It is an undeniable fact that chief financial officers now must face matters on sustainability and dedicate ample time to understand the importance of sustainability reporting to harness potential benefits in operations and decision-making procedures.
In fact, BNP Paribas says Asian markets are experiencing a surge in sustainable financing, from green bonds to transition finance, highlighting the region’s increasing maturity in sustainable finance with the uptick in biodiversity investments.
The Workiva 2023 Global ESG Practitioner Survey finds that 90% of surveyed practitioners agree that in the next two years, having a strong ESG reporting programme will give their organisations a competitive advantage.
However, the same study reveals that businesses worldwide are grappling with ESG complexity, as 71% of respondents acknowledge that three or more internal teams are involved in their company’s ESG reporting processes.
Andromeda Wood, vice president of regulatory strategy at Workiva, sees that Asia is shifting towards stricter ESG regulations driven by government policies, investor expectations, and stakeholder demands for greater transparency.
As ESG and sustainable reporting is becoming one of the lenses through which organisations are being judged by investors, regulators, employees, and a multitude of other stakeholders, it is necessary for finance leaders to understand what steps to take to ensure accuracy and transparency in their companies.
ESG in Asia
Wood says companies in Singapore are leading the way in the transition towards stricter ESG regulations, as revealed by Workiva's recent ESG Practitioner Survey, outpacing their global counterparts in adopting integrated reporting, a practice that merges financial and sustainability disclosures.
However, she points out that challenges remain, as 73% of Singaporean respondents anticipate Corporate Sustainability Reporting Directive (CSRD) compliance and 79% are concerned about accurate data-gathering, underscoring the importance of robust data
collection and management systems.
"CFOs play a pivotal role, and Workiva empowers them to champion accurate and transparent ESG reporting through streamlined data integration, facilitating data-driven decisions for financial and sustainability goals, and fostering holistic cross-department collaboration," Wood says.
She adds that survey findings also indicate over 80% of Singaporean respondents anticipate AI streamlining ESG reporting.
"By adopting advanced solutions and embracing proactive data management strategies, CFOs can ensure compliance, transparency, and success in this evolving era of reporting."
Steps to take
In connection with the integration of climate-related risks and opportunities into financial reporting, Wood says the evolving ESG landscape is reshaping traditional CFO roles, particularly in financial reporting.
With organisations interested in integrating ESG into their current structure and evolving corporate governance to meet new requirements, CFOs are increasingly expected to provide insights into ESG's links to strategy, financial impacts, and reporting, often with support from specialist sustainability teams.
She recounts that other steps, including integration into risk analysis, strategy considerations and data, should follow closely as top considerations.
"CFOs can leverage their experience to elevate ESG reporting, ensuring alignment with financial standards and promoting collaboration for accuracy across non-financial and financial performance," Wood says. "Across Asia, while most ESG regulatory change prioritises climate reporting, corporate governance and social metrics are already mandated in some countries, with others earmarking these for future regulatory roadmaps."
Furthermore, Wood explains that the ISSB roadmap has been confirmed to incorporate standards addressing nature and human capital. Companies must strategically adapt to both immediate climate reporting needs and future ESG requirements.
Wood adds that the TCFD recommendations have already formed a mandate in a number of jurisdictions, leading many companies to align their measures accordingly.
"The TCFD's recommendations on governance, strategy, etc., are the foundation for the new ISSB climate reporting standards, and the ISSB has published a detailed comparison of ISSB S2 with the TCFD recommendations," she says. "As such, while the TCFD recommendations still form a useful base for companies, those starting the process towards climate-related disclosures now may find it easier to start from the ISSB standards."
Safeguarding data
In the road to safeguard customer data and ensure compliance with data privacy regulations, Wood says organisations should implement best practices prioritising security, traceability, and compliance readiness.
"Firstly, centralised data management can ensure consistent data protection practices across departments."
Wood notes that Workiva leverages a suite of security measures, including internal tools and external tests, to maintain a secure environment.
The next measure, according to Wood, is on fostering collaboration among teams involved in data management and compliance efforts
promotes accountability and transparency in data handling, leading to more robust data protection measures.
Wood also explains how traceability and auditability are vital for compliance, as granting personnel limited access and utilising advanced tools in line with security protocols are crucial for data integrity.
"Data security education, covering confidentiality, privacy, physical and systems security, acceptable use, social engineering, and more, fosters a culture of responsible data handling," Wood says.
Lastly, the Workiva VP says streamlined data processes reduce manual errors and inefficiencies in data management, improving accuracy and compliance outcomes.
Dealing with risks
As for the role of CFOs in addressing and dealing with cybersecurity threats, Wood explains that they are crucial players in addressing these threats, considering their deep understanding of financial implications and risk management.
"Cybersecurity threats pose significant financial and reputational risks to organisations, exacerbated by the growing data requirements for reporting," Wood notes. "2023 saw a 20% year-on-year increase in data breaches from 2022, with twice the number of victims in 2023 than the previous year."
While cybersecurity may not be a CFO’s chief remit, Wood says increasing integration necessitates breaking down silos and fostering collaboration across departments and C-suite portfolios.
In the context of audit committee oversight in Asia, Wood explains that finance teams must regularly assess the organisation's control environment to effectively manage risks, including those related to cybersecurity.
"This necessitates periodic evaluations, typically conducted quarterly or semi-annually, minimally annually, to ensure any breakdowns are identified before they become significant issues," says Wood.
She concedes that many find it challenging to keep up with the evolving risk landscape in the region, pointing out that the best practice is to leverage tools and platforms that facilitate efficient automation and data analysis, enable real- time insights into the effectiveness of controls, identify emerging threats, and facilitate regular risk assessments.
Tailoring ESG approaches
Wood says there are ongoing initiatives to harmonise ESG across Asia, such as the development of an ASEAN sustainable finance taxonomy and the adoption of ISSB standards.
However, due to varying reporting practices and markets, Wood notes that some diversity remains inevitable.
"Advisors are instrumental in keeping companies updated on developments, while a unified data set and governance framework for ESG activities enhance interoperability across markets."
She adds that CFOs can utilise technology to unify unreviewed data from diverse, unstructured sources across markets into a single source of truth, ensuring verifiable data lineage and accuracy through built-in controls.
Engaging stakeholders
Wood notes that in terms of finance teams integrating financial and non-financial information in reporting processes, a broader view encompassing non-financial metrics like ESG is now necessary as opposed to the traditional focus on historical financial data.
"CFOs and finance leaders are well-positioned to spearhead this shift towards integrated reporting, and Workiva's platform fosters collaboration among finance teams and stakeholders across departments and disciplines by serving as a central hub for financial and non-financial data, enabling holistic discussions and informed decision-making," Wood says.
Additionally, Wood notes that they see more CFOs and their teams using data integration to break down silos across finance, ESG, and governance risk and compliance (GRC), building a unified dataset for enhanced accuracy, reliability, and timeliness for reporting and performance evaluation.
