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
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