Preparing the Finance Team for 2024 ESG Reporting
If it seems too early to start thinking about the 2024 CSR, it really isn’t. With growing expectations for investment-grade ESG disclosures and compliance deadlines on the not-too-distant horizon, many leaders are proactively taking measures to review internal alignment and controls to deliver best-in-class sustainability reports that meet the changing regulatory environment. This has moved the project start dates earlier than ever before.
Sustainability reporting is maturing and ESG risk and related management are increasingly making their way into financial disclosures. At this point, aligning ESG reporting with financial disclosures is a must.
Here are five conversation starters the office of the CFO and ESG reporting teams should be discussing ahead of 2024 reporting season:
1. SEC rule reporting updates will begin in 2023. Global reporting requirements are already in place.
The U.S. Security and Exchange Commission has released its final cybersecurity rule, which will go into effect in December. The SEC is planning to release the final climate rule in October and will also propose a human capital management rule in that same month. Even with the expected onslaught of litigation around the rule, rules like the EU’s CSRD will draw in many companies doing business outside the US into mandatory reporting regardless of the fate of the SEC rule.
Teams will need time to analyze the new regulations and proposals, identify gaps in their current reporting practices, and build a roadmap toward compliance, ideally by fiscal year-end. In particular, teams need to start down the path to cybersecurity disclosure compliance now to ensure they are ready for the first reporting of new disclosures this December.
2. Design or revisit ESG data collection, governance, and data input flow before the reporting cycle.
Companies working toward any level of assurance need to begin with an evaluation of how data flows into sustainability reporting. And the time to define the processes is in advance of implementing them.
Doing this work ahead of actual reporting allows the cross-functional network providing the data to focus exclusively on the nuances of the process as opposed to meeting data deadlines. Companies that do the upfront legwork will not only move ahead on their assurance readiness journey, they will also benefit from establishing a good foundation for higher-quality sustainability reporting.
Sustainability report development timelines often overlap with annual reporting and proxy development. Alignment on governance can also support a smooth development process across all three reports.
For more guidance on the topic, see this overview of COSO’s recent study on internal controls for sustainability reporting.
3. Ensuring sustainability data is investor-grade and assurance-ready can be a detailed and lengthy process.
If you have reviewed your governance structures and mapped your data input, the next step is ensuring audit-level data collection. Establishing internal controls over sustainability reporting (“ICSR”) at the outset of the sustainability reporting journey will ensure accurate, reliable reporting for investors, company management, boards, and other stakeholders.
Effective ICSR can also be leveraged to meet the inevitable expectations of shorter reporting windows, financial disclosure alignment, and increased reporting cadence. And, as assurance requirements become effective over the coming years, having established processes that follow those controls will ensure a more efficient audit of sustainability data. Establishing and agreeing on the expectations for completing and documenting these controls with control owners early in the CSR project is critical to ensure a realistic timeline is set.
One key component to building an effective and efficient ICSR control environment is identifying the right system to capture and document the flow of sustainability data. Such data trackers and collection software will reduce the potential for manual data manipulation, strengthen the control environment, and support easier third-party validation of data collection procedures, streamlining the external assurance process.
4. Framework alignment often requires building new or upgraded data channels.
Frameworks are evolving. Take a moment to evaluate if the changing framework environment will also change your reporting goals.
Companies considering alignment with a reporting framework such as the Task Force on Climate-related Financial Disclosures (TCFD), CDP, Sustainability Accounting Standards Board (SASB), Global Reporting Initiative (GRI), United Nations Sustainable Development Goals (SDGs), or the newly-released and investor-driven International Financial Reporting Standards (IFRS) Sustainability Standards, will need to collect additional types of data that they may not have requested in previous years, including climate and social-specific data points.
Consider new legal and regulatory compliance requirements and identify where there is overlap across frameworks. This input may impact your final decision on which frameworks to include in your reporting.
Framework indicators may prompt additional information to be drawn into your governance and controls processes. Alerting teams to new data requests in advance of year-end reporting will make for a much smoother request come reporting time.
5. Moving up the CSR release date helps ensure content alignment with SEC filings
With increasing ESG data input to financial disclosures, key sustainability messages are being developed early in your fiscal year. And, financial disclosures and sustainability reporting need to align. This leaves two options: shift to build your overall sustainability messaging early in the fiscal year to shape inputs for financial disclosures, or, let the financial disclosures shape your sustainability messages.
More and more companies are releasing ESG reports earlier in the year (April or May). In many ways, the trend makes sense. Moving up the release date allows for aligned development with the annual report and proxy processes that occur through Q1 and ensures coordinated and consistent disclosures between all the communications. This is increasingly important as the SEC continues to take a closer look at sustainability reports.
Take into consideration that dates and processes for SEC filings are likely well established, and many teams throughout the organization (e.g., finance and legal) are heavily engaged in contributing. While there can be economies of scale by aligning sustainability reporting with these efforts, it’s also important to ensure contributors are aware of the new expectations well in advance and have the bandwidth to support the extra effort. Coordinating early could address any overlaps in data deadlines or other potential development hotspots.
The evolving reporting environment can be complicated—but the right support helps companies navigate it with confidence.
The alignment between the CFO and the ESG team may be new. For some, sustainability reporting is managed by a person or team who does not have ESG as a primary function. ESG disclosures are increasing in complexity and heavily scrutinized by investors. The role of the sustainability report has become more critical, and a strong project plan is necessary to ensure best-in-class communications.
The right advisor can help map the course and provide direction during development. Finding a partner with the right ESG expertise who also understands finance, controls, and investor relations can make your project run more smoothly. Riveron ESG professionals can help fully curate or advise on the development of your ESG content for your financial disclosures and sustainability communications. Whatever level of support you need, please reach out to us to start the conversation. Riveron has a dedicated team of reporting specialists available to discuss your needs and get your 2024 CSR on the path to success.