How Future of Controls Can Support Your ESG Agenda
In recent years, addressing climate change, social inequities and organisational compliance have become hot-button topics and priorities around the globe. Individuals are being held accountable for egregious or complicit behaviour, and businesses, as well, face both scrutiny and responsibility. Customers are using their buying power to define how organisations should behave, with nearly one in five consumers claiming to have switched brands because of values. Customers are now the fifth line of defence and are asking for more transparent reporting and insights on internal operations.
The pressure is mounting for organisations 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.
Cross-Functional Visibility Drives ESG Progress
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 organisations. 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 organisation, identify opportunities and mitigate risks associated with ESG practices, and define measurement and reporting capabilities that highlight progress.
Benefits of an Integrated ESG Controls Framework
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 organisation’s ESG strategy. This framework can help leaders embed ESG elements across the organisation’s value chain, identify and mitigate risks and establish a recurring practice of measuring and reporting on controls and KPIs.
The Path to ESG Progress
By adopting an integrated ESG controls framework, organisations 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:
- Create an ESG risk and controls framework to embed ESG practices into the organisation. This involves business leaders building out integrated risk and controls framework for their organisations. Stakeholders can assign clear accountability to key business functions and apply incentives to business units for achieving specific metrics. It’s also important to drive adoption among employees and ensure the true acceptance and ownership within the business. This, in turn, will drive further innovation and ownership.
- Establish governance practices to continue ESG growth. Here, businesses define the operating model for the ESG strategy, align on KPI design and deployment and establish change management processes to ensure the organisation is continuously improving on these new ESG principles.
- Define the data to collect, measure and report on operating effectiveness. In this step, organisations align on the type of data that needs to be collected, how that data is structured and when the reporting needs to be distributed.
As organisations 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, organisations can embed ESG principles into their core, while mitigating risk, realising the benefits and driving accountability and results.
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