What right questions CFOs need to answer for ESG-driven transformation

There is a wide range of technologies that can be tapped for the ESG journey, but which ones should one start with? And how will you know if you are on the right path? And most importantly, how do we measure the value proposition and impact of embedding the Environmental, Social and Governance (ESG) framework within a company's strategy and governance processes? 

The last question, in fact, should be the starting point while embarking on any new ESG initiative. As the doyen of management gurus, the late Peter Drucker fondly said, “You can only improve what you can measure. And proper measurement can provide the answers to subsequent questions and offer the insights needed to take the correct decisions.” Most importantly, it will also bridge the most important issues for any corporation’s leadership team – how to connect capital allocated and financial returns with ESG initiatives.

For corporations, plenty of technology tools and solutions are available to help in their ESG journey. But before the tools are utilized, organizations need to be clear about the goals they are aiming for. To design proper measurement systems, CFOs, CSOs and other senior C-Suite stakeholders should be viewing sustainability as a business imperative, to protect and create value, now more than ever before. They need to focus on some important issues:

• How did we perform financial materiality analysis to map and customize the relevant ESG themes for our industry/sector, business model, key stakeholders, and operating environment?
• Have we accurately performed data-led benchmarking study to analyze our current state and quick wins as mapped to our global industry peers? 
• How can our organization bring the same degree of rigor and confidence around financial reporting to the information provided on non-financial factors?
• How prepared are we to engage with standard setters and respond to ESG taxonomies as they evolve?

These questions will not only help in designing the right measurement systems but also help the corporations keep ahead in performance reporting with the range of new disclosure norms being introduced by regulators. 

The design of the ESG data capture and measurement should not be restricted to the internal operations of the corporation either. It needs to understand that the data should be measured across the extended value chain. Some places where valuable data is generated and therefore needs to be measured in real time, include:

• Third parties/ Supplier Relationship Management (SRM) processes and applications
• Enriching master data across key business processes with relevant ESG metrics
• Procurement to Pay
• Supply chain including manufacturing, warehousing and logistics
• Hire to Retire processes including learning and development and health and safety data
• Record to Report, risk management, tax, ethics, compliance and other corporate governance systems 

Once these questions are recognized, the right technology platform for designing a proper measurement system and implementing becomes consistent. Designing and implementing the right measurement and analytics assets will help the company constantly monitor its progress and also track the ROI of various ESG initiatives being taken by the management. Additionally, it will  help the organizations demonstrate to stakeholders like investors, customers, etc., about the company’s progress on the ESG path through up-to-date data. Therefore, organizations would need an integrated governance and change management playbook, embedding three key enablers: 

• Technology at speed
• Innovation at scale
• Human behavior and adaptability across the ecosystem

To sustain and thrive in this new era of accelerating transformation and stakeholder capitalism, companies should embrace ESG data as a strategic business imperative and measure in real time its impact on key value indicators.

The article was first published in ETCFO (indiatimes.com)