinforce the change, for a credible “walk the talk” from leaders.
  7. Scouting and experimenting. Promote openness toward the external innovation ecosystem. Explore emerging sustainability technologies, solutions, and practices. Test the applicability and learn from experiments. Scale up adoption in the broader organization.
  8. Embedding sustainability into processes and decision making. Revise key processes and related criteria/metrics/tools for decisions. Coach decision makers to manage complex trade-offs.

Visualizing the Eight Tasks

Spider graphs (also known as radar graphs) are often used to display data across several unique dimensions. Plotting the CSO’s eight tasks — and the amount of effort spent on each — on a spider graph can help executives figure out the actual coverage of responsibilities, where the current focus is, where there may be a need to increase efforts, and where gaps are. Visual clarity fosters strategic discussions and attention on what really counts rather than on details.

Start by positioning each of the eight tasks on the outside points of seven concentric octagons, starting at the top and working clockwise. Then have a group discussion to determine how much effort is currently being used on each task and assign them a number using the following scale:

  • 1–2: Low effort
  • 3–5: Medium effort
  • 6–7: High effort

Then for each task, position a dot on the octagon that corresponds with its level of effort. For example, if you rate task two as a four on the effort scale, position its dot on the fourth octagon from the middle.

When we worked with a German manufacturer, the executive team posed many questions about organizational details and specific procedures, but it soon became evident that they lacked focus and strategic thinking on the “what” and the “why” of the CSO role. We encouraged them to clear up the ambiguity by creating an 8-task spider graph in an executive workshop setting, before jumping into the dynamics of organizational design.

Completing the 8-task spider graph revealed that the CSO role left many areas uncovered. A spider graph, also known as a radar graph. There are seven concentric octagons, and each of the eight tasks is positioned on the outer octagon’s points, starting with task 1 at the top and going clockwise. The tasks are: 1) Ensuring regulatory compliance, 2) ESG monitoring and reporting, 3) Overseeing the portfolio of sustainability projects, 4) Managing stakeholders’ relationships, 5) Building organizational capabilities, 6) Fostering cultural change, 7) Scouting and experimenting, and 8) Embedding sustainability into processes and decision making. The level of effort spent on each task is plotted on its corresponding octagon, from 1 and 2, or low effort, at the center, to 3 through 5, or medium effort, midway between center and outer ring, to 6 and 7, or high effort, on the outermost octagon. For example, task 6, fostering cultural change, was assigned a 1, so its dot is plotted on the innermost octagon. In this example, the graph indicates that the German manufacturer is concentrating on tasks one through three but not on tasks four through eight.

See more HBR charts in Data & Visuals 

In fact, visualizing the current positioning of the role on the spider graph was an awakening exercise. The company realized that several tasks were not sufficiently covered. The CSO role appeared skewed mainly on operational and regulatory aspects. In addition, in discussing each task, they found an almost exclusive emphasis on climate change.

Once the team agreed on the actual positioning, the discussion moved on to the evolution of the CSO role and how to ensure a better balance by investing in underserved dimensions. The executive team updated the graph accordingly.

The updated 8-task spider graph shows a more balanced CSO role. Returning to the eight tasks described in the previous spider graph, the updated graph shows the desired effort to be spent on each. For example, task 6, fostering cultural change, was previously assigned level 1, or low effort, and is now assigned level 6, or high effort. In this example, the graph indicates that the German manufacturer is almost equally focused on all eight tasks.

See more HBR charts in Data & Visuals 

Putting the Graph into Practice

Here are four tips that can help executives make good use of the eight-task spider graph:

Take ownership of all eight tasks.

To lead the sustainability transformation of their companies, CSOs should be accountable for all eight items. We’ve come across a lot of organizations that are too focused on the regulatory and legal elements or external communications but overlook cultural elements or capability building.

Think beyond “E.”

Each task should be articulated not only around environmental scope (as it often happens), but should also take into consideration the other dimensions of sustainability.

Consider “Scouting & Experimenting,” (task seven on the spider graph): When determining this task’s sub-activities, companies should move beyond only looking at new technologies for CO2 reduction. For example, the CSO could test new approaches for social inclusion of the company’s target communities or new models for more transparent and fair employee compensation.

Define the phases of the evolution. 

While it’s key to have a target positioning for the mid-to-long term, it’s often not realistic to invest in all underserved tasks simultaneously. The shift does not happen overnight. Define which gaps to close first and which ones to address later, depending on the context of the company (e.g., type of culture, level of skills, organizational setup) and its sector (e.g., types of external stakeholders and regulations).

For example, a newly appointed CSO we interviewed recognized the need to cover all eight tasks to achieve a more pervasive transformation. However, pressing regulatory issues prompted her to place more emphasis on tasks one and two of the spider graph. This allowed her to concentrate organizational efforts to rapidly close the most critical gaps (skills, systems, and data) and consequently comply with the new directives without incurring significant fines.

Leverage the graph for alignment. Do not put the spider graph in a drawer. Use its visual power to communicate the evolving positioning with the executive team and other units. Transparency and simplicity will reinforce alignment and clarity within the broader organization.

. . .

In the end, CSOs and executive teams need to think very carefully about what to do — and what can be done differently — to successfully execute their company’s sustainability agenda. Taking the time to visualize the CSO’s eight tasks will help ensure that the role is balanced, covering the different dimensions of sustainability.

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To see the original post, follow this link: https://hbr.org/2023/03/the-8-responsibilities-of-chief-sustainability-officers


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