These days, investors are increasingly applying Environmental, Social, and Governance (ESG) factors as part of their analysis process to identify material risks and growth opportunities. ESG might be a new subject for many CFOs, considering it's a non-financial criterion. But a CFO should absolutely do a little research on the topic of ESG strategy to continue to attract top investors to their businesses.
To better understand ESG, we invited John Truzzolino, Director of Business Development at Donnelley Financial Solutions onto the show. John is responsible for coordinating research, development, and publications around evolving global compliance, focusing on Environmental, Social, and Governance issues. He has more than two decades of experience following SEC compliance changes, publishes research articles, and speaks at leading governance organizations' events.
In this episode, we discuss the role of ESG in the financial services industry, how to monetize ESG, what the role of a CFO in building the ESG strategy is, and how to build an effective ESG strategy, among other interesting topics.
The ESG Role in the Financial Services Industry
Companies have started measuring and monetizing environmental, social, and governance factors and programs, putting them into business-specific KPIs. And CFOs are building out controls around the data in the 10-K or proxy statements.
“All of the processes in place in financial reporting are now being looked at as tools that can be used to provide more complete, consistent, and accurate data for these ESG topics.”
As companies struggle against the Great Resignation, most focus on talent management and DEI for building long-term value with a lower turnover. So businesses are now monetizing diversity, equity, inclusion, and talent management programs designed to keep, retain, and attract new talent to the company.
“You're monetizing your business through a social program that was not deemed important five or ten years ago. But it has become critical as companies evolve from the COVID pandemic.”
Connecting ESG and the CFO
CFOs and financial reporting teams take the lead in creating the best ESG strategies and practices to bring the HR, marketing, and communications teams on board. They are also responsible for building out the full picture of their ESG reporting process, mapping it, identifying the gaps, and preparing the required financial statements.
“The CFO, the controllers, the Chief Audit Officers are all paying attention to the evolution of reporting from a communications model or a sustainability team to under the leadership of the CEO and the audit functions within the company designed around higher quality and audit information.”
How to Build an Effective ESG Strategy?
The Sustainability Accounting Standards Board (SASB) identified accounting standards within 77 industries. If you're a CFO, you can refer to this SASB standard, find the financial items within your industry, and then work with your team to identify the necessary metrics. You can also get in touch with specialist companies like Donnelley Financial Solutions (DFIN), if you need clarity on the process.
“DFIN is the solution provider that brings us all together in a team that combines SAS services and expertise within the ESG reporting domain.”
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