The first priority for companies is to align with investors and stakeholders on ESG disclosures within corporate reporting. In terms of investor expectations, the research shows the main elements can be characterized as the requirement for greater focus, accountability and transparency:
- Focus: Companies should respond to investors aligning their portfolios to net zero, with robust insight into the important opportunities and risks, including transition risk, physical climate risk, and climate scenario analysis.
- Accountability: Companies should meet investor requirements for robust governance and board oversight around sustainability. This could be seen as important for companies moving from ESG pledges to progress and results. Governance could also play a key role in responding to investor focus on ESG stewardship and the importance investors place on continued engagement with company leaders on sustainability goals and progress.
- Transparency: Companies should respond to investors’ calls for more consistent, comparable and reliable ESG disclosures. Companies should get ahead of emerging global reporting standards and drive up ESG data quality, to help meet high investor appetite for global reporting standards and assurance scrutiny of sustainability disclosures.
The second priority is to define the involvement of finance leaders to build confidence in corporate reporting and ESG disclosures. The report shows this confidence is lacking on both the investor and company side. Investors are skeptical about certain aspects of reporting on ESG issues, while not all companies feel able to give their current reporting a complete vote of confidence.
If it is decided to involve the finance leader and their team, then the function should be ready. However, the research shows that only a minority of finance leaders surveyed feel they have a mature capability when it comes to sustainability reporting. To address this, finance leaders should more closely connect the ESG agenda and broader initiatives currently underway, to help transform the modern finance function.
There are three qualities that could be important, with the future finance function defined as a team that is smart, connected and talent-led:
- Smart: Companies should craft a data strategy based on a clear understanding of the data challenges and important use cases. Companies should also build a data analytics capability that can provide access to relevant sources of data internally and externally, and provide analytical insight, leveraging tools such as artificial intelligence (AI).
- Connected: Companies should build a next-generation finance operating model. This model should support finance people to collaborate across organizational boundaries to address wider enterprise goals, with an agile operating model that extends beyond the walls of the enterprise so tasks can be completed more dynamically and the organization can flex more quickly to volatility and disruption.
- Talent-led: Companies should disrupt the finance function’s traditional skills mix to find the capabilities required to meet changing demands, while also disrupting traditional behaviors and attitudes to create a more innovative and value-driven culture.