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In this episode of The Better Finance podcast, Myles Corson talks to Cisco’s Prat Bhatt and Ciara Lee, Cisco’s first ESG Controller, about the importance of financial rigor in ESG.
Cisco’s stated purpose is to make the world a better place. So how does the company’s first environmental, social and governance (ESG) Controller make sure that happens?
In a fascinating and wide-ranging discussion, they cover what the rigor of finance can bring to ESG, and the importance of finance’s unique ability to bring accountability, governance, control systems and formal processes to the ESG table. Together, they unpack the challenges of getting to net zero across scope 1, 2 and 3 by 2040, and the particular challenges of scope 3.
Ciara talks about her role — how ESG has become so much bigger than anyone anticipated and its challenges. How do you prepare for the yet unspecified SEC regulations coming down the track? How do you best support existing ESG activity and the passion of colleagues? What about risk? And how is it even possible to collaborate across so many functions?
Prat also speaks to that point and the huge opportunity that finance has to work across the organization and bring all the functions together to drive accountabilities deeper into the organization. He has a positive message — even though there will be huge changes before 2040, with the right frameworks in place, finance can provide the organization with the information it needs to make the best decisions now and in the future.
Key takeaways:
The rigor of financial reporting brings huge benefits to ESG.
You need to achieve a balance when applying financial rigor to the work of people who have been reporting voluntarily.
Talk to your peers, reach out and share what you have discovered — it’s a fun journey.
Be humble, listen and learn.
If you haven’t already started your ESG journey, start now.
Major innovative breakthroughs may not happen in one-to-three- year timeframes.
For your convenience, full text transcript of this podcast is also available.
“There’s a tremendous amount of work that needs to be done, needs to be done cross functionally, and we as finance have an obligation to our organizations and the world to really lean in and do our part.”
Myles Corson
That was Prat Bhatt, Senior Vice President and Chief Accounting Officer at Cisco.
I’m Myles Corson from Ernst & Young, host of the Better Finance podcast, a series that explores the changing dynamics of the business world and what it means to the finance leaders of today and tomorrow.
During my conversation with Prat and Ciara Lee, Cisco’s ESG Controller, we explored the rigor that finance is bringing to ESG, and how it’s helping Cisco’s ambition to get to Net Zero across Scope 1, 2 and 3 by 2040, and the unique challenges of Scope 3.
Both are animated in their support for finance’s unique role in bringing accountability, governance, control systems, data management and formal processes to the ESG table. Prat speaks to the point that finance has a huge opportunity to bring all the various functions of the company together to drive accountabilities ever deeper into the organization to improve the company’s decision-making processes.
We also hear from Prat about the genesis of Ciara’s role and why it quickly became apparent that the role of ESG controller needed to be created, and Ciara explains what qualified her so well for the role.
In addition, the conversation covered many fascinating day- to-day challenges of working in this space. How do you prepare for an evolving regulatory and standard setting process? How do you best support existing ESG activities and formalize processes without taking away the passion of your colleagues. And why is it so important to stay humble? There’s a lot to discuss and I hope you enjoy the conversation as much as I did.
Corson
So, Prat and Ciara, welcome and thank you so much for joining us on the Better Finance Podcast. As we get started and get into this conversation around ESG reporting, perhaps we can start with you just sharing some of your background and personal history and career journey, and how you got involved particularly in the ESG landscape.
Prat Bhatt
So just a quick history, I actually started my career in public accounting with Ernst & Young. I was with the firm for about nine years or so, and then I went on to work at a health maintenance organization firm for a couple of years, and then I came to Cisco and I’ve been at Cisco for close to 22 years. It’s been a great career journey for me.
What Cisco has allowed me to do is operate well beyond the bounds of my traditional role you would have as Chief Accounting Officer. I get involved in many aspects of operations, the strategy of the company. The various initiatives we have for the company at large, which brings me to ESG. And of course we’ll all be talking more about it. But it’s become such a critical topic. It’s one that I personally wanted to engage in, learn more about. So, there is a lot of listening I needed to do over the last couple of years to get an understanding and appreciation of what is going on in the area and what Cisco has done and the commitments it has made, and it’s been incredibly enjoyable to get up to speed and there is a lot that I want to do in this space and it’s been great that the company has allowed me the ability to operate so broadly and so ESG’s next on the list for me.
Corson
We appreciate that context and we’ll look forward to drilling into some of that as we go through the conversation. So, Ciara, perhaps you can share your background?
Clara Lee
I’m delighted to be here today talking to you. I’ve spent the majority of my career in Cisco, I’m in Cisco 20 years. I’ve worked in various finance teams within Cisco — technical accounting, revenue accounting, leasing and structured finance, sales finance — pretty much covering all areas within finance.
I’m based in Dublin in Ireland, and we have a really keen interest in sustainability in EMEIA. It’s growing obviously in the US as well but in some ways we’re further ahead in EMEIA overall. I’ve had the opportunity over the last couple of years to work on a number of projects and initiatives around sustainability. So I got involved in that for the first time probably two to three years ago. I really, really enjoyed the topic, what I was learning, and being able to play our part in terms of climate and the planet. So, when this role came up within Cisco, I was absolutely interested and thrilled that I was named the ESG Controller for Cisco.
Corson
Congratulations on the role and congratulations on the milestone anniversary with Cisco. I think you’ve both alluded to the fact that Cisco obviously takes this very seriously, has a long history of ESG reporting and particularly tied in with the overall corporate purpose. Prat, perhaps I can ask you to start with showing an overview of that history and the company’s ESG journey, and the role finance has played in supporting it.
Bhatt
From a company standpoint we have been reporting publicly since 2005 on the broad areas of ESG. There’s a long history that we have as an organization of reporting but also making the commitments that matter to improve our company and to make improvements, you know, on a global basis and to do our part as part of the global community. It’s a long history and the company’s purpose is not just to make profit. It’s to make the world a better place.
The commitments we’ve made are numerous and if you look at our reporting, in our ESG hub is what we call it on our website, what you’ll see there are a number of commitments, a tremendous amount of data points. So there’s a lot of transparency and that’s been a fundamental pillar, is make the commitments, provide the data and stay committed and provide ultimate transparency in terms of how we’re doing.
We did set a goal in 2021 to reach net zero across Scope 1, 2 and 3 emissions by 2040. That’s quite a substantial goal and we seek to also reach net zero across Scopes 1 and 2 by 2025. So, it’s quite an ambitious goal, particularly considering the difficulties around Scope 3 which I suspect we’ll talk about.
And not only controlling and driving our actions, but the broader ecosystem with the partners and the customers that we interact with. We have lots of other goals as well around use of plastics, power efficiency, our packaging materials. There’s a number of goals but I would say at the top of the list really is around being net zero through Scope 3 by 2040.
Corson
You’ve been on this journey for the 17-plus years Prat, as you mentioned. Can you talk about the how you’ve evolved in terms of the ways you look at KPIs and how those KPIs have evolved as you’ve matured as an organization? Also touch on how the investor communication has evolved as well in terms of the way you engage with some of your external stakeholders.
Bhatt
The use of KPIs when you look at the reporting we have in our ESG hub you’ll see that there’s a tremendous number of data points. The purpose behind that is again around the transparency and to demonstrate our progress. Because it’s one thing to set the goal and be ambitious about it, it’s difficult to achieve that goal. We want to show our progress and to hold ourselves accountable.
What you’d see behind the commitment in each of those KPIs are the commitments of the various parts of our organization, whether it’s our supply chain team, whether it’s our engineering team, our sales organization, every part of the company has their portion of those targets. What we have done is really pushed out the targets and the commitments to each of the functions within the company. There’s a reporting mechanism to make sure that we’re hitting the milestones, to make sure that we’re tracking on our progress and again to hold ourselves accountable, and to demonstrate to the public at large, to the stakeholders, it’s not just an empty commitment. That it’s backed by these KPIs and then further backed by the various milestones we have embedded operationally within the company.
Corson
We’ll come back and touch on some of those themes, particularly some of the cross-functional aspects because I think to be successful is so important that cross-functional collaboration works in practice. You’ve clearly seen finance having a key role at the table around that cross functional conversation and Cisco’s clearly at the forefront of appointing an ESG Controller to recognize that commitment from finance. As you established the role what were the attributes you were looking for, and what was the real driver behind creating the role?
Bhatt
About two years ago between the finance organization and our legal organization, we started a listening tour if you will, to better understand everything we could around ESG. The finance organization quite frankly had not been very involved on the ESG front. It had been driven primarily through our corporate affairs team. Finance didn’t have a specific role in terms of all the things that finance organization is good at in terms of governance and controls, and systems and data and the rigor and all of those sorts of things.
Two years ago we decided that as the topic’s becoming more critical for the company and for our stakeholders, that we needed to get involved. And what was really the path for the first year was really learning. We were careful to not just start off offering advice because we didn’t know the topic. So we had to spend a lot of time just learning and reading and it was humbling in a lot of ways because it was something that we didn’t really know much about between ourselves and our legal colleagues, and so that first year was really around the learning.
As we did that we did an inventorying exercise, and the inventorying was really around what are all the various KPIs that we have, and by our count there’s over 300 KPIs that we’ve got within the organization that we track relative to ESG across all three of those fronts, and we inventoried those. We seek to better the sources of the information that build to each of those KPIs.
So, that took quite a while. And as we got deeper it became clear that we needed to have an active role. Finance did. And so the idea of the ESG Controller really came from that. That there’s a lot of things that we can be doing, we should be doing as a finance organization in support. And that’s around the topics I mentioned. It’s around the governance, the reporting, the understanding of the data and the systems and the building out of the controls and processes. And these things existed but we thought we can add some more rigor to the process and do our part.
And so that’s where the role came from and Ciara’s been great. She’s our first ESG Controller. She has a counterpart, by the way, on the legal side of things as well. It’s great. I’m sure as you talk to Ciara, it’s like drinking from a fire hose.
Corson
Great, well that’s a really helpful summary and background. There’s a lot there to unpick. I love your example of the humbleness and actually the willingness to learn and understand how you can bring all of the things that finance are known for in terms of that control, rigor and apply them in this new environment.
So Ciara let’s bring you in and, and talk about your onboarding and how you’ve settled into the role and what have you been really focused on in terms of your initial priorities in the role?
Lee
The undertaking is so much bigger than anybody anticipated. Especially when you layer in what’s happening in the rest of the globe outside of the US and all the international frameworks. When I took on the role first of all I sat down with Prat and we kind of laid out “what is this role? This is new. Right? What do we want to focus on?” We kind of broke it down into two major categories.
The first was this kind of laser focus on part of the financial reporting requirements that are coming down the track and how can we ensure that we’ll be ready to adopt within the right timeframes.
The second area was looking more companywide, and looking around Cisco as a whole and kind of saying, “Okay, what’s currently in place? And what kind of support can finance bring to what we do within the company?” And I think working within finance for so many years and finance people with a finance background and training, bring that objectivity to a process and reporting data sources.
So, that started to come into play as I started speaking with all the various people who were involved in sustainability, the voluntary reporting aspect of sustainability, over the last number of years is absolutely cross functional. It touches pretty much every function within Cisco.
In terms of what I’ve been focused on is on top of trying to educate myself with everything, the new guidance and regulations, our internal processes, etc. From a finance perspective what I’ve been trying to do is break it down into “okay so what are the areas we really need to focus on and where can I bring value as a finance person?” There are three or four major topics that I have been focused on. The first is data, the second is the risk assessment, the third is governance and the fourth is process and controls.
What data do we have? What are our sources? Who’s responsible for pulling together that data? And when we think about emissions in our voluntary reporting, I mean it’s very different to financial reporting as we know it. It’s non-financial data obviously. It comes from multiple different sources. When we think about Scope 3 and we report across many of the categories in Scope 3, the data sources are coming from external sources. It’s very different in that sense.
So really trying to understand how we pull together that data and how it eventually ends up in our reports and making sure that we have the right controls around that. And from a finance lens, bringing that additional rigor and again I mention that objectivity because I think that’s really important. Because you’re basically looking at something with a fresh set of eyes and saying, “from an end-to-end perspective, is there anything that we could do better?”
The other thing that I’ve been thinking through and talking to various different people around the company about our risk around climate and ESG overall. How can we formalize that process around our risks and that’s going to be really important when we have to formally report out on this.
So, I think finance has that kind of responsibility and opportunity to really work across the organization and to bring everyone together so that we can all align in terms of what our ultimate goals are and what’s our strategy. And since we’re all optimizing, a lot of people in our organization work in sustainability and they support sustainability, but it’s not their day job. You’re working with a lot of people who are working over and above because it’s a passion.
That’s different to what any kind of role I’ve worked in previously. You’ve got people who are coming to me and saying, “How can I help?” People want to be involved. Which is a really, really nice place to be, especially when you’re starting out. We have to get to a where we have to report out to regulatory bodies like the SEC, like the EU, like the ISSB. I mean we’ve got to have these processes and controls that are fit for purpose. That are auditable.
So that’s really what we’re working toward in terms of our financial reporting readiness and we have already a project in place working toward that even though there’s only proposed rules at this point. But we know the short timelines for adoptions and we have to get ahead of that.
Corson
I did just want to double click on the data piece. Because I think that’s a question that a lot of organizations are struggling with, and both you and Prat have referenced the challenges with Scope 3. Are there some tangible examples of some of the lessons learned, and again bring in this cross functional education piece. How you’re making the organization aware of the standards and the expectations around that data quality and how you make sure that the underlying information is robust?
Lee
One of the things that I didn’t mention that’s really, really important as well is that you’re kind of marrying together two different worlds. You’ve got the world of voluntary reporting where there’s great intent and everybody wants to do the right thing and of course everybody wants to make sure that information is accurate and all of that. But then you’ve got finance coming in, and priorities are slightly different.
Constantly to make sure that we find this balance between the two groups so that you’re always compliant, obviously, from a finance perspective but that you’re not seen as being someone who’s stopping this movement or this journey as well, so there’s got to be that balance between the two.
In terms of the data, again from a finance perspective, what’s new for us is all of this kind of external data that you ultimately will get that might be 12 months old by the time that we have access to it, and most companies there’s that time lag for our Scope 3 it could be another company’s Scope 1 and 2. So by the time they report it it’s maybe six months, 12 months later. So really trying to understand how we can use estimates. Because we’re going to have to estimate because you’ve got a much shorter timeline say when you report out to the at the SEC. So, it’s again working with the sustainability team to educate in terms of how timelines are now really, really important. And we also need to make sure that we have the most relevant and up to date data as well.
Corson
So, Prat anything you wanted to comment on data quality or Scope 3?
Bhatt
One of our primary objectives in the near term is to get the company ready to report to meet the standards that we expect will be coming from the SEC once finalized. As well as all of the international requirements as well. There’s a lot of work and unpacking in what I just said there just to understand what will those requirements be and where we can then add our skills to this? Of course the rules aren’t finalized, but we can then translate that to what are the data needs that we need, what are the systems, the processes, the controls we need to establish? How do we get comfortable with precision and reliability of all of that information? That’s kind of job one right now.
Scope 3 to your point is a critical element that happens to be the most difficult set of data points to corroborate because ultimately the data is coming from sources outside of Cisco. And so how do you get comfortable? We’re bringing in and considering audit standards and reporting standards that aren’t yet applicable on the space so there’s a lot of guessing, Myles, that we have to do here in terms of “How do we expect this will play out? What do we think the guidance will be? What do we think the interpretations will be?” So, what we’re trying to do, and hopefully these are educated guesses, we’re trying to make these educated guesses to understand how this will all ultimately play out.
Part two of what we’re seeking to do is around the broader governance. There’s a lot of things that I believe finance can bring to the table in terms of how do you establish more rigor from a governing standpoint. How do you drive accountabilities deeper in the organization? How you connect the commitments that we’ve made back to our operational processes, the way we budget. The way we report internally, the OKRs that we may have that drive the company. How do we connect all of that? So, part two of our objective is better connecting the commitments that we have made to the operations of the company. Certainly Scope 3 is a challenge, operationalizing, everything in ESG and bringing finance skills to bear.
Corson
That’s actually something I was going to pick up on, from Ciara’s other comments. Obviously as she mentioned there’s a lot of passion a lot of people have around this topic, and it’s been something that’s been done on the side a little bit. What have you seen successfully within Cisco to really adopt this into the business as usual as you say to the operational cadence of the business?
Bhatt
I’ll give you a couple perspectives. One where it’s great news and one where there’s a bit of work to do.
In terms of the great news there’s alignment across the entire company. The commitments we have made are founded of course on data and the science and commitments across the various functions of the company. There is no lack of commitment there and again it’s all tied back to things that we know we can achieve. We’ve got to, like I said, better operationalize, and that’s really where some of the gaps are that we can help with. Getting deeper into the organization and tying…if you think about an accounting system, accounting systems go deep into every transaction into the company, every action of the company somehow manifests itself into the financials.
Same thing here in many respects. We just need to be able to take everything that’s been done and just go deeper and operationalize it into the company, into our core systems, into our core processes, our accountability structures and just drive everything deeper so that we know with certainty where we stand at any point in time on achieving the targets and quite frankly what are the challenges going to be. Because the commitment we’ve made is out to 2040 and we’re sitting here and there’s a lot of space between now and then and a lot of science will be developed.
So ultimately how some of these things will play out, we don’t know because it’s well into the future. We just need to make sure that the accountabilities are there and we’re tracking our progress because we will need to make decisions along the way and our job will be to make sure that we’ve got decision useful information, so that the company can make the calls that it needs at the time it needs to make them.
Corson
Ciara anything you’d add to that?
Lee
The one thing I would say that is really, really important is, and again looking from a finance lens is things that we’re so used to doing, like documentation, policies, ensuring consistency of reviews, approvals, that kind of thing. It’s formalizing all of that.
And the benefits of that are obviously then that you can make sure that you’re optimizing any investments and avoiding any duplication by bringing it all together, by centrally reviewing any opportunities, initiatives, projects and you know there are several, especially in a company like Cisco from any function like packaging or product design. Because when you’ve got a big company, you potentially have many different teams thinking how can I change packaging? How can I change my product design? We’re making sure as a company that we’re looking at that from a central lens so that there’s synergy, we’re optimizing any work or investment to enable us to get to our goals as quickly as possible.
Corson
Just shifting gears, a little bit, we’ve alluded to the regulatory environment and obviously the different pace in the US and Europe. Can you talk a little bit about how you’re managing the responsibilities Cisco has to the various stakeholders and the jurisdictions and how you’re staying on top of those standards that may be moving at slightly different speeds and educating the organization internally?
Lee
It’s a lot of fun.
(LAUGHTER)
Lee
I will say that. For us because we’re US incorporated, what we’re doing is we’re focused on the SEC rule and the intention would be then to leverage that and the processes and the disclosures that we put in place for SEC, to leverage that for the different international frameworks.
The difficulty is that the timings don’t align, and if I look across at what’s out there, there’s several rules. I read recently that there’s over 600 hundred pieces of regulation, around ESG, over the last 20 years. The next step is inventorying all of our entities and all of the requirements that we will be required to report under.
I’m very focused on the financial regulations but we’re also looking at all regulations under E,S and G. For example, human capital. So, there’s an expectation that there will be some guidance around human capital in the coming months or in the medium term and we already have regulations in some European countries around requirements that we are subject to that we have to report on. So, we’ve got that kind of wider lens. I would say for anybody starting out in this journey that that is so important to look at your overall corporate structure and really try and map out what regulations that you are required to report under. Not just financial but all regulations within E,S and G.
Corson
Prat, similar question to you but perhaps through the investor and the board lens, right? We know investors from our research are very focused on wanting a set of global standards, being able to benchmark. How does that play out in terms of what you’re seeing and hearing from those external stakeholder groups?
Bhatt
I think at the end of the day we need to express confidence in our ability to achieve our goals, and I think it’s as simple as that. What is the board looking for? Exactly that. The commitments we have made, the actions that we are taking. They want confidence in achieving those commitments. They want confidence in the metrics that we are reporting and our progress and our tracking. And I think stakeholders want the same.
The company has made the commitments so there’s no issue there and other companies continue to be on that journey. For us it’s around making sure that we can express with the highest degree of confidence the reliability, the accuracy, the precision of what we are reporting, and ultimately the confidence that we will achieve the goals that we have set. I think it’s as simple as that.
Corson
Excellent. Perhaps in wrapping up I could ask each of you just to leave the audience with maybe one key takeaway from your ESG journey so far or a lesson you’ve learned or something about adopting the ESG Controller role? So, Ciara maybe start with you?
Lee
Key takeaway is to start now if you have not already started and talk to your peers. Reach out, because I mean I’ve got such great benefit from talking to my peers in other companies as we’re all actually facing this together and being able to share learnings and things like that has been really beneficial. Start with the gap analysis and take it from there. It’ll be extremely beneficial, and you will enjoy it.
Corson
Thank you. And Prat?
Bhatt
For my finance colleagues out there, three words: humility, listen and learn. We as finance oftentimes jump into the thick of things and come forward with answers pretty quickly. This is a space that we don’t know. And so those three words are absolutely critical. Once you do that, then lean in and bring your skills to bear, and what you will find no doubt is that your colleagues in sustainability, in your ESG function, wherever it will reside will roll out the red carpet because they are looking for the help. There’s a tremendous amount of work there that needs to be done, needs to be done cross functionally, and we as finance have an obligation to our organizations and the world to really lean in and do our part.
Corson
Wonderful words. Great insights and, and recommendations. I really appreciate you both taking the time to join us today and sharing your perspectives. So, thank you.
Bhatt
Thank you.
Lee
Thanks, Myles.
Corson
Many thanks again to Prat and Ciara for taking the time to share their experiences about how finance plays an ever larger and more critical role in ESG and explaining how they’ve tackled some of the challenges in preparing to face the future.
If you’ve enjoyed this or any episode, please remember to subscribe to the series or leave a rating or review. And if you’d like to find more about this topic, we’ll post related links at EY.com/BetterFinance.
And as always, thank you to you, our listeners. I look forward to speaking with you on the next episode of the Better Finance podcast, a series that explores the changing dynamics of the business world and what it means for the finance leaders of today and tomorrow.
