Q&A with an ESG expert on Integrating Sustainability into your Finance, Audit, and Risk Management

In this edition, we sit down with Mark Mellen , Industry Principal - ESG at Workiva , as he illuminates the intricacies of integrating sustainability seamlessly into financial and risk management strategies. Join us as we discover how technology is driving a new era of cross-functional collaboration and strategic alignment.

Q: Can you explain the significance of the convergence between sustainability, finance, and audit and risk management teams in today's corporate landscape?

A: Historically, sustainability teams might have taken a back seat in the corporate landscape — if they existed at all. However, a seismic shift in ESG-related regulatory mandates has shifted this dynamic. The spreading imperative for investor-grade climate and ESG disclosures has risen to the forefront.

Now, more than ever, these teams are at the heart of corporate strategy and governance. The need for meticulous collaboration is evident. Sustainability and ESG disclosure, historically relegated to the fringes, will now require the same level of scrutiny, accuracy, and control as their financial disclosure. The identification and rectification of errors, along with the establishment of robust control mechanisms, are paramount to ensuring the integrity of these disclosures.

Additionally, in the wake of rising climate disclosure regulation, corporations are recognizing the value of integrating sustainability seamlessly within a business. It's no longer an optional addendum but a core component of long-term viability. The acknowledgment that environmental, social, and governance factors are critical drivers of corporate success is reshaping how companies operate, innovate, and grow. By aligning sustainability efforts with broader business objectives, organisations not only meet regulatory requirements but also tap into new opportunities for growth, innovation, and resilience in an increasingly complex global landscape.

Q: How has your experience advising organisations on risk management, strategy, and assurance – particularly around sustainability and ESG matters – informed your perspective on this convergence?

A: My background as a CPA who has worked across sustainability, finance, audit, and risk teams gives me a unique perspective. I’ve seen what these teams do individually and how their skills contribute to an organisation’s success.

Finance and accounting have historically issued controlled, accurate, reliable, and comparable disclosures to regulatory entities (SEC, banks, etc.) and have many years of experience doing so.

Risk teams have helped ensure enterprise risks are mitigated — some of these might already be ESG risks.

Audit and compliance teams have put programs in place to make sure policies, standards, and procedures are followed. They also have processes to verify those things (ie, internal audits).

Sustainability and ESG teams have historically gathered and managed data that will soon be part of regulated disclosure. These teams have generally not been held to the same rigourous standards as other teams who’ve had a longer history of regulated disclosure. To succeed, sustainability and ESG teams will need to share their subject matter expertise with the other teams while relying on the tested skills of accounting, finance, audit, risk, and compliance teams to accomplish shared objectives.

Q: What are some key challenges organisations face when integrating sustainability into their financial and risk management strategies?

There are three key challenges:

1. Bringing all of the teams together: Silos within organisations often prevent collaboration, and breaking down those barriers is always a challenge. organisations that are able to demonstrate how ESG and financial issues cut across those silos can help bring people together.
2. ‍Pushback on “additional work”: Teams that contribute to ESG, sustainability, financial, and risk management strategies already have a “normal” day job. Requiring additional cross-team collaboration can feel like additional work. The solution is making sure your organisation has the right amount and specialty of resources, which is essential to successfully integrate sustainability into financial and risk management processes — and to delivering regulatory reporting-ready climate disclosures. There can also be opportunities to integrate these processes without creating additional work, for example, where enterprise risks are already evaluated. In these scenarios, these companies might already include ESG-related risks.‍
3. Understanding ESG and sustainability: ESG and sustainability-related risks and disclosure are still relatively new, and there is still a steep learning curve for people new to the space, including any teams who now need to participate in these workflows. This is where experienced sustainability and ESG professionals can help other teams within their organisations get up to speed.

Q: Could you share some examples of successful collaborations between sustainability, finance, audit, and risk teams that have resulted in positive outcomes for organisations?

A: We've witnessed a remarkable surge in success stories where companies leverage cutting-edge technology to enhance the efficiency and effectiveness of collaboration among diverse teams. Simultaneously, this integration has elevated the standard of internal control mechanisms within the workflow. This has saved 1,000+ hours for some larger organisations as they prepare their external disclosures. This technological advancement has not only optimized resource allocation but also fortified the integrity of the entire process, ensuring that disclosures meet the highest standards of accuracy and compliance.

Q: Can you highlight any emerging best practices in sustainability, finance, audit, and risk integration that you believe are particularly promising?

Here are three that are critical to success in this area:

1. Governance: Making sure the right people are involved, at the right level, at the right times. This includes establishing or utilizing existing teams within an organisation to accomplish these objectives.‍
2. Collaboration: Utilizing technology for more transparent collaboration amongst departments that haven’t historically collaborated together (at least not all at once).‍
3. Education and change management: Making sure everyone understands their role on the team and how to play their part. It's important those things are all documented for repeatability and process sustainability.

Q: How can technology and platforms enhance and integrate ESG capabilities across these cross-functional teams?

Technology helps teams adhere to standardised processes and utilize consistent data sources. Technology also fosters transparency by facilitating seamless communication and information sharing across departments. This capability is crucial for disseminating pertinent information while safeguarding sensitive data, ensuring that only the necessary insights reach the intended recipients. Simply put, without the right technology, companies will struggle to collaborate on and meet the requirements for upcoming sustainability and ESG disclosure regulations.

To continue learning about the connections between sustainability and finance, check out the collaborative report by the Financial Education & Research Foundation (FERF) and Persefoni, titled "The Sustainability Talent Gap in Finance." With over 70% of companies disclosing greenhouse gas emissions and 50% hiring full-time sustainability reporting professionals, the report addresses the urgent need for internal controls talent and evolving finance roles. It outlines strategies employed by finance teams, including hiring plans and upskilling initiatives, while emphasizing the growing importance of skills in carbon accounting and climate risk management. For a comprehensive understanding of these trends and proactive solutions, explore the full report, providing finance professionals with valuable benchmarks and best practices in navigating the intersection of financial and sustainability reporting workflows.

Climate & ESG News Roundup

CDP Partners with EFRAG to Propel European Sustainability Reporting Standards Adoption

In a strategic collaboration, CDP and the European Financial Reporting Advisory Group (EFRAG) aim to fast-track the adoption of the European Sustainability Reporting Standards (ESRS). These standards, recently endorsed by the European Commission through the Corporate Sustainability Reporting Directive (CSRD), will apply to over 50,000 businesses over time, with the first phase beginning in January 2024.

Under the agreement, CDP will align its disclosure system with ESRS, specifically climate change (ESRS E1), pollution (E2), water and marine resources (E3), biodiversity and ecosystems (E4), and resource use and circular economy (E5). To help prepare reporting companies, CDP will be providing webinars and technical guidance to over 23,000 participating companies. The partnership seeks to enhance global market readiness for robust environmental reporting, fostering transparency and accountability in the face of evolving sustainability regulations

Climate Tops List of Portfolio Exclusions, Fossil Fuel Companies Face Scrutiny

New research reveals that climate change is the predominant factor influencing financial groups to exclude companies from their portfolios, constituting 40% of exclusions. This data challenges the notion of a pushback against "woke" capitalism, showcasing that 17% of exclusions are due to concerns about companies engaged in weapons manufacturing and 12% in tobacco-related activities.

The study, conducted by a coalition of environmental and sustainability groups, underscores the ongoing influence of ESG considerations in investment decisions, despite political resistance to perceived overreach by the financial industry in the U.S. The research, covering 150 pension funds, insurance companies, and banks across 16 countries, compiled a list of 4,532 excluded companies, with the hope that the public disclosure will exert additional pressure on these entities to amend their practices.

Global Coalition, Led by US and EU, Advocates Ambitious Renewable Targets at COP28

As the COP28 climate talks approach, the US and EU lead an international push to triple renewables and double energy savings by 2030. Backed by nearly 60 countries, this ambitious proposal aims to curb global warming and will be a focal point at the December 2nd meeting. Success hinges on securing support from major players like China and India because unanimous backing from over 190 nations is required.

The proposal outlines essential steps, including increased financing, enhanced power grids, streamlined permitting processes, and market rule adjustments to encourage investment. The coalition underscores the need to shift away from "unabated" fossil fuels, with the definition of this term poised to be a contentious issue at the talks, especially given the host country, the United Arab Emirates, is a major oil producer supporting carbon capture and storage.

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