Why CFOs hold the key to integrated ESG reporting

Canadian companies are fielding financial questions about the sustainability issues facing their organization with greater frequency.

It could be regulators inquiring about inconsistencies between a financial filing and an environmental, social and governance (ESG) report, for example. Or lenders looking for ESG data to qualify a company for sustainable finance products. Board members may want to understand the impact of new reporting requirements. And investors may ask about the financial implications of the organization’s climate risks.

How mature is ESG reporting in Canada?

We’re seeing businesses turn to their finance teams for help answering these questions with confidence and to play an important role in their ESG reporting. Within more mature companies, finance and sustainability teams are working together to address these rising stakeholder expectations through investor-grade integrated financial and ESG reporting.

This was one of the topics we explored in our recent analysis of the sustainability reports and other disclosures of Canada’s top 250 publicly traded companies, as measured by revenue and market capitalization. We applied PwC’s internally developed framework for assessing ESG reporting maturity to the strategy, materiality, targets, metrics and key performance indicators, assurance and other elements of Canadian companies’ ESG reporting.

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Understanding the gaps in integrated ESG reporting

Our analysis found most Canadian companies treat ESG, risk management and financial reporting as separate processes. Only 38% of the organizations in our analysis integrate sustainability information and documentation throughout their public disclosures. This limits their ability to use ESG reporting to create long-term value.

We often see this lack of integration intertwined with common reporting challenges. For example, many companies still produce ESG disclosures by manually collecting information from different teams across their organization. Compare that to the flow of financial data, which is typically pulled automatically, verified and then reported at regular intervals in widely understood formats.

Digging further into our analysis reveals other disconnects in Canadian companies’ ESG reporting.

For example, just 55% of Canadian companies describe the link between their ESG initiatives and core business activities. This shows many organizations still handle ESG matters as siloed subjects, rather than business issues affecting their financial results.

Take, for instance, a company in a heavy-emitting industry. Their ESG report might discuss the social impact of their generous charitable donations. But neglecting to also discuss their decarbonization plans may leave the company susceptible to accusations of greenwashing and hinder how they manage important climate transition risks and opportunities.

Bringing finance onto your ESG reporting team

Finance teams, and the CFO in particular, have unique insights into their organization. They’re involved in virtually every strategic initiative their company undertakes and understand its data, processes and reports. This perspective can help connect an organization’s business model to both its financial and non-financial sources of capital.

It also lets finance teams report this information in meaningful and understandable ways to internal and external stakeholders. This includes quantifying ESG matters such as emissions or financially-driven sustainability information so investors and other stakeholders grasp the scope of a particular issue.

But this remains a work in progress for many Canadian companies: only 42% of the organizations in our analysis take this step.

The finance function’s distinct skills can help organizations close this gap and elevate their ESG reporting in other ways. For example, their background in financial reporting, risk management and controls can enhance data management processes. And their experience certifying that metrics are accurate and follow emerging global standards will help their organization prepare for mandatory reporting requirements. For some companies, those requirements will include securing third-party assurance of their reporting—a process that’s also a core competency of the finance function.

Strengthening the finance function

We’re seeing finance teams participating in sustainability discussions more frequently. This is an important first step. Gaining a seat at the table accelerates their upskilling and improves their visibility into the financial implications of their organization’s material ESG issues.

From this starting point, finance teams can strengthen their organization's ESG reporting through several practical steps:

Assemble cross-functional teams to lead data collection, analysis and reporting initiatives

Understand reporting requirements and standards, and monitor Canadian and global reporting proposals and developments

Create an inventory of existing ESG commitments and related data, including identifying data sources, processes and controls

Assess gaps between the existing inventory and required data, including identifying missing data as well as low-quality data and inadequate controls

Equipped with this information, finance teams can create a project plan to prepare for ESG reporting. This plan can include developing training resources, assessing existing ESG commitments and initiatives, filling data gaps, implementing data processes and controls as well as documenting reporting policies.

The finance function can also use its existing relationships with external auditors to explore the assurance-readiness of their ESG reports. This helps pinpoint the steps needed for external verification of their disclosures—an important step toward building credibility with stakeholders.

Achieving sustained outcomes

With these systems in place, finance teams can draw on their familiarity designing dashboards to make ESG information accessible to employees across your organization. This helps managers and executives embed sustainability into their decision-making and improves how your company manages its ESG risks and opportunities.

This improved ESG performance can fuel a powerful story when told in a cohesive narrative that’s integrated with your financial reporting, addresses your material sustainability issues and can withstand the scrutiny of reasonable assurance.

Credible ESG reporting helps organizations build trust with stakeholders and create sustained outcomes. These companies benefit from lower costs of capital, brand differentiation and a positive reputation with customers, talent, suppliers and society—important factors that lead to long-term enterprise value.