The ESG Controller in the Age of Regulatory Shifts and Integrated Risk Management
As organizations navigate the intricate landscape of Environmental, Social, and Governance (ESG) reporting, the emerging role of the ESG Controller is becoming a pivotal element in corporate governance. Responsible for aligning financial integrity with sustainable practices, the ESG Controller's role is crucial in bridging the gap between compliance and ethical leadership. Recent surveys by AuditBoard and Deloitte illuminate significant shortcomings in ESG controls and program readiness, underscoring the urgent need for integrated risk management (IRM) technologies.
Defining the ESG Controller's Role
The ESG Controller combines financial oversight with a deep understanding of ESG metrics. They are tasked with standardizing and controlling ESG reporting processes, ensuring compliance with existing standards and frameworks. It is a multidimensional role combining financial acumen with a deep understanding of ESG metrics. Its primary responsibilities fall into distinct but interconnected categories:
Standardization and Control: In line with setting universal processes and guidelines, ESG Controllers ensure that ESG metrics are seamlessly integrated into the overall financial reporting framework.
Compliance and Reporting: Adherence to international standards, such as the Task Force on Climate-related Financial Disclosure (TCFD) and the International Financial Reporting Standards IFRS S1 and S2, is central to the role. They handle comprehensive ESG reporting, ranging from greenhouse gas emissions to diversity.
Data Integrity: Given that less than half (45.7%) of professionals have confidence in their organization’s ESG reporting capabilities, according to the Deloitte survey, the focus on data accuracy and consistency is paramount.
Risk Management: ESG Controllers serve as risk experts, staying abreast of evolving disclosure requirements and facilitating both internal and external audits.
Organizational Influence: The presence of an ESG Controller correlates with a 30-point rise in confidence levels in ESG reporting, as indicated by Deloitte. This underscores the role's importance in instilling confidence and shaping organizational strategy.
The Integrity of ESG Data
AuditBoard's recent survey reveals that two-thirds of organizations have not implemented ESG controls for data accuracy. Similarly, the Deloitte poll found that less than half (45.7%) of professionals are confident in their organization's ESG reporting. These challenges spotlight a significant gap in the control environment for ESG data, an area under the direct purview of the ESG Controller.
Financial and Skills Gap
The scarcity of trained ESG Controllers is a cause for concern. According to Deloitte, only 16.4% of organizations have a dedicated professional in this role. This scarcity becomes more alarming given AuditBoard's revelation that 60% of organizations do not perform internal ESG audits, and 46% have no ESG technology or staff budget.
Integrated Risk Management: A Cohesive Approach
“IRM technology offers a pathway to unify ESG practices, ensuring compliance and ethical leadership as well.”
Gartner's research on integrated risk management (IRM) emphasizes its role in optimizing risk-adjusted decision-making by converting gathered data into actionable insights. John A. Wheeler, founder and CEO of Wheelhouse Advisors and Senior Advisor, Risk and Technology at AuditBoard, highlights this potential: "IRM technology offers a pathway to unify ESG practices, ensuring compliance and ethical leadership as well.” Using IRM technology, ESG Controllers can collaborate with key stakeholders to align investment, controls, and transparent disclosures. Over 54% of ESG professionals still rely on manual processes like Excel spreadsheets, particularly in complex areas such as Scope 3 emissions, according to a Reuters Insight survey. This inefficiency necessitates automation and system integration.
Enabling Cross-functional Collaboration with IRM Technology
Leveraging Integrated Risk Management (IRM) technology can be a game-changer for the ESG Controller. It can facilitate dynamic collaboration with other key stakeholders like the board, CFO, COO, Chief Risk Officer, and General Counsel.
Board Engagement: Governance dashboards in IRM platforms provide real-time insights, enabling the board to make data-driven strategic decisions on ESG issues.
Finance Team Involvement: By integrating ESG variables into traditional financial models through IRM tools, CFOs can better understand the financial relevance of ESG risks and opportunities.
Operational Efficiency: IRM technology allows COOs and ESG Controllers to define and track performance indicators in real-time, thereby guiding operational adjustments for sustainability.
Legal Compliance: For General Counsel, real-time legal compliance tracking and automated contract review for ESG clauses can be invaluable.
The role of the ESG Controller is undeniably essential in the current business landscape. The lack of adequate controls and readiness, as pointed out by AuditBoard and Deloitte, signals the immediate need for integrated approaches, such as IRM, to ensure compliance and sustainability. By investing in the ESG Controller role and adopting IRM technologies, organizations can proactively address the evolving requirements of ESG reporting, thereby positioning themselves as leaders in corporate sustainability and governance.
