Chief financial officers need to create systems for collecting data to meet soon-to-be-unveiled new requirements from the Securities and Exchange Commission, while managing compliance costs.

“There’s been a major sentiment shift in what people expect organizations to do,” said Matthew Bell, Ernst & Young’s climate change and sustainability leader. Nearly 80% of roughly 400 global institutional investors surveyed by EY last year said companies should make investments that address ESG issues even if doing so reduces profits in the short term.

As a result, he said, “We’ve seen an increasing role that the CFOs are playing,” particularly over the past 18 months.

While it might sound tempting to centralize ESG responsibilities in the finance department, which already deals with data and reporting, consultants said that isn’t practical given the scope of requirements and breadth of corporate interests.

“What’s unique about ESG is that the stakeholders within the business are not just finance,” said Robert Michlewicz, chief executive of Visual Lease, a New Jersey-based cloud-software maker that helps businesses manage and optimize their leased assets, including real estate.

Instead, he said, companies should create an internal task force that focuses on ESG requirements. Such a task force needs to reach out to leaders across the entire business who will then share data with a centralized team, said Michlewicz, whose company recently established a climate-reporting consulting service for clients.

To help finance chiefs navigate the evolving regulatory landscape, CFO Journal spoke to consultants and executives for tips on managing the coming tide of ESG-related regulations.

Create a data framework

Once a task force is established, having organizational support for data governance is key, said Tim Arndt, chief financial officer of San Francisco-based Prologis, a real-estate investment trust that owns and invests in logistics facilities. This includes creating a system to capture, store and interpret data, as well as working with the chief technology officer to automate the process, said Suzanne Fallender, vice president for global ESG at Prologis.

One of the biggest challenges for many CFOs is figuring out how to establish a data baseline, or decide which data to collect, Michlewicz said. ESG disclosures are qualitative and can be vague, leading many companies to make bold claims to be net zero by a certain date, he said. But making sure data is accurate and can be tracked is important for figuring out forward-looking calculations.

A common mistake is to focus on getting caught up on something the company had failed to track in the past, opting for a quick fix. However, investing in the right technology for long-term reporting needs should be a priority, Michlewicz said.

EY’s Bell suggested looking into real-time performance tracking. “The truth is, it’s really tough for organizations right now to be able to track a lot of these metrics in real time,” he said, though he added that as more-comprehensive disclosure systems are put in place, organizations can make real-time decisions rather than seeing it as a compliance burden.

Matthew Bell, Ernst & Young’s climate change and sustainability leader. PHOTO: ERNST & YOUNG

Understand evolving regulations 

Staying on top of the ever-changing rules and regulations is a must, Michlewicz said. The SEC, the European Union’s Corporate Sustainability Reporting Directive, or CSRD, and the International Sustainability Standards Board, or ISSB, are the main sources to watch, he said.

The coming SEC climate-disclosure rules, originally proposed by the agency in March 2022, would require public companies to report climate-related risks and emission data—including the so-called Scope 3 emissions that come from a company’s supply chain.

https://www.wsj.com/articles/corporate-esg-requirements-are-about-to-ramp-up-heres-how-cfos-can-prepare-1113a8d2