Companies can revolutionise how they measure, manage and value their ESG posture

The urgent need for global reporting standards on environmental, social and governance (ESG) performance that emerged at COP26 through the International Financial Reporting Standards Foundation (IFRS) is ushering in a new era of measuring the performance of organisations and redefining what success means for companies, Accenture research says.

According to the report, while the CEO is at the helm of this seismic shift, CFOs and other senior leaders must also raise the bar on measuring and driving better performance that delivers value and impact for all stakeholders.

In its “Measuring sustainability. Creating value” report, Accenture analysed responses from over 640 finance leaders in 12 industries and six countries to understand how companies can better measure, manage and report ESG performance to fully deliver on their sustainability commitments.

It found that while the majority (78%) of finance leaders are seeking to understand the financial risk to their business that sustainability represents, only 47% have defined key metrics and data sources for their ESG reporting.

Julie Sweet, chair and CEO of Accenture, said:

“Transparency builds trust — the foundation of strong partnerships and a compelling reason why people join a company.

“Using the right technology and business practices, there is now an opportunity for organisations to gather comprehensive ESG data that can help transform how they do business — building accountability across the organisation, achieving global sustainability goals and ultimately creating greater business value,” Sweet added.

According to the report, businesses that translate ESG metrics into key performance indicators (KPIs) to monitor and advance their progress on concrete sustainability goals are more likely to be rewarded by the market. Between 2013 and 2020, companies with consistently high ESG performance tended to score 2.6x higher on total return to shareholders (TRS) than medium ESG performers.

Peter Lacy, Accenture’s global Sustainability Services lead and chief responsible officer, said:

“The urgent call for a unified set of ESG standards has finally put sustainability on the priority agenda in the way businesses report and disclose financial data, making COP26 potentially the GAAP moment for sustainability.

“This is not simply a call to improve disclosure and reporting or tick boxes, but rather an opportunity for top-to-bottom transformation that enables individuals at all levels of the organisation to make better decisions using new data, balancing shareholder and stakeholder value on sustainability and financial performance.”

Delving into target achievements, the report found that just over a quarter (26%) of firms

have clear, reliable data to measure and monitor their sustainability goals. The research also found that 70% of companies still use manual or semi-automated processes for their ESG reporting.

Moreover, with just 31% of companies claiming to have fully embedded ESG data and measurement in their core operational and management information systems, it’s clear that sustainability data is not yet treated as essential business data, despite the impact it can have on an organisation’s bottom line.

A talent gap is also hindering sustainability progress, with more than half (54%) of leaders citing inadequate skills as a challenge to measuring and reporting ESG performance, making the need for leadership from the top even more important.

Jason Dess, global lead, CFO & Enterprise Value at Accenture, said:

“Digital and sustainability will be the two driving forces of competitiveness in this decade. Leaders must now rethink what performance means in their organisations and devote the same resources and attention to ESG that they do to financial data streams if they want to unlock the full value from and impact of sustainability.

“CFOs will play a central role — as they allocate capital and oversee performance — in financial reporting and engaging strategically with the capital markets. They have a real opportunity to close the ESG data gap by working with a wider set of ecosystem partners and across their companies to identify, extract, interpret and report all required data,” Dess added.

The following points offer guidance to CFOs striving to navigate ESG challenges and lead change by re-architecting performance rooted in reliable, measurable data:

• Inform and play a role in shaping the sustainability strategy – To satisfy market demands and make sure that ESG reporting remains more of an opportunity than a financial risk, companies should publicly commit to establishing value targets for their sustainability strategy and ambition — towards, for example, net zero, circularity or delivery of the UN Sustainable Development Goals.
• Focus on measurement, accountability and effective management – Financial leaders need to assess and shape the “Sustainability DNA” of their organisations alongside CHROs and other talent leads; transform the operating model through organisation design and the latest tools and capabilities; and embed ESG goals and accountability across the business to drive fundamental shifts towards the creation of value and impact for all stakeholders.
• Seek the right data to make better decisions at every level, including using existing and rapidly emerging technology solutions – Currently, financial and ESG data are not treated equally. Companies need to recognise and improve how sustainability data is collected. This includes defining a clear plan to capture key data; establish quality and readiness systems for disclosure; design end-state ESG data storage and reporting solutions; and identify key metrics for value creation and internal performance.
• Go beyond reporting and disclosure to wholly rethink the definition of performance and success to stakeholders – Align on a strong narrative that presents an effective storyline for key metrics, then build modular, integrated interactive elements — from voluntary reporting to compliance — that communicate results in a unified way and take advantage of advances in technology and new ways of working to drive a new era of performance.