In recent years, addressing climate change, social inequities, and organizational compliance have become hot-button topics and priorities around the globe. Individuals are being held accountable for egregious or complicit behavior, and businesses, as well, face both scrutiny and responsibility. Customers are using their buying power to define how organizations should behave, with nearly one in five consumers claiming to have switched brands because of values. Customers are now the fifth line of defense and are asking for more transparent reporting and insights on internal operations.
The pressure is mounting for organizations to act responsibly and “do the right thing” when it comes to environmental and social issues. Many have made promises to find and address these issues head on. But those that do not follow up on their promises will likely feel financial and reputational impacts.
Now is the time for businesses to not only define (or revisit) their purpose, but also to act on their promises to have positive social and environmental impacts in their communities and beyond. But the reality of turning promises into progress can be daunting for many organizations. Business leaders require deep visibility into the processes and procedures that keep their operations running—from procurement and product development to human resources and financial reporting. Business operations face the need to adapt to meet ESG requirements, with individual functions committing to and reporting on key metrics that showcase progress against ESG standards.
To make a real impact, businesses can consider adopting a framework that can help quickly integrate ESG principles into the core of their organization, identify opportunities and mitigate risks associated with ESG practices, and define measurement and reporting capabilities that highlight progress.
Traditionally, internal controls are the domain of financial professionals. They’re often defined as the processes and records that businesses use to ensure the accuracy of financial and accounting information, mitigate risks, and prevent fraud. But the same elements that make up the risk and controls framework — establishing processes, ensuring accuracy, reducing risks, preventing a crisis, and reporting transparently and meaningfully —can also be applied to an organization’s ESG strategy. This framework can help leaders embed ESG elements across the organization’s value chain, identify and mitigate risks, and establish a recurring practice of measuring and reporting on controls and KPIs.
By adopting an integrated ESG controls framework, organizations have the ability to make quick and convincing impacts on their ESG commitments. Business leaders can also access the comprehensive data needed to present the environmental and social progress their companies have made.
As they embark on their Future of Controls journey, businesses can consider these elements to establish and implement a robust ESG controls framework:
As organizations shape their Future of Controls journey, there is a significant opportunity to apply and expand the internal controls framework to embed, measure and monitor the ESG commitments. Using controls in this way, organizations can embed ESG principles into their core, while mitigating risk, realizing the benefits and driving accountability and results.