Keep up with the fast-evolving ESG reporting landscape has been saved
Perspectives
Keep up with the fast-evolving ESG reporting landscape
Capitalize on the potential value of ESG-related internal controls
As global concern over climate change and societal equity rises, investors, customers, and other stakeholders are increasingly demanding more transparency in ESG business practices. This demand, coupled with accelerating ESG regulations, including a recently released 2023 interpretive report on internal control over sustainability reporting (ICSR), makes it important to implement internal controls that can support your company’s focus on ESG performance. A proactive approach can help your company keep pace with the rapidly transforming ESG reporting landscape and can create value for your company. By integrating scalable ESG-related internal controls into your existing framework, you may be able to improve your organization’s responsiveness to stakeholder interests and discover benefits to potentially evolve your business.
The time is now: Scale your internal controls environment for ESG
Implementing an internal control environment around ESG will likely be a journey, not a sprint. This journey typically begins with governance. This can help define your vision, establish authority, and build stakeholder support across the organization.
Consider forming a cross-functional working group as your governance structure in order to obtain representation from various functions across the organization. Such a structure is likely to promote diversity in perspectives and alignment of sustainable business objectives across the company. This governing body should focus on establishing an implementation roadmap together with executive management and communicating progress timely with the board of directors.
It's important to communicate your shared vision early and often so that the lines of responsibilities are clear. The roadmap should account for people, process, and technology. We’ll step through some considerations in each area.
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Train people with a human-centered approach
Apart from consistent and frequent communication, adequate training is important to improve competency across the business and with control owners. It’s important to take a human-centered approach focuses on inspiring and incentivizing your people to adapt to the changes ahead. Remember, responsibility typically lies beyond accounting and finance since disclosure of ESG metrics will likely require the involvement of most—if not all—areas of the company. This may also mean adding specialized skills to support the control environment. Lastly, coordinate with your internal auditors to validate your ESG implementation roadmap and assess ESG assurance readiness. Discuss your ESG vision and progress with internal and external auditors to ensure the company’s ESG implementation roadmap aligns with their professional expectations.
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Customize processes using existing controls
As you create new ESG-related processes and internal controls, you can typically leverage and modify processes and controls that already exist within your organization. Consider the steps below as you customize and adapt your system of internal control to meet your unique sustainable business objectives and stakeholders’ growing expectations:
1. Define ESG reporting scope
2. Understand your current control environment
3. Perform a gap assessment and remediate
4. Monitor
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Automate data-gathering process
Despite all the momentum behind ESG, many businesses still face hurdles obtaining access to and ensuring the integrity of data—as it flows through systems within your network and from source to decision-makers. Companies should decide on how they want to source, transform, and report ESG-related data as well as anticipate what other data may be needed in the future as stakeholder expectations evolve. Consider opportunities to automate and digitize the data-gathering process, including investing in new technologies to combat current limitations.
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The time has come to consider investing in ESG-related internal controls
The time has come to consider investing in ESG-related internal controls. While not all entities are currently required to report on their sustainability practices, stakeholders continue to emphasize ESG, causing proposed regulatory reporting requirements to broaden in scope. Previously, ESG reporting was often seen as a competitive advantage, but today, responsible business is generally the standard. Designing a robust internal control environment can help ensure completeness and accuracy of ESG reporting, while also potentially creating enterprise value by demonstrating to stakeholders that your organization is committed to doing the right thing.
For further discussion, please contact us. Deloitte has practitioners with experience in ESG and governance, risks, and controls across industries to help.
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Kajal Shah |
Jessica Herbst |
Abby Cohen |
Carlos Cruz |
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