ESG reporting is likely to be one of the most significant changes to corporate reporting for decades ahead.  Increasingly, organisations are recognising the benefits effective ESG reporting can bring and are expressing their intentions with updated visions or missions around ESG. 

As ESG reporting rapidly transitions from voluntary to mandatory, the same level of governance, control, accuracy and auditability needed for financial reporting will be required with ESG.  CFOs and Finance teams already fully understand how to drive control and accuracy in financial reporting.  Accordingly, Finance teams are best suited to oversee the collection, consolidation, and reporting of ESG data alongside financial results.

A compelling argument now exists to put down the foundational layer for alignment of ESG with Financial reporting within organisations. Why?  Well, with some mandatory ESG reporting requirements already in force and additional ones on the horizon, meeting organisational sustainability objectives will require a management process like the corporate performance management (CPM) process that Finance teams employ to help meet financial objectives.  This management process includes goal setting, planning, monitoring and reporting, and analysing results to track progress and adjust as needed to stay on track.

As emphasised in the recent ‘Measuring Sustainability.  Creating Value’ Accenture survey report on ESG reporting, ‘Meeting demands for sustainability data will be integral to company performance.  Making a CFO responsible for sustainability is essential for ensuring a company meets its ESG goals.  Companies are much more likely to extensively embed ESG in core management processes when the CFO has accountability for ESG metrics.’

Many of the ESG reporting solutions in the market are focused on only a specific aspect of ESG, such as environmental, health and safety (EH&S) compliance.  That means the solutions aren’t suited to the broader requirements of setting ESG goals and targets, tracking progress against targets, and modelling the impact of ESG initiatives on future financial results. 

With a unified CPM platform such as OneStream aligning ESG and financial reporting, all processes are handled within a single application and instance. 

Benefits of Aligning ESG & Financial Reporting

• Eliminate duplicate data collection, consolidation and reporting processes – data is collected once from each business unit and immediately available across all processes. 

• Improve the accuracy and integrity of ESG and sustainability reporting – an effective data collection with strict audit controls alongside a standard, defined and repeatable reporting process delivers maximum confidence and reliability. 

• Align ESG and sustainability metrics with financial results – ESG data is collected using the same process used to collect the financial reporting data and can be viewed and analysed in the same dashboards (See Figure 1).

• Establish high-quality governance and control over ESG and sustainability metrics – data is collected with validations on load, a defined process with task lists and automation brings structure, and calculations should be fully traceable. 

• Compare actual ESG and sustainability metrics with goals and targets – a unified platform approach which combines planning with the actual financial close and consolidation process eliminates risky integrations, validations and reconciliations between multiple products.

Unifying ESG with Financial Reporting

OneStream’s unified, Intelligent Finance Platform (see Figure 2) with built-in reporting and analytics eliminates the complexity of fragmented ESG & financial reporting tools. With a strong foundation in financial data quality, OneStream allows organisations to integrate and validate large volumes of non-financial data (e.g., ESG metrics and conversion factors) with validation from any number of sources. Confident decisions can then be based on accurate and trusted financial and operating results.
OneStream’s financial data quality management is not a module or separate product. Instead, the management is built into the core of the OneStream platform — providing strict controls to deliver the confidence and reliability needed to ensure quality data.

Users can quickly aggregate and consolidate ESG data submissions to provide company-wide results. ESG data is consolidated according to the same principles as financial data. Calculations and eliminations based on specific data values and fuel and energy consumption conversions can also be automated.

Essentially, OneStream “future-proofs” CPM and ESG reporting to ensure compliance when new standards come along. How? OneStream allows for unlimited configurable dimensions and hierarchies – ensuring support for GRI, SASB and other frameworks which may emerge as required.

As a unified platform, OneStream enables organisations to plan and forecast on ESG initiatives with confidence and without compromise. ESG goals and objectives can be set, and users can track actuals vs. targets and provide variance analysis & commentary. What-if scenario modelling is also available to understand the ultimate impact of ESG policies on financial results and business value.

Effective ESG reporting ultimately allows investors to gauge an organisation’s intentions and actions – from how the organisation treats people to how board decisions are made or whether environmental factors are being prioritised. To report with confidence and achieve meaningful targets, organisations must therefore have the right ESG solution to drive performance.

Learn More

To learn more, read our ESG Whitepaper or check out the blog posts in our ESG series.  And if your organisation is ready to align ESG reporting with financial reporting and get ahead of the upcoming disclosure mandates, contact OneStream today to get started.

Download the White Paper

The collection of quality data is the most important aspect of Environmental, Social, and Governance (ESG) reporting.  Why is that?  Well, the number of data sources is typically far greater for such reporting than in even the financial reporting process.  The difference stems from ESG reporting involving many different aspects, such as reporting on health & safety, fuel usage, property management, waste management, and more.  How do organisations collect all this data?  Despite technology improvements in large organisations over the years, most organisations have a multitude of operational systems from which to extract this data, which makes data collection for ESG quite challenging.

Why Data Collection and Quality Controls Matter

For ESG reporting to be fully effective, the data collection and quality controls must be built-in and use the same rigor as with financial data.  The external image of an organisation is at stake here, leaving no room for second-rate capabilities.

If your role is to sign off on the ESG reporting of your organisation, then ensure you’ve fully aligned your financial and ESG reporting into a single, governed process.  You’ll also want to ensure that the capability for collecting quality data is the best available.  Ultimately, whatever process and system work for accurate financial reporting can and should also be applied to ESG reporting.

How ESG Reporting Became Mainstream

Several reporting compliance changes moved ESG significantly up the priority list for many leadership teams globally.  Specifically, Europe enacted the 2021 Sustainable Finance Disclosure Regulation (SFDR), and the U.S. Securities and Exchange Commission (SEC) released its long-awaited proposals for climate disclosures for U.S. public companies.  Why do these changes matter?

Simply put, organisations can no longer rely on volunteering the more positive aspects of their sustainable compliance or on publicising specific actions or donations.  Today, an increasing level of socially and environmentally responsible investment activity involves assessing performance metrics beyond just the financial returns.  Such assessments answer the demand for evidence of sustainable processes, practices, and management.

Fuelling that demand is climate change, which is forcing organisations and people to think and act differently, to be more interested in and concerned about how communities are impacted.  Meanwhile, communities are focusing ever more heavily on what their neighbors and favourite brands are doing.  These factors are collectively – and increasingly – pushing organisations towards ethical reporting standards.

Selecting the right system and capability is imperative to meeting those standards.

Why Built-in Data Quality Is Essential

At its core, a fully integrated CPM software platform with built-in financial data quality (see Figure 1) is critical to organisations being able to drive effective transformation across Finance and Lines of Business.  A key requirement is providing 100% visibility from reports to data sources – meaning all financial and operational data must be clearly visible and easily accessible.

Why is this visibility so important?  When organisations collect data from multiple underlying systems and then complete multiple calculations and consolidation steps, full transparency provides uses and auditors the connections between the source data and the final reported data, including for all transformations, adjustments, and eliminations.

The solution should also include guided workflows to protect business users from complexity by guiding them uniquely through all data management, verification, analysis, certification, and locking processes.  Are these workflows critical?  Absolutely!  The major challenge with ESG reporting is simply the number of data sources to collect from and the sheer volume of requests within an organisation for this kind of data.  Using disparate systems, that collection can take many hours or days.  Having a unified system with the capability to guide users easily through the tasks, however, will save time and money.

Most important is the system’s ability to validate and transform data to ensure complete and accurate ESG information.  When so many different source systems are involved, along with multiple spreadsheets, the system must be able to fill in missing data fields, align analysis and ensure commonality in data before the information appears on reports.  For example, if a typo occurs during a manual data entry, the system should flag any value that seems out of place given the parameters of the company.

Data quality matters for several key reasons, as shown by research.  According to Gartner,[1] poor data quality costs organisations an average of $12.9 million annually.  Those costs accumulate not only from the wasted resource time in financial and operational processes but also – and even more importantly – from missed revenue opportunities.  Interested stakeholders closely review every fine detail an organisation publishes.  Any errors or omissions will therefore be quickly spotted, and the consequences could be severe.

For instance, poor ESG metrics can make it difficult to attract valuable investment as liabilities are considered too high.  One major concern for organisations today is attracting talent – which can also be affected by ESG metrics because people are becoming more selective about who they work for and with.

ESG reporting now, perhaps more than ever, has a significant impact on the profitability and bottom line of an organisation.  And as the global standards converge into a clearer position, organisations must bring ESG reporting together in a unified way.

Why a Unified Approach Makes a Difference

There is now a compelling argument to transition from a connected to a fully unified CPM platform for ESG reporting, financial close, consolidation, reporting, planning, and more.  What’s the difference?  With a unified CPM platform, all processes are handled within a single application and instance.  Plus, data is loaded into one central database and immediately made available to all business processes, which means there are no manual data movements or reconciliations to perform.

Here are just some of the benefits that come from a unified platform:

1. One software solution, one application for consolidation, planning, and ESG/financial reporting needs across an entire organisation with extensibility to handle future growth and change – one single controlling team, one single audit.
2. Performance improvements thanks to control, consistency, and overall process visibility.
3. Lower cost of ownership from replacing multiple software packages and integration points with one unified platform.

Many of the ESG reporting solutions in the market are focused on only a specific aspect of ESG, such as environmental, health, and safety (EH&S) compliance, but aren’t suited to the broader requirements of setting ESG goals and targets, tracking progress against targets and modeling the impact of ESG initiatives on future financial results.

How OneStream Delivers

OneStream’s unified, Intelligent Finance Platform (see Figure 2) with built-in reporting and analytics eliminates the complexity of fragmented ESG reporting tools.  With a strong foundation in financial data quality, OneStream allows organisations to integrate and validate large volumes of non-financial data (e.g., ESG metrics and conversion factors) with validation from any number of sources.  Confident decisions can then be based on accurate and trusted financial and operating results.

OneStream’s financial data quality management is not a module or separate product.  Instead, the management is built into the core of the OneStream platform — providing strict controls to deliver the confidence and reliability needed to ensure quality data.

OneStream can quickly aggregate and consolidate ESG data submissions to provide company-wide results.  With OneStream, ESG data is consolidated according to the same principles as financial data. Calculations and eliminations based on specific data values and fuel and energy consumption conversions can also be automated.  Essentially, OneStream “future-proofs” CPM and ESG reporting to ensure compliance when new standards come along.  How?  OneStream allows for unlimited configurable dimensions and hierarchies – ensuring support for GRI, SASB, and other frameworks which may emerge as required.

By intelligently aligning detailed operational and financial data, OneStream’s flexible reporting and analysis capabilities (see Figure 3) eliminate the need for Finance teams to waste time manually copying and reconciling data and creating reports.  In other words, OneStream unleashes Finance teams to focus on providing insights and analysis that better support key decisions.

Figure 3: OneStream ESG Analysis Dashboard

As a unified platform, OneStream can enable organisations to plan and forecast ESG initiatives with confidence and without compromise.  ESG goals and objectives can be set, and users can track actuals vs. targets and provide variance analysis & commentary.  What-if scenario modeling is also available to understand the ultimate impact of ESG policies on financial results and business value.

Effective ESG reporting ultimately allows investors to gauge an organisation’s intentions and actions – from how the organisation treats people to how board decisions are made or whether environmental factors are being prioritised.  To achieve meaningful targets, companies must therefore have the right ESG solution to drive performance.

Learn More

To learn more, visit our ESG Webpage, download our solution brief or check out the other blog articles in our ESG series.  Contact OneStream if your organisation is ready to align ESG reporting with financial reporting, and get ahead of upcoming disclosure mandates.

Download the Solution Brief

In a previous blog article, I highlighted the increasing buzz in the market in the past 12 months around the topic of environmental, social, and governance (ESG) reporting and why CFOs and Finance teams are paying more attention to it.  In this article, I’ll highlight why a growing number of organizations are leveraging OneStream to align their ESG reporting with their financial reporting and broader corporate performance management (CPM) processes, and the value that delivers.

ESG Reporting in Focus for CFOs

ESG reporting (a.k.a. Sustainability Reporting) refers to the disclosure of data covering a company’s operations in three areas: environmental, social, and corporate governance. It provides a snapshot of the business’s impact in these three areas for investors, customers, and wider stakeholders. The value of ESG reporting is that it ensures organizations consider their impacts on sustainability issues and enables them to be transparent about the risks and opportunities they face.

For many years, ESG reporting was an annual, voluntary disclosure by public and private companies to their stakeholders about the impacts of their enterprise on the environment and society and how they are managing these programs.  With an increasing amount of capital (now roughly $35 Trillion) flowing into “sustainable” mutual funds and ETFs, there is increasing stakeholder interest in ESG reporting and increasing demand for more detailed and frequent disclosures from public and private enterprises.

As a result, corporate sustainability and climate change efforts are fast transitioning from voluntary to mandatory in many countries, and even the US SEC is moving towards defining clear disclosure guidelines for public companies.  Based on this inertia, there is a clear driver for companies to develop robust sustainability and ESG strategies with transparent reporting to stakeholders.  And this is one of the primary reasons ESG reporting is becoming a hot topic for CFOs and Finance teams.

Aligning ESG Reporting with Financial Reporting

As ESG reporting transitions from voluntary to mandatory it will require the same level of governance, control, accuracy, and auditability as financial reporting.  And since CFOs and Finance teams fully understand how to drive control and accuracy in financial reporting, they are best suited to overseeing the collection, consolidation, and reporting of ESG and data alongside financial results.

While ESG reporting is quickly becoming mandatory, meeting an organization’s sustainability objectives will require a management process that’s similar to the corporate performance management (CPM) process that Finance teams employ to help them meet their financial objectives.  This process includes goal setting, planning, monitoring and reporting, and analyzing results to track progress and make adjustments as needed to stay on track.

As stated by Accenture in a recent survey report on ESG reporting, “Meeting demands for sustainability data will be integral to company performance.  Making a CFO responsible for sustainability is essential for ensuring a company meets its ESG goals.  Companies are much more likely to extensively embed ESG in core management processes when the CFO has accountability for ESG metrics.”

Aligning ESG with Financial Reporting and CPM

While many organizations manage ESG reporting via spreadsheets or point applications, both of these approaches create a data collection, consolidation, and reporting process that’s separate from the financial reporting process. And if ESG metrics need to be reported alongside financial metrics, wouldn’t it be better if this data was collected in the same system and processed as financial data?

The answer is yes, and that’s why a growing number of OneStream customers are extending the usage of our unified, CPM software platform to support their ESG reporting and management requirements.  OneStream’s platform provides several key capabilities that make it a great fit for ESG reporting.  These include the following:

Financial Data Quality:  OneStream can load and validate large volumes of financial and non-financial data such as GHG emissions, water and electricity usage with validations and out-of-the-box drill-down and drill-back capabilities to source data providing ultimate auditability.  OneStream can connect to any source of ESG data as required such as ERP, CRM, HR systems, and internal data warehouses.   The platform can also collect data via flat files, spreadsheets, or data entry forms.

Guided Workflow: OneStream allows customers to design the user experience around the process and apply controls, validation, and governance on ESG data collection, managing the monthly, quarterly, and yearly tasks together.  Customers can also leverage the OneStream Task Manager solution to manage and orchestrate the process further and enable email notifications.

Financial Consolidation:  OneStream can aggregate and consolidate ESG data and textual commentary quickly to provide company-wide results.  With OneStream, your ESG data is consolidated according to the same principles as your financial data, and with the same level of control, governance, and audit trails.  Complex ESG data conversions are supported, along with eliminations and partial ownership calculations. Customers can future-proof their CPM solution to support new standards with unlimited configurable dimensions and hierarchies – supporting GRI, SASB, and other frameworks as required.

Reporting & Analytics:  In addition to financial and management reports, configurable dashboard visualizations (see figure 1) can provide deep analysis of ESG data and turn it into valuable information and insights.  OneStream also supports ad hoc analysis via Microsoft Excel integration, a built-in spreadsheet component, and pivot grids.  Integration with MS Office products enables users to produce and distribute PowerPoint decks, Word Docs, and PDFs with ease.  Data Blending supports reporting and analysis on high volumes of non-financial data.

Planning and Forecasting:  Customers can plan and forecast on ESG with confidence and without compromise. They can set ESG goals and objectives, track Actuals v Target, and provide variance analysis & commentary.  Users can perform what-if scenario modeling to understand the impact of ESG policies on financial results and business value. OneStream supports unlimited extensible data models for any ESG planning process.

Based on these capabilities, OneStream’s platform is well-suited to supporting the collection, consolidation and reporting of ESG data and commentary for internal and external reporting. Much of the emissions data can be found in the local ERP systems and sub-ledgers. For example, energy bills, water consumption, fuel usage is all available on the invoices in the ERP data.  But the formatting, units, etc., are likely all different and there are many other offline or manual data collection processes that need to happen to bring everything together and holistically report on ESG initiatives.

Customers Leading the Way

OneStream has several customers that are already using our platform to collect, consolidate and report ESG data.  One example is a CPG holding company that has grown organically and via acquisitions of many food providers.  When they acquire companies, they let them keep their existing ERP systems as they are all manufacturing companies.  As a result, they have over 50 different GL/ERPs at 100+ locations.

This organization had been collecting data for financial and ESG reporting via spreadsheets and email, so it was highly manual, time-consuming, and prone to errors. They selected OneStream (see figure 2) to collect, consolidate and report their financial and non-financial/ESG data.

 

With OneStream the organization now has one system for actuals, budgets, quarterly forecasts, ESG reporting, weekly operations data, and M&A analysis. Having a single system and process saves time and reduces redundancy in data collection.  Subsidiaries provide a single submission for financial and ESG reporting.  The company has eliminated errors in data collection by using data entry forms with validation checks for key environmental and social metrics.

Conclusion

ESG and Sustainability reporting is rapidly moving from a voluntary to mandatory process.  CFOs and Finance teams need to get engaged to ensure the accuracy and integrity of ESG and sustainability reporting to a variety of stakeholders.  Aligning ESG reporting with the financial reporting and performance management process and system can eliminate duplication, increase accuracy, ensure compliance and improve the overall management of ESG initiatives.

To learn more, check out our white paper titled “The New CFO Imperative: Unifying ESG & Financial Reporting”, or contact OneStream if your organization is ready to align ESG reporting with financial reporting and get ahead of upcoming disclosure mandates.

Download the White Paper

There has been an increasing buzz in the market in the past 12 months around the topic of environmental, social, and governance (ESG) reporting.  What’s driving this and why should CFOs and Finance executives care about it?  Read on to learn what ESG reporting is, what’s new with ESG reporting standards, why Finance teams should care, and the five benefits of aligning ESG reporting with financial reporting.

ESG Reporting is Rising in Prominence

ESG reporting (a.k.a. Sustainability Reporting) refers to the disclosure of data covering a company’s operations in three areas: environmental, social, and corporate governance. It provides a snapshot of the business’s impact in these three areas for investors, customers, and wider stakeholders. The value of ESG reporting is that it ensures organizations consider their impacts on sustainability issues and enables them to be transparent about the risks and opportunities they face.

For many years, ESG reporting was an annual, voluntary disclosure by public and private companies to their stakeholders about the impacts of their enterprise on the environment and society and how they are managing these programs.  With an increasing amount of capital (now roughly $35 Trillion) flowing into “sustainable” mutual funds and ETFs, there is increasing stakeholder interest in ESG reporting and increasing demand for more detailed and frequent disclosures from public and private enterprises.

As a result, corporate sustainability and climate change efforts are fast transitioning from voluntary to mandatory in many countries, and even the US SEC is moving towards defining clear disclosure guidelines for public companies.  Based on this inertia, there is a clear driver for companies to develop robust sustainability and ESG strategies with transparent reporting to stakeholders.

Converging ESG and Sustainability Reporting Standards

There are several competing standards for ESG/Sustainability reporting including the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Carbon Disclosure Project (CDP), and others.  However, there is now a movement towards a global standard coming out of the recent COP26 conference in 2021.

The IFRS Foundation, which oversees accounting standards in more than 140 nations, mostly in Europe and Asia, announced the creation of the International Sustainability Standards Board (ISSB) at COP26. The foundation will oversee the ISSB as it does the International Accounting Standards Board, formed two decades ago. It expects to release two reporting protocols on disclosures in the second half of 2022.

The main driver for the ISSB creation at COP26 (see figure 1) was the fact that current ESG data is lacking clear standards. The data provided is hard to audit and there is no alignment to the financial statements. This makes it extremely hard for investors and other stakeholders to determine the true risk exposure from the data provided.

CFOs and Finance Teams Paying Attention

While thousands of organizations around the world have already been reporting on ESG and sustainability, the data collection and reporting is often handled by Sustainability teams, Facilities, Human Resources, or other groups.  But CFOs and Finance teams are now paying more attention. Why is this?  Because as this type of reporting transitions from voluntary to mandatory it will require the same level of governance, control, accuracy, and auditability as financial reporting.

But there are other factors driving increasing CFO engagement in ESG reporting.  According to a recent Accenture survey, “the ability of companies to raise capital will increasingly be tied to sustainability objectives.”  Yet “deficiencies in the ability of companies to target, manage, measure and report sustainability performance still hamper the ability of businesses to effectively deliver on their sustainability commitments.”

According to the survey, fewer than half (47%) of large companies have identified how to gauge the sustainability of their operations despite rising pressure from investors, regulators, and lawmakers for disclosure on environmental, social, and governance (ESG) performance.

Here are some other key points from the survey:

• Meeting demands for sustainability data will be integral to company performance – ESG matters to the market, and therefore to business value.
• Companies with high ESG performance from 2013 until 2020 generated 2.6 times higher total shareholder return than medium performers.
• Making a CFO responsible for sustainability is essential for ensuring a company meets its ESG goals. Companies are much more likely to extensively embed ESG in core management processes when the CFO has accountability for ESG metrics.
• Yet only 26% of finance leaders said they had clear, reliable data to back up their ESG metrics.

ESG and Sustainability Reporting Technology

As with any new data collection or management process, spreadsheets and email are often the initial tool of choice due to their accessibility, ease of use, and low cost.   But if control and accuracy are required, the spreadsheets and email approach to ESG reporting quickly suffer from the same shortcomings faced when these tools are used for financial reporting – they don’t deliver.

There are a growing number of purpose-built ESG/Sustainability reporting tools available in the market that can replace spreadsheets.  And while these tools can provide value to the process, they create a data collection, consolidation, and reporting process that’s separate from the financial reporting process. And if ESG metrics need to be reported alongside financial metrics, wouldn’t it be better if this data was collected in the same system and processed as financial data?

The answer is yes, and that’s why a growing number of organizations are looking to extend the financial close, consolidation, and reporting capabilities of their corporate performance management (CPM) platforms to handle their ESG Reporting. This can be a viable approach for aligning ESG reporting with financial consolidation and reporting – provided the application has the required features to support the efficient collection, consolidation, and reporting of ESG metrics. These features should include the following:

• Collecting financial and non-financial data from a variety of internal systems.
• Support for forms-based data entry of ESG metrics
• Support for complex conversion calculations for ESG metrics
• Ability to support multiple ESG reporting frameworks and metrics across industries
• Consolidation of ESG metrics and textual commentary across multiple hierarchies
• Extensive data validations, controls, and audit trails
• Ability to capture ESG targets and goals for comparison against actual results
• Produce a variety of output types including standard reports, interactive dashboards, and Excel-based analysis of ESG metrics

Five Benefits of Aligning ESG Reporting with Financial Reporting

ESG and Sustainability reporting is rapidly moving from a voluntary to mandatory process.  CFOs and Finance teams need to get engaged to ensure the accuracy and integrity of ESG and sustainability reporting to a variety of stakeholders.  Aligning ESG reporting with the financial reporting process and system can yield several benefits to organizations.  These benefits include the following:

1. Eliminates duplicate data collection, consolidation, and reporting processes.
2. Improve the accuracy and integrity of ESG and Sustainability Reporting.
3. Align ESG and Sustainability metrics with financial results.
4. Establish high-quality controls and audit trails over ESG and Sustainability metrics.
5. Compare actual ESG and Sustainability metrics with goals and targets.

To learn more about the value of aligning ESG reporting with financial reporting, download our white paper titled, “The New CFO Imperative: Unifying ESG & Financial Reporting.”

Download the White Paper