ESG reporting: whose job is it anyway?

Sus­tain­abil­i­ty leg­is­la­tion is mush­room­ing at a record pace. The grow­ing reg­u­la­to­ry report­ing require­ments are putting many busi­ness­es under strain, par­tic­u­lar­ly dur­ing dif­fi­cult eco­nom­ic times. So, who in the C‑suite should take respon­si­bil­i­ty?

This year alone, the UK’s Finan­cial Report­ing Coun­cil – which reg­u­lates audi­tors, accoun­tants and actu­ar­ies – plans to sig­nif­i­cant­ly tight­en its envi­ron­men­tal, social and gov­er­nance (ESG) report­ing rules for large com­pa­nies, as con­tained in the UK Cor­po­rate Gov­er­nance Code. 

Momen­tum is also gath­er­ing behind a pro­posed ‘Bet­ter Busi­ness Act’ to replace sec­tion 172 of the Com­pa­nies Act 2006. This could the­o­ret­i­cal­ly require pri­vate-sec­tor organ­i­sa­tions in the UK to take real own­er­ship of their social and envi­ron­men­tal impacts.

The EU, mean­while, has a raft of new reg­u­la­tions either com­ing into force or loom­ing on the hori­zon. Chief among these is the Cor­po­rate Sus­tain­abil­i­ty Report­ing Direc­tive. From next year, most com­pa­nies with oper­a­tions in the EU will be required to pub­lish reg­u­lar reports on their sus­tain­abil­i­ty activ­i­ties, in line with a rolling timetable based on size.

So, who should be in charge?

The pic­ture today appears quite mixed, with every­one from CEOs to CFOs, chief sus­tain­abil­i­ty offi­cers (CSOs) and even chief peo­ple offi­cers tak­ing the lead. Com­pa­ny sec­re­taries and gen­er­al coun­sel are also increas­ing­ly engaged in due dili­gence and infor­ma­tion dis­clo­sure activ­i­ties because of ris­ing lev­els of lit­i­ga­tion and green­wash­ing inves­ti­ga­tions. 

Paul Crewe is exec­u­tive direc­tor and CSO at sus­tain­abil­i­ty con­sul­tan­cy Anthe­sis Group. He thinks that in an ide­al world, report­ing respon­si­bil­i­ty should lie with the CFO, some­thing that is increas­ing­ly the case. “Finan­cial data and ESG report­ing are intrin­si­cal­ly linked … giv­en the increase in manda­to­ry report­ing, the CFO’s role in tak­ing an over­all lead on ESG report­ing is one that is increas­ing,” he says. 

The CFO is also best placed to sup­port invest­ment in the organisation’s sus­tain­abil­i­ty impact pro­grammes. Where such invest­ment is sig­nif­i­cant, respon­si­bil­i­ty for report­ing often broad­ens to include respon­si­bil­i­ty for enabling the wider sus­tain­abil­i­ty vision, Crewe adds. 

But in his view, the “real mar­riage made in heav­en” is when the CFO part­ners close­ly with the CEO. This was the set­up when he served as the CSO of Sainsbury’s, where he report­ed in to both posi­tions. 

The CEO’s role in this instance was to set the broad­er sus­tain­abil­i­ty vision, take over­all account­abil­i­ty for the direc­tion of trav­el and dri­ve change. As CSO, Crewe’s focus was on engage­ment, com­mu­ni­ca­tion and embed­ding the strat­e­gy through­out the organ­i­sa­tion. 

This includ­ed mak­ing the lead­er­ship team aware of emerg­ing stan­dards, new leg­isla­tive require­ments and mar­ket trends. But it also entailed sup­port­ing func­tion­al heads in work­ing togeth­er and ensur­ing they were clear about the part they played in deliv­er­ing the strat­e­gy. 

The overlap between sustainability and people 

Bupa has tak­en a some­what dif­fer­ent tack. Group CEO Iña­ki Ereño laid out the pri­vate health­care provider’s sus­tain­abil­i­ty vision and kick­start­ed its adop­tion when he took the role in 2020. How­ev­er, chief sus­tain­abil­i­ty and peo­ple offi­cer Nigel Sul­li­van takes day-to-day respon­si­bil­i­ty for the strat­e­gy, as well as chair­ing the company’s Sus­tain­abil­i­ty Steer­ing Com­mit­tee (SSC). 

The SSC reports in to both the chief executive’s and the board’s sus­tain­abil­i­ty com­mit­tees. Its role is to dri­ve Bupa’s progress towards its ESG goals, while it also over­sees all aspects of manda­to­ry and vol­un­tary ESG report­ing. 

Glyn Richards, who reports to Sul­li­van, is group direc­tor of sus­tain­abil­i­ty. Part of the think­ing behind adding sus­tain­abil­i­ty to his boss’s brief in May 2021 was that “ESG isn’t real­ly a sep­a­rate sub­ject – it’s about how we run the busi­ness,” Richards says. 

He believes the company’s 85,000 employ­ees play a major role in embed­ding ESG mat­ters into the over­all oper­a­tions and cul­ture. What’s more, because the major­i­ty are employed in cus­tomer-fac­ing roles, they also act as advo­cates for sus­tain­abil­i­ty beyond com­pa­ny bound­aries. 

“It’s huge­ly pow­er­ful in terms of behav­iour­al and sys­tem change, so mar­ry­ing the sus­tain­abil­i­ty and peo­ple agen­da makes sense,” Richards says. “It’s about mak­ing the entire busi­ness more sus­tain­able.” 

To help embed this change across the organ­i­sa­tion, Bupa ensures that rep­re­sen­ta­tives of each of its mar­ket units sit on the SSC and not only imple­ment and embed strat­e­gy local­ly but also report back quar­ter­ly on out­comes. 

To sup­port the company’s decar­bon­i­sa­tion agen­da, the group CFO – anoth­er key SSC mem­ber – man­ages a sep­a­rate sus­tain­able finance team. This han­dles car­bon account­ing and fore­casts the car­bon impacts of major busi­ness activ­i­ties, includ­ing merg­ers and acqui­si­tions. 

How to win hearts and minds

Legal and pro­fes­sion­al ser­vices group Ampa achieved B Corp sta­tus at the start of this year, mean­ing it now has a legal oblig­a­tion to con­sid­er the impact of busi­ness deci­sions on all stake­hold­ers, includ­ing employ­ees, cus­tomers and the envi­ron­ment. 

Its head of sus­tain­abil­i­ty over­sees report­ing on quar­ter­ly tar­gets, which are set across the organisation’s three ESG streams of peo­ple, envi­ron­ment and com­mu­ni­ties. Oth­er report­ing require­ments are over­seen by func­tion­al heads, but all data is signed off by group CEO Sarah Walk­er-Smith and her COO. 

Account­abil­i­ty for the over­all “respon­si­ble busi­ness agen­da”, mean­while, falls to the wider board, explains Walk­er-Smith, who isn’t con­vinced that cur­rent report­ing stan­dards hit the mark.

“There’s statu­to­ry report­ing, but I don’t think it goes far enough and it needs to be more joined up,” she says. “The mea­sures we’ve set our­selves go fur­ther than that. The ques­tion of whether we’re being a respon­si­ble busi­ness is at the heart of our strat­e­gy.”

As a result, the group choos­es not to use the term ‘ESG’, as that implies sus­tain­abil­i­ty is an add-on rather than being “in the DNA of how we do busi­ness”, Walk­er-Smith says. “Win­ning hearts and minds” across the group is what makes the dif­fer­ence, she explains.

The ‘hearts’ ele­ment, for instance, involves com­mu­ni­cat­ing the company’s pur­pose in want­i­ng to “dri­ve change in the busi­ness for good”, Walk­er-Smith says. Mean­while, the ‘minds’ aspect means under­stand­ing that to achieve com­mer­cial suc­cess in the medi­um- to long-term, you sim­ply have to behave respon­si­bly as a busi­ness.

“The war for tal­ent is rife, cus­tomers are ask­ing for it too, and increas­ing­ly stake­hold­ers are expect­ing busi­ness­es to oper­ate in this way. It’s clear­ly the direc­tion of trav­el, so you might as well own it,” Walk­er-Smith con­cludes.

Sustainability legislation is mushrooming at a record pace. The growing regulatory reporting requirements are putting many businesses under strain, particularly during difficult economic times. So, who in the C-suite should take responsibility?

This year alone, the UK’s Financial Reporting Council – which regulates auditors, accountants and actuaries – plans to significantly tighten its environmental, social and governance (ESG) reporting rules for large companies, as contained in the UK Corporate Governance Code. 

Momentum is also gathering behind a proposed ‘Better Business Act’ to replace section 172 of the Companies Act 2006. This could theoretically require private-sector organisations in the UK to take real ownership of their social and environmental impacts.