Sustainability reporting and governance is now a key foundation of corporate life and the requirement can present a range of challenges to finance teams.
Sustainability reporting has a fundamental role to play in overseeing critical decisions such as determining the material issues to report, use of qualitative information, identification of relevant metrics, and the overall approach to data collection.
With a significant increase in focus from regulators on the robustness of information disclosed to investors and other stakeholders, ensuring good governance over sustainability reporting is critical.
Core elements involved in sustainability reporting include governance structure and board oversight; functional responsibility and accountability; capacity and knowledge; control framework and management reporting; and the role of advisors, internal audit and independent external assurance service providers.
Accounting for Sustainability (A4S) has produced a range of guidance for corporate finance teams that highlight the practical and compliance issues involved in sustainability reporting.
Governance structure and board oversight
Run a gap analysis comparing your governance around financial reporting with that on sustainability reporting to identify key areas for improvement. Undertake peer review and benchmarking to assess best practice. Engage with report users to understand their immediate and longer-term expectations around governance and assurance. Track regulations and convergence of standards that might trigger additional governance and assurance requirements or expectations.
Functional responsibility and accountability
Given the cross-functional nature of sustainability reporting, clarify roles and responsibilities with consideration to those that are responsible, accountable, consulted and informed. Leverage finance and broader skillsets to create and implement robust control frameworks, while continuing to leverage technical knowledge from sustainability experts within the organization. Consider creating roles which explicitly connect finance and sustainability functions and skillsets, such as sustainability CFO, sustainability controller and sustainability accountant. Monitor emerging legislative and regulatory requirements for sustainability-related reporting and disclosure.
Capacity and knowledge
Upskill your team with the knowledge to respond as the remit of their work expands. Roll out training on the controls and processes across key departments involved in producing information for external sustainability disclosures. Support board and audit committee understanding of sustainability-related issues and the relevance to the organization’s strategy.
Control framework and internal sustainability reporting
Refine sustainability reporting processes and control environment, including clear documentation with evidence of control operation and consideration of internal validation and assurance over the sustainability reporting process. This could be done by leveraging existing external reporting processes. Integrate sustainability information within regular reporting, where feasible, to improve relevance of data, robustness of processes and controls, as well as to support internal decision making.
Role of advisors and external assurance service providers
Implement a robust internal assurance process to ensure sufficient readiness for the application of independent external assurance. You could consider incorporating the process into the scope of the internal financial assurance process. Carefully assess the right timing for the involvement of advisors and external assurance providers, considering the need for robust processes and controls before the start of the engagement. Take steps to be ready for external assurance, such as reviewing the effectiveness of controls design and implementation, data traceability and documentation.
