Step up sustainability action

Organisations urgently need to prioritise transition planning and embrace the opportunities presented by sustainable practices. Finance teams will play a pivotal role in this transition, including making crucial improvements to the quality of non-financial data. These are the key conclusions based on the findings of research conducted by ACCA, PwC and the International Federation of Accountants into transition to sustainable business practices.

The geographical variations, size considerations, governance challenges, upskilling efforts and technology integration detailed in this research underscore the complexity and multifaceted nature of the transition to sustainability.

‘Organisations must remain agile and forward-thinking to navigate these challenges and seize the opportunities presented by the transition to sustainability’, the report’s authors state.

Slow to prepare

The role of the finance function in emissions reduction, due to be launched at COP28 in November, looks into various facets of this transition and found that the majority of the 942 global respondents don’t have transition plans in place.

Respondents from large organisations, and particularly those in North America, were much more likely to have emissions reduction plans and to be assessing the impact of environmental, social and governance (ESG) regulations on their business.

But overall, transition planning was found not to be a high priority despite the climate emergency. Nearly 70% respondents that did not have an emissions plan had no intent to or urgency to develop one. One of the most commonly cited reasons for this was ‘a lack of a clear business benefit for doing so’.

Drivers

Respondents who are making emissions plans, or are planning to, cited many drivers. Companies in North America and the Middle East are most likely to have developed or planned to develop an emissions plan in order to ‘seize opportunities for competitive advance or value creation’. Understandably, respondents from the public sector in Western Europe cited ‘public reputation’ as the main driver. However, regulation is not a leading driver for any cohort – not even in Europe, despite the EU’s Corporate Sustainability Reporting Directive being around the corner.

The report authors warn that ‘the lack of ESG compliance increases the risk that smaller firms and suppliers are replaced by those who are able to provide more comprehensive and reliable ESG data, especially at larger organisations’.

The majority (56%) of respondents believe that an emissions plan is both a cost and a benefit. Twice as many respondents (26%) said an emissions plan was a benefit than said it was a cost (13%). Respondents from medium-sized organisations – whether measured by revenue or number of employees – were more likely to say that an emissions plan is a cost than large and small organisations.

Leading the way

Responsibility and accountability for transition plans is unclear. The survey found that there is organisation-wide level engagement in the carbon reduction agenda, but no sense of real leadership from any one department. The report warns that entities’ chances of success in implementing carbon reduction strategy will be low due to poor governance.

In the past 18 months, the finance function has become increasingly involved in planning for climate change and becoming custodians of ESG data. Nearly half of respondent organisations (46%) have created new positions within finance. This number was significantly higher in North America (75%), with 27% from Western Europe and just 16% of respondents from Africa having created new positions.

‘The finance function should take ownership and accountability of driving sustainability, including in the areas of data, reporting and value creation,’ the report’s authors urge. ‘Organisations should undertake training in order to upskill finance professionals around ESG so that they can better understand ESG data and the impact of ESG on their businesses.’

The authors add that ESG data standards are complex and constantly evolving, so organisations need to stay abreast of changing regulations and their impact on ESG reporting and disclosures.

Data and controls

The quality of non-financial information is improving. Two years ago, 18% of respondents said that non-financial information was of the same or higher quality as financial information; today, this has risen to 28%. Half (50%) believe non-financial information will be of the same quality or higher in two years.

Over three-quarters (77%) of respondents said that their organisations have either established or are in the process of developing internal controls for their emissions plan. Those in medium and large companies, and across all organisations in North America, were the most advanced in this regard. Respondents from Western Europe (16%) and Africa (13%) are lagging.

‘The effective use of technology and AI can help organisations generate insights from ESG data, which can drive business performance and improve the quality of their products and services,’ says the report.