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Environmental, social and governance reporting is now considered paramount for many organisations. Derarca Dennis outlines five essential steps for getting it right. Irish organisations of all sizes will be affected by an ever-increasing volume of environmental, social and governance (ESG) reporting requirements. Even businesses that fall outside the scope of the regulations and reporting standards are likely to be required to align with them to meet customer and stakeholder expectations and requirements. The EY Ireland CFO Survey 2023 points to ESG still being perceived as a compliance and regulatory issue rather than an opportunity. Only six percent of the respondents say increasing the sophistication of non-financial reporting is one of the top strategic areas of focus over the next five years, down from 15 percent in 2022. Irish finance leaders will, therefore, need to increase the sophistication of their non-financial reporting and prepare for the advent of new and more exacting regulations in the coming years. They must also put in place the systems that will enable them to move the dial from compliance to value-creating opportunities for their organisations. Improved reporting It is vitally important for every Irish organisation to assess their current and potential obligations under both existing and upcoming regulations and reporting standards. To prepare for what will be an ever-increasing compliance burden, Irish organisations need to take the following steps. Gap assessment Organisations should carry out an assessment of any gaps between their current disclosures and existing and future reporting requirements to ensure compliance with the reporting regime as it stands and identify measures required to meet the requirements of upcoming regulations and standards. It will also build internal competencies to assess any gaps that might emerge. Governance Adopting a clear governance structure for sustainability reporting and management across the business is vital for ensuring accountability of key performance metrics and targets. Engagement at board level through the establishment of a sustainability reporting sub-committee is an important element of such a structure. Data and controls The creation of a centralised data management system for ESG data owners to feed into will simplify the reporting process and establish internal controls surrounding ESG data. Assurance readiness Irish organisations should keep future compliance in mind when conducting changes to their systems and controls to avoid having to make further changes later. Early involvement of organisations’ audit committees can assist in this process. Double materiality assessment A requirement under the Corporate Sustainability Reporting Directive, double materiality can allow an organisation to map the impact their business has on stakeholders and the environment, as well as the financial impact that sustainability issues will have on cash flows. Training Organisations should provide training to employees on ESG matters and regulations to engender a broader understanding of these matters and their importance across the business. Integration The ESG agenda is evolving at pace. New regulations and reporting standards along with market pressure will require CFOs to integrate non-financial reporting into their existing systems. This will place a heavy burden on finance teams, but it will also present opportunities for value creation through increased efficiencies, enhanced risk management and improved competitiveness. Derarca Dennis is Assurance Partner at EY Ireland

Despite rising inflation and interest rates, Ireland’s SMEs are prioritising innovation to stay competitive in a tough market, writes Neil Hughes Inflation is the number one threat facing Irish SMEs at present (56%), followed by rising interest rates (40%) and the availability of talent (34%). These were some of the main findings of the new Azets SME Pulse Survey undertaken with iReach, surveying senior leaders at 211 SMEs across Ireland in April and May. Forty-three percent said they were expecting the economic climate to worsen over the next 12 months. Only 18 percent are expecting an improvement. If economic uncertainty persists, one-in-three (36%) said they would consider cutting jobs. It is clear that inflation is proving to be a significant challenge for SMEs throughout the country. Every aspect of doing business is becoming more expensive and rising prices are putting a squeeze on already tight operating margins. Given the numerous challenges facing owner-managed and family businesses in Ireland, there is likely to be a greater number of SMEs needing support in the face of financial difficulty.  Rising prices, combined with the significant levels of tax warehoused during the COVID-19 pandemic that will fall due, mean that there are likely to be hundreds of SMEs facing financial difficulty that may need to be restructured.  I would encourage SMEs facing financial challenges to get advice on restructuring and find out if there are funding or finance options that might support their business. The Small Companies Administrative Rescue Process (SCARP) or examinership could help save their business and the jobs they support.  The main sources of funding SMEs expect to avail of in the coming year include their own cash (24%) and government grants or subsidies (19%). Just 13 percent are considering private equity, nine percent bank funding and four percent venture capital.  Forty-six percent of our respondents believe the government should provide additional grants and supports to help navigate the challenges ahead, and 35 percent want additional funding for skilling and upskilling initiatives. Twenty-five percent of our SME Pulse Survey respondents told us they expect the tax burden to increase, while 10 percent expect it to fall. When asked about the outlook for their own business, 19 percent said they expect their revenue and profits to increase in the year ahead, 63 percent expect no change and 18 percent are anticipating a decrease.  Despite the obstacles they are currently navigating, SME leaders believe that innovation will provide the greatest opportunity for their business over the coming six months. It is encouraging to see SMEs remain optimistic about the future of their business and committed to pivoting their business models and embracing digitalisation to fuel growth. There is no doubt that technology, whether for cybersecurity, data analytics, remote working, e-commerce or process automation, will be key to their ongoing resilience and competitive advantage. This will be critical as they continue to adapt to a rapidly evolving world.  The Azets SME Pulse Survey also reveals that only one-in-five Irish SMEs are currently measuring their carbon footprint.  They are beginning their sustainability transformation journey and ESG considerations will increasingly shape their business strategy – whether this is in the reduction of their environmental impact or promoting greater diversity.  Close to one-in-three SMEs are currently reducing the carbon footprint of their business. The main challenge they face in progressing their ESG goals is the cost involved. With Ireland committed to becoming net zero by 2050, however, SMEs will have to adapt.  Neil Hughes is CEO of Azets Ireland

Cloud computing has revolutionised how businesses operate but it has also given rise to new risks, challenging organisations to navigate security breaches, data privacy concerns and governance, writes Jackie Hennessey While cloud computing offers some great benefits such as reduced costs, flexibility, and scalability, it also introduces a unique risk profile, including information security, data protection, service availability and increasing regulatory requirements. Striking a balance between managing this risk and leveraging the power of the cloud is crucial. Effective cloud governance that promotes optimisation and does not create barriers to innovation can help organisations strike this balance. Navigating the key risks of the cloud Risks need to be governed and managed to ensure that cloud technology is being used responsibly and in compliance with regulatory expectations. As a result, it is more important than ever to understand and mitigate these potential risks to leverage cloud computing safely. Your first step to determining your cloud risk exposure is understanding the following six potential risk categories: People: Lack of available resources with the correct skill set; Data security: Failure to implement sufficient and appropriate security controls to protect data and prevent data loss through unauthorised access; Compliance: Failure to meet regulatory compliance requirements (including across multiple jurisdictions); Operational: Failure to implement cloud processes, systems and controls aligned with current policies; Financial: Failure to perform proper cloud spend management around unplanned spikes in transaction volume and traffic; Third-party: Lack of third-party oversight, including failure to acknowledge the increased risk of cloud vendor lock-in, vendor unreliability and dependencies. Cloud management Cloud-focused governance bodies Cloud governance bodies will be required to develop, monitor and evolve cloud governance over time by leveraging existing governance forums or establishing new ones with responsibility for: Cloud governance – formulating initial cloud governance policies, monitoring compliance and reviewing exceptions and proposed changes; Cloud operations – managing day-to-day cloud operations, service provision and related issues. Management of CSPs The approach to managing cloud service providers (CSPs) should be formalised and include processes for: Ensuring CSPs have adequate controls in place; Onboarding and offboarding of cloud services from CSPs; Monitoring of performance in line with Service Level Agreements (SLAs); Oversight of outsourcing arrangements carried out by CSPs (i.e. sub outsourcing); Ensuring exit strategies are in place for the termination of services (both expected and unexpected). Cloud strategy A cloud strategy should be developed or considered as part of the technology and outsourcing strategies. The cloud strategy will need to remain aligned with the business’s strategic objectives and be reviewed and updated periodically. Data privacy and security Data privacy and security policies and processes should be updated to consider the use of the cloud and additional controls that may need to be implemented as a result of this, such as: Sensitive data ownership and classification; Data flows and requirements for data transfer; Data loss prevention and rights management for cloud data at rest, in transit and in use. Cloud capabilities Mechanisms should be implemented to ensure ongoing resource availability with the right expertise and skill set. Cloud policies and processes Cloud policies and processes should be developed to define how the cloud is managed and monitored. These policies and processes should be communicated to appropriate stakeholders across your organisation to support ongoing compliance. Regulatory compliance Regulatory horizon-scanning mechanisms should be in place to identify the regulatory compliance landscape and expectations for cloud services relevant to your organisation. Jackie Hennessey is a partner in Risk Consulting at KPMG

The Lean methodology can help companies increase client satisfaction, cut costs and improve profitability, writes Willie Cleary The most important stakeholders for all companies are their clients. Without satisfied clients, there is no business, so understanding and accurately mapping your customers’ experiences is crucial. Doing so can help to ensure that your clients are getting the best possible product or service while also identifying and helping to manage aspects of your product or service that could be improved. Lean is a well-proven methodology that could help your business achieve these goals. What is Lean? Lean is a process improvement methodology that originated in manufacturing (e.g. car-maker Toyota) and has since been adopted by many other industries and professions.  At its core, Lean focuses on identifying and eliminating waste in a process, which can add value for clients and result in higher residual returns for business owners. Lean is a four-phase process involving the following steps: Identifying the client journey; Identifying value-added and non-value-added activities in a process; Removing non-value activities from the process; and Engaging in continuous improvement of the process. Step 1: Identifying the client journey The first step in mapping a client’s experience is to identify their journey from start to finish. This may include their initial consultation or onboarding and regular interactions thereafter, including the supply of goods or services.  The starting point here usually involves visually mapping out the entire process – on a whiteboard, for example.  All relevant team members must be included in this mapping phase to ensure that the necessary process improvement steps are captured, documented and fully understood by all. In a professional service setting, for example, the client’s journey after the initial consultation might include a formal letter of engagement.  If accepted by the client, this letter would lead to an onboarding process whereby the client would provide relevant information and documentation to the service provider. The service provider would then work with the client, providing regular updates in the lead-up to the final output, including a business plan, financial statements or tax returns. Step 2: Identifying value-added and non-value added activities  Once the client’s journey has been accurately mapped, the next step is to identify value-adding and non-value-adding activities.  Value-adding activities are those that contribute directly to the client experience. They may include meeting with clients to discuss their needs, preparing financial statements or business plans and providing regular updates or feedback. Non-value-adding activities do not contribute directly to the client’s experience – waiting for a response, for example, or unnecessary paperwork. All non-value activities must be clearly identified to improve the efficiency of the client’s journey. To identify value-added and non-value-added activities, you can use the “five whys” technique. This involves asking “why” five times to get to the root cause of an issue.  If you identify that waiting for a response from a client is a non-value-added activity, for example, you can ask why the response is needed. If the response is needed to complete the work, you can ask why it is needed to complete the work, and so on, until you get to the root cause of the issue. Step 3: Removing non-value activities from the process The third step in the Lean process involves removing non-value-added activities from the customer journey – streamlining processes, reducing bureaucracy and simplifying procedures, for example.  Removing these particular activities can create a more efficient process that adds value for your clients, mainly by reducing related costs.  You may be able to automate some of your client communication, for example, by using online document management systems to reduce paperwork. Step 4. Engaging in continuous process improvement The fourth step in the Lean process involves continuously improving the client’s experience of your business.  The output of this exercise may involve implementing new process changes based on client feedback or inefficiencies identified by your staff in their day-to-day work. Step four has two phases: Applying metrics or key performance indicators (KPIs) to measure the effectiveness of business processes (e.g. client satisfaction or query response times). By monitoring these metrics or KPIs, the business can more easily identify areas for further improvement. Involving core team members in continuous improvement by encouraging them to suggest improvements, solicited or unsolicited, and empowering them to make positive changes. This process can be supported by providing training and development opportunities for your team. The power of continuous improvement Lean is all about continuous improvement, so it is crucial to seek regular stakeholder feedback while reviewing business processes and identifying areas for improvement on an ongoing basis.  Mapping your clients’ experiences of your business has many potential benefits. It can help you to identify and eliminate costly inefficiencies, improve the client experience and increase profitability.  Willie Cleary, FCA is a Lean Consultant with LeanTeams

The Corporate Sustainability Reporting Directive aims to improve the quality, comparability and relevance of sustainability reporting by companies in the EU. Brendan Ringrose explains what it’s all about The pandemic, turmoil in Ukraine, stricter regulatory controls and the effects of climate change have all contributed to the heightened level of urgency surrounding environmental, social and governance (ESG) reporting. The Climate Action and Low Carbon Development (Amendment) Act was signed into law in July 2021. The Climate Act commits Ireland to reaching specific greenhouse gas emission-lowering targets by 2030 and 2050 and provides a framework for doing so. Greenwashing and reporting The European Commission’s Corporate Sustainability Reporting Directive (CSRD) is a proposed legislative measure aimed at improving the quality, comparability and relevance of sustainability reporting by companies in the EU. One of the main objectives of the CSRD is to address the problem of greenwashing, which occurs when companies make false or misleading claims about ESG performance to improve their reputation or gain competitive advantage. Greenwashing undermines the credibility and effectiveness of ESG reporting, making it difficult for investors, consumers and other stakeholders to assess the true sustainability performance of a company. The CSRD will apply to all large companies and all companies listed on regulated markets (except listed micro-enterprises). Organisations must not only disclose how sustainability issues impact them, but also how their activities impact society and the environment. Strengthening sustainability The European Commission’s Action Plan for Financing Sustainable Growth directly targets ‘strengthening sustainability disclosures and accounting for rule-making’ as one of 10 key focus areas. In tandem with the trend towards mandatory ESG reporting, more and more companies are choosing to disclose ESG information to satisfy stakeholder demands voluntarily. The CSRD obliges companies within the scope to report against common EU reporting standards adopted by the European Commission as delegated acts. Companies are likely to start reporting in 2024, based on FY 2023 information. Reporting considerations Companies will need to consider the following over the next several years. Timeline for implementation The timeline for the implementation of the standards and reporting is: FY 2023: first set of Sustainability Reporting Standards will be available by mid-2023 based on the draft standards published by the European Financial Reporting Advisory Group in November 2022; FY 2024: second set of Sustainability Reporting Standards will be available and EU Member States will adopt the EU directive; FY 2025: first reports due for the financial year 2024. Who does it apply to? The CSRD applies to all large companies governed by, or established in, the EU with: >250 employees and/or; >€40 million turnover and/or; >€20 million in total assets of listed companies. Small and medium listed companies get an extra three years to comply. What must be included? A dedicated section of the company’s management report must include the information necessary to understand its impacts as well as how sustainability matters affect its development, performance and position. Though the Non-financial Reporting Directive did not require auditing, the terms of the CSRD require sustainability reporting to be checked externally when the CSRD takes effect. Companies will need to seek limited assurance of sustainability information. This requirement is less extensive than that required for the financial audit statement but will, nonetheless, require external scrutiny. Companies must disclose information relating to intangibles (social, human and intellectual capital). Reporting should be in line with Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy Regulation. An entity will be exempt from the reporting requirements if the consolidated management report of a parent company includes the results of the company and its subsidiaries. Reporting This must be included in the management report. The bottom line Mandating standardised reporting provides for increased comparability in the public domain. This means that organisations can be held accountable by their stakeholders and, in turn, is likely to play a role in procurement processes. Brendan Ringrose is a partner with Whitney Moore LLP Law Firm

As the unsung heroes of the family unit, stay-at-home parents must be properly compensated for their work in the home with a stable retirement, says Carol Brick According to a survey conducted by Royal London Ireland in 2022, 88 percent of women believe that the role of the stay-at-home parent is undervalued or under-supported in Ireland. About 349,500 people in Ireland work as stay-at-home parents, with 94 percent being women, the survey found, highlighting a possible risk of poverty for those people upon retirement. Despite the invaluable work done by these individuals, more than eight in 10 agree that their role is undervalued or under-supported. According to the Royal London Ireland research, the annual cost to employ someone to do the household jobs usually completed by a stay-at-home parent would be an estimated €53,480. However, the survey participants estimated the potential ‘salary’ of the stay-at-home parent at an average of €28,460 per year. Those who give up work to look after a family, whether male or female, are the least likely to save for retirement. Stay-at-home mums are at the highest risk, as retirement savings are not on the agenda without an income. This is a significant concern as the state pension, after taking their years as a homemaker into account, will be approximately €12,000 per year. These individuals must consider financial protection and planning to ensure their family is financially secure, especially in the event of an unexpected death or illness. Long-term effects If stay-at-home parents in Ireland do not plan for retirement, they may face serious financial consequences in their later years. Without a steady income stream, they may struggle to cover their living expenses, healthcare costs and other essential needs. This can lead to a lower standard of living and reduced quality of life during retirement. Without a financial plan, they may have to rely on their adult children or social welfare. Furthermore, not planning for retirement can limit the options available to stay-at-home parents. They may be forced to work longer than they would like or take less-than-ideal jobs to make ends meet, limiting their ability to travel, pursue hobbies or support their families in other ways. Planning for retirement can help stay-at-home parents in Ireland achieve financial security and allow them to enjoy their later years. Lastly, not planning for retirement can affect their mental and physical health. Stay-at-home parents may experience higher stress levels, anxiety, and other adverse health outcomes without the financial resources to cover medical expenses or other healthcare needs. Planning for retirement can help stay-at-home parents in Ireland maintain their physical and mental health and enjoy a fulfilling and satisfying retirement. Society often undervalues or under-supports the role of stay-at-home parents, despite their invaluable contributions to their families and communities. I encourage individuals to prioritise financial planning and protection, no matter their employment status. Carol Brick is Managing Director of CWM Wealth Management and HerMoney.ie