EY experts share insights on how data can drive both sustainability and financial success at the 2024 Finance Indaba.
At the 2024 Finance Indaba, Duane Newman, EY tax sustainability services partner and Sean Berrington, partner, EY Technology Consulting, discussed the critical role of ESG for CFOs. They discussed how finance professionals can effectively implement, measure and report on ESG initiatives, driving both sustainability and financial success.
Duane noted that ESG was once perceived as a ‘tree-hugging’ concept, particularly among finance professionals. This negative perception stemmed from a lack of clarity on how ESG practices directly translated to increased profits and business success. He said that over the past two decades, however, investor sentiment has shifted significantly. ESG data is now widely recognised as a crucial factor in investment decisions.
“Stakeholder expectations regarding sustainability continue to rise, driving a growing demand for robust ESG reporting,” he said.
He said that CFOs should recognise the growing importance of ESG reporting and cited a recent EY study which found that 99 percent of investors consider ESG data in investment decisions, highlighting its significance. He noted that however, many companies are still falling short in providing comprehensive and transparent ESG disclosures. This gap presents an opportunity for CFOs to differentiate their organisations and attract more informed investors.
Additionally, customer expectations regarding sustainability are evolving rapidly. A significant number of consumers are willing to pay more for products from companies with strong ESG practices. By prioritising ESG initiatives, finance leaders can not only enhance their company’s reputation, but also drive revenue growth.
Changes in ESG reporting
Duane explained that significant changes in sustainability reporting are anticipated as countries accelerate their efforts in this area. He said, “It's advisable to begin by understanding your specific reporting requirements, conducting a readiness assessment and gathering relevant data.”
EY's ESG framework emphasises the importance of considering both external and internal stakeholders, as well as adopting a strategic and operational lens for ESG investments. Moreover, it’s crucial to explore how ESG data can be monetised.
According to Duane, implementing an effective operating model for collecting and utilising ESG data is essential. He said sourcing and managing ESG data remains a challenge due to factors such as the lack of high-quality data, data silos, reliance on third parties, disparate IT systems, inadequate data governance, and limited visibility into carbon taxes.
To address these challenges, a multidisciplinary approach is required, along with the establishment of data standards, improved data maturity, a scalable technology platform, enhanced supplier engagement on ESG data, a dynamic ESG data architecture, and expert tax advice on the carbon economy.
Sean, a former CFO, emphasised the importance of a structured approach to ESG data management, warning against common pitfalls like overly complex strategies or purchasing tools without understanding the data. He outlined a five-step process: strategy and discovery, collection and validation, governance and build, and operationalisation. This approach can help organisations optimise their operations.
Sean stressed the need for a systematic approach, including developing use-cases and a data catalogue. He advised starting small and scaling gradually to avoid data inconsistencies. By mapping processes and creating a data catalogue, organisations can establish a solid foundation for effective data management. Sean also highlighted the potential benefits of using ESG data to optimise supply chains and identify efficiencies.
Effective ESG data management
According to Duane, the increasing importance of ESG factors has highlighted the need for robust data governance and cross-functional collaboration. He said companies that fail to invest in these areas can face significant risks, such as regulatory non-compliance and reputational damage.
He gave the example of the aluminium and steel industries, where many companies were unprepared for the implementation of the C band carbon tax. Those that had established a strong data governance process and involved relevant departments were better equipped to understand and mitigate the potential impacts.
Moreover, early monetisation of non-financial indicators can drive organisational change and prepare companies for future challenges. By treating ESG data as a strategic asset, companies can identify opportunities for innovation and improve their overall performance.
An audience member sought clarification on the breadth of ESG data reporting, specifically concerning the inclusion of upstream and downstream emissions. Duane made the distinction between scope 1, 2, and 3 emissions, stressing the significance of reporting scope 3 emissions. He further highlighted the role of industry context and investor expectations in shaping the scope of ESG data reporting
Concluding the discussion, Duane and Sean strongly encouraged finance professionals to proactively familiarise themselves with the ESG reporting requirements outlined in the ISSB standards. They emphasised the importance of preparing for these new standards by conducting readiness assessments to evaluate existing information and identify the specific data necessary for compliance.
