Ep. 158: Dawn Emling and Tjeerd Krumpelman with Shari Littan - Management Perspective on Sustainable Business Information and Reporting
Dawn Emling, Head of Sustainability Initiatives for the Lincoln Financial Group, and Tjeerd Krumpelman, Global head of advisory, reporting & engagement / Group Sustainability at ABN AMRO Bank N.V., join Count Me In with moderator Shari Littan, IMA's Director of Corporate Reporting Research & Thought-Leadership, to discuss a management perspective on sustainable business information and reporting. In this episode, our panel covers the CFO team and their role in sustainable business activities, preparer burdens around demands for ESG information, and the value of technology to streamline the process. The goal is to offer management actionability on sustainable business information and how to make ESG meaningful for nonpublic companies. Download and listen now!
Contact Tjeerd Krumpleman: https://www.linkedin.com/in/tjeerdkrumpelman/
Contact Shari Littan: https://www.linkedin.com/in/shari-littan-58bb40114/
IMA's Statement of Position on Sustainable Business Information and Management: https://www.imanet.org/insights-and-trends
FULL EPISODE TRANSCRIPT
Welcome back to Count Me In, IMA's podcast about all things affecting the accounting and finance world. This is your host, Adam Larson, and I'm here to introduce you to our panel of speakers who joined our podcast to talk about sustainable business and sustainable business information. Shari Littan, IMA's Director of Corporate Reporting Research and Thought Leadership moderated the discussion between Dawn Emling and Tjeerd Krumpelman. Dawn is the head of sustainability initiatives for Lincoln Financial Group. And Tjeerd is the global head of advisory reporting and engagement as well as group sustainability at ABN AMRO Bank N.V. Together, the three of them discuss the purpose and value of sustainable business activities, the impact of reporting and how to overcome potential challenges relating to technology and streamlining processes relating to sustainable business. Keep listening as we head over to the conversation now.
So many of the professionals who now find themselves working in the area of sustainable business came from other backgrounds, other disciplines. The younger professionals, yes, they are finding a way to this area directly from their education. And they can go directly into sustainable business or corporate responsibility teams or whatever companies are calling it. But for the rest of us, we all came from somewhere else because the field is essentially emerging and new. So I'm gonna ask Dawn and than Tjeerd to let us know, where did you come from before you got involved in sustainability? What's your basic background?
Yeah. Thanks Sherry. I agree with you that most people now are coming from different disciplines. I actually started out in the U.S. government and state department doing human rights work, that also included, a number of, kind of nonprofit roles. And then I was an early practitioner with Credit Suisse, in Asia and then EMIA on sustainability, the first sustainability kind of head for each of those regions so setting that up and then fast forward, I worked at Thompson Reuters on sustainability of global sustainability. And then eventually now I am with Lincoln Financial heading up their, sustainability initiatives. So yeah, kind of a long and windy road here.
Yeah. And for, for me, it's been, it's been a little less windy, because I have always worked in banking. But I worked in the private bank first with clients and then in our investment bank and our retail bank, but always with clients and always on the more commercial side of the bank. And in my recollection, I think sustainability in some sort of, some form has always been part of our conversations with clients, but, but it was like eight years ago when I moved into the group sustainability or group strategy and sustainability team, for the first time that it became, let's say a regular job. And back in that day, or in that time, it wasn't considered a promotion, right. It wasn't considered to be very fancy to move from the commercial side of the bank in a managerial role to a, let's say a cost center like sustainability. So it has evolved a over the years, to becoming quite a popular destination, for people to work, nice place to work with lots of applicants whenever we have a role available. That's interesting to see, but yeah, I came from the commercial side of the bank.
So that's quite a bit of difference: diversity in both of your backgrounds and how you both come and arrive in almost similar roles. So I think that says a lot about the type of work and the almost entrepreneurial mindset of many of the people that you've found or have found in the sustainable business arena. Now, one thing that we are hearing over and over again is that much of the work behind the company inside the company, let me say, internally is crossdisciplinary - that there are people coming from different parts of an organization to work together on sustainable business matters. However, when the finance and accounting function get involved and they bring their skillset, it creates set of capabilities and skills to the work that's going on. And it's incredibly valuable. So if I can hear from both of you, what your experiences are in engaging the-- we'll call them management accountants or accounting and finance function members.
Happy to start to kick this one off. I mean, we need everybody in the sustainability space, right? So we need, so I'm in banking and we need everybody across the bank in all different types to step up from their own skillset. So to embed sustainability into their day to day role. So, facility management takes responsibility for the sustainability of our buildings, right? So, and of the workplace, HR needs to think of travel policies, Risk needs to think of sustainability, embedding into risk policies. And where does controlling and accounting, come into place in measuring, in reporting in disclosing all sustainability. That's where we need the talent and the skill sets of financial professionals and accountants and management accountants. And I think they are relatively late to the party, but they are most welcome. And we need them there in the reporting space, in the disclosure space, in, getting the right quality of data, getting this into the dashboarding, into the steering of companies. That's where we need management accounting. But actually I think we need everybody so I can think of, I can think of a role for IT. I can think of a role for HR, for risk finance, strategy people. We need all of them. And in that sense, we definitely need management accountants as well.
I would a hundred percent underscore that this is an enterprise-wide effort. We group our kind of work into 16 or 17 business lines and the E, the S, and the G cross, many of them across all of them. I would also just add that we've seen, this is a very evolving landscape. So in the last six to 12 months, for example, we are now focusing on, or we're being, you know, asked to focus on, or we're being pressured to focus on kind of new areas that we didn't six to 12 months ago. And I'll bring out, you know, human capital development, human capital management. During COVID, it was kind of a brand new issue for us to look at under the ESG umbrella or rubric. There's been a lot of focus on strategy in the last 12 to 18 months with TCFD pushing on strategy and governance. So because it's such an evolving space, you really do need senior management across the business units, and that helps you with, in my opinion, it helps you getting acceptance, across the enterprise. If senior management in every line of business is pushing this, then you, you can get enterprise-wide acceptance. You can stay ahead of the evolution because you can say, "Hey, Human Resources, I'm coming to you about this human capital management issue that we're saying, oh, yeah, we've heard about this". And then you keep the momentum going. So I completely agree that all business lines are necessary and we don't know what's coming next. I would take a big guess, as Tjeerd said, metrics, reporting dashboards. I mean, we need people with those skills and that expertise.
Thank you both so much. As you may know, IMA has developed a set of working principles to help us as an organization respond to these global trends. And it informs how we guide our members with educational material, for members in accounting and finance. One of the most critical things that we hear from people in your position are the challenges around fragmentation, that there are too many frameworks, too many guidelines, too many reporting standards. And on top of that there's market pressure to respond to a variety of survey instruments, both the non-governmental as from CDP, but also a range of commercial survey instruments. And for us at IMA, one of the things that we are thinking about and concerned about is whether all of this additional layers of reporting is decision useful. So perhaps a world where there are fewer KPIs, but more meaningful KPIs and reporting might be a beneficial direction to think about in the ecosystem. Could you share your experiences on this?
I'll start, again, and the next question you can start, but I do have an opinion on this and I feel that I know there's a lot of talk about too many frameworks, too many KPIs, but actually I feel that there's a misunderstanding of these frameworks, that there's a lack of understanding that people, need to study first. What is the intention of the framework? The intention of the framework and of the various frameworks they differ, they can be used for different purposes. And yes, we need some sort of convergence and convergence will come. I mean, it will come, but please don't wait for it. But start work now. And I think from the management accounting perspective, they can help to make this, this stuff better, right? So they can get involved and make it better rather than stand on the sideline and be critical. You can be critical and join the game. We need you there. So, and the purpose of all these frameworks is never to come up with KPIs, it could never be the goal. The goal should be to measure progress, to disclose on progress, and ultimately to be able to steer on progress. And that's where maybe KPIs, can be a meaningful contribution. But my suggestion would be rather than to, wait for convergence or to, well, to take notes of the meaning behind these frameworks and to study them and, and then to learn from them and see where, where you can best apply which framework, and then to work on the improvement and developments together with all these sustainability folk, that I've been working on this for so long.
You know, I'm gonna just respond to that. Cause one of the key capabilities that we hear about when management accountants get involved in the process is connecting the information and the request for information to the business model and helping to figure out which is meaningful and which is less relevant to a particular business. And this is incredibly valuable to the entire process. Dawn, do you have a follow up?
I do. I agree with both of you and not surprisingly, I agree with Tjeerd that these are decision useful. You know, there is a huge landscape of, let's say questions that we respond to, both the survey instruments, as well as, the data providers and the frameworks. So I think the most useful piece of that, if you look at that landscape and for us as an issuer, we probably respond anywhere from 1200 to 1500 questions every year. So it's a massive amount of questions and topics. I do find them decision useful. They guide us, they show us what's coming around the corner. Shout out to CDP for example, and TCFD. They tell us, you know, here's, what's on the horizon. You guys should be thinking about these topics. So I think in and of the themselves, they are decision useful. I think the problem comes and myself and my peers, the problem comes with the rankings based on different weightings. So if you have 1200 data points that you're releasing to the public and 10 different ratings and rankings are using data and putting you on a league table and saying, "Hey, Dawn, you're above your peers today on this ranking, but tomorrow you're gonna be 10 below on this ranking", that becomes a very confusing conversation to have with senior management. And when you start to talk about how the sauces is made on each of those rankings, people fall asleep and rightfully so. So I think what that means for a practitioner in house is that our resources are dispersed. We spend time trying to explain them. We spend trying to understand our stakeholders' favoritism, investors, clients, senior management, employees, activists, NGOs. I mean, we have a ton of stakeholders and they're all kind of focusing in on one or two rankings. And we, the practitioners, the CSR team inside have to spend our time and I'll give an example. Let's say there are three topics this year that we have to work on. It would be great if we just had three topics, my team could go out and just work on those three topics. And, oh, let's look at peer let's look at best in class. Let's look at, you know, frameworks and to improve our processes, structures and governance around those three topics. But because there are so many frameworks and so many rankings, we're dealing with something more like 20 or 30 topics that we have to address, and we don't have the bandwidth for that.
Tjeerd, did you have something to follow up on Dawn's remarks?
Yeah, so I like the, the comment that Dawn made on these rankings and ratings. And I know, again, this is similar to the frameworks. There is conversions there, or standardization is needed. Correlation between the different ranking is too low, on the ESG front. But, and I'm not trying to smooth this out, but I'm just trying to say, I mean, from a board perspective or senior management perspective, it is surprising to me that they do understand the difference between certain credit ratings - and there are differences between credit ratings - but they, they seem to, really have a strong desire to have just one sustainability rating and that to me, or ESG rating. And that to me, is silly because there are so many definitions around sustainability. You can also see CDP is focusing primarily on carbon, MCI, DJI's, more focused on the holistic ES&G well, and there are many others, some are funded by NGOs. So you, if you know that they're funded by NGOs, they will have a different perspective. For me, as a sustainability professional, all that information is valuable. It's valuable information. And I understand that I need some sort of translation to senior management or a board. It needs a translation saying, okay, why is this rating as high or low? And what is the delta and how do we compare to peers? That is the translation that is needed. But if you were to put all these credits in front of me, without any background knowledge on credit ratings, it would need a similar translation. So from my perspective, it is a knowledge issue and a guidance issue. And that is actually how I consider my own role or my team and Dawn's role as well within her company. This stuff needs translation and ideally it doesn't, but in the real world, a lot of this stuff needs translation.
I was just gonna follow up by saying one of the concerns in hearing that positive work by the various rating companies. On the other hand, one point to consider is that a team like Dawn's, an accounting and disclosure team is a limited resource itself. And we should think about going towards a goal where her work is being used to its best use and not continually. I mean, what we want her work and her team to be sustainable and not excessive.
And I think, you know, I've been in sustainability longer than I want to actually admit publicly, but I think in the last two to three years, it has become a reporting disclosure job. And it wasn't before. Before it was a change management job, it was a knowledge education transfer job. It was bringing everybody with you on this journey. And now it is primarily not just myself, but my peers. It is an ESG disclosure job.
Well to respond to some of these trends and these burdens one thing at IMA that we look to is the power of technology. And one of the reasons I was so excited to do this podcast with Dawn is that she explained to me that she and her team have looked to technology and have built systems to facilitate the information gathering and reporting, and that there have been in enormous benefits. So Dawn, I'd like to hear from you about the process that you went through, the challenges you faced and overcame and what our members could take away from your experiences in looking to the technology.
Yeah, so we were-- as many, and as I was in a previous job, we were responding to requests and survey instruments, with push and pull Excel or word tracker, you know, changing, changing comments. And we decided to take the time out, you know, the six months to a year that it would take to assess what we're dealing with and look at what was available and build out some kind of automated data management system. We ended up going with, ServiceNow because Lincoln has that already. And there's a team in house that could customize it for us. And we, built out what we now call the ESG tracker. So for each, if you know, ServiceNow, it sends you-- it's a project management tool. It sends you a ticket into your inbox. You can get into the online web based and you can mess around with a ticket. It can have tabs with guidance. You can customize that ticket. We now take all 1200 to 1500 questions that come at us and create a ticket. That ticket then is designated for one or up to five subject matter experts. They get it in the first instance they update, what they think, you know, they've done in the last year. It prepopulates their answer from last year. It comes back to us for kind of ground truth and kind of fact checking, provide any links that we know and new policies that we know about. And then that goes on to, senior management for approval. Once that approval is in the system that we know we can use, the information that's in that ticket. And then we go ahead and upload it. I mean, at some point this is gonna be a direct, you know, feed into the surveys, et cetera. But we found that it's, it's helpful in a lot of ways. The SMEs are really owning it. They know these are their tickets. They know that was their question from last year. They know, oh, here's a new question, they see it come in, they look at the deadline, it's really smooth. We don't have to chase anybody. The system, you know, pings them, "Hey, you're due up". The fascinating and next step for us is the data analysis that goes on behind the themes. So we can put any kind of internal measurements on it, a red, yellow, green light system you're doing really well on this, or, "Hey guys, we can pick up some points over here". We can see, you know, certain business lines are getting a hundred or 200 questions like holy cow, do you really need to see all those? And so we're moving into kind of second phase how we, as the CSR team, to Tjeerd's point, translate that into a much more user friendly system. And we're, you know, going offsite in December to try to see if we can't, take that diversion too. The hours it has saved us is tremendous.
I think this is also a great example of where management accountants, financial accountants can really help us, right? So we are, and I mean, Dawn has done amazing work on getting the data and, and getting the system set up. But this is actually day to day work for a lot of our colleagues within finance. They have been collecting financial data for, well, for a long time. They know how that works, but, and I get the feeling sometimes that they feel that nonfinancial data is from a totally different planet. It's not - it's coming from the same planet. It needs the same checks and balances. It can go through the same type of SAP or whatever type of system that a company is using. And it really improves the quality if it's coming through the same flow. So we've had this traditional sustainability reporting and disclosure workstream in our company and we have a separate finance workstream. And then once we do our reporting or we do these benchmarks or raters, then they come together at the final end. They need to come together before, they need to come together at the point of decision making so relevant financial and non-financial data needs to meet before boards take decisions. And this is, I mean, this is where management accountants can place such an impactful role by taking that responsibility. Not because regulations are forcing us, but because they're experts in data, and, and we are not, we are experts on sustainability. We have an idea on how to save the planet, right, but we don't have an idea on how to measure carbon in all loans or in all assets of the books. And right now that is actually what we are doing. We're coming up with carbon accounting for the financial sector and it's coming and it's working reasonably well. But whenever I talk to a management accountant, he's gonna pinpoint exactly where it's failing and that is in the data gathering, and that's why need them, and we need to work together on this.
And I would add to that the accounting departments, for sure, and the risk departments. They also manage an incredible - I mean, obviously I'm in an insurance company, so - but they manage an incredible wealth of data also, and our geniuses at it. So if we can present our information and the demands that we're getting in an analytical database presentation, that at some point to Tjeerd's point will like match up with theirs. That would be the ideal that it now it's the same sustainability ESG data is in the risk systems and the accounting systems.
I'm going to add to that. We hear so much about the movement toward getting assurance on ESG reported information, but in order to move to a model that allows for assurance, we need better internal controls, better governance and oversight systems. Before we think about audit in a robust way that we know in financial reporting. So I'm going to ask my final question. And a lot of what we've been talking about is going to sound very expensive, very costly for small to medium size businesses. And in fact, as we observe the regulatory movements, so much of it is focused on public companies, public company disclosure that follows along securities, disclosure, regulations. That seems to be the parallel and where we're headed in the near future, but such a large swath of our economy is non public. And so my question to both of you is how do we make sustainable business information and management relevant and actionable by small and medium size companies that are not public? Is the driver going to come, for example, from supply chain, selling to large companies that are public, or might it come through capital raising, I'd like to hear your view on making it relevant for small and medium size companies.
No, I'm very happy to start here because for me, the-- and I don't want to underestimate this or to make this, to make light of it, because I do understand that there can be a cost involved. It is time consuming. I mean, and it is continuing all the time. So it requires some sort of continuous attention, right? So I don't want to downplay that in any way, but when does it become fun? When does it become helpful? When does it become useful? And that is, if it is providing decision useful information, that is what you're looking for. So if you're approaching this and sometimes we do as a bank, right, from a regulatory perspective, you just need to deliver, you need to comply, which is, well, it's fun for some people, but not for most. If you're approaching this from decision usefulness from actually improving your business, improving your value creation, improving your, the way that you steer your company, no matter what size it is, then it's gonna really, improve your decision making. It's gonna improve the awareness of where you are heading with your company? And that can be said for a very small company and for a very large company as well in similar ways, but that's why one framework doesn't work for all these companies. You'll need to think about it. What is the information that I need? And it can be helpful in numerous ways. It can be easier for you to attract financing. It can be cheaper for you to attract financing. It can lower your risk base. It can improve, customer satisfaction. It can improve pre engagement. It can improve the planet as a whole, if you're into that thing, but ultimately, it improves your decision, making it improves your dashboarding. That is what you want to steer your company on? And you're never just steering on financials. Nobody, I've not met a single board member that says, I just need an Excel sheet with return on equity and, and core equity tier one. And that's how I steer the entire bank. They always need more information. And then the challenge becomes which of the non-financials are actually valuable for me to measure progress and to steer this company, that's the search.
And from a very practical perspective, I think for a small business or private business, pick one framework or one survey instrument and say, because it's, it hits on the most material issues for your business. And then run that down for two years and see, you know, who did we have to talk to? What kind of data did we have to get that we didn't have before? And then what did it organically encourage us to set as targets? And then that's what we prove to our company is of value. We are setting targets, we're setting a strategy and these questions and this instrument, or this framework have given us the guardrails. And we believe in it because it's been road tested out in the real world by a, you know, a thousand plus, you know, issuing companies. And let's go down this road. We have faith that this instrument or this framework is valuable. So let's do it for two years and don't get scared by Dawn talking about 1200 or 1500 questions like that. Doesn't have to be your world. You know, we're a Fortune, you know, under 200. So we have a lot of eyes on us, but if you're a small business or private choose one and go for it.
I'm just going to add to that. Our view, that what it's really about is value creation, value preservation with a bit more of a long term perspective than we see in traditional financial accounting and reporting. And that so many of the factors that lead to value creation, preservation performance are not necessarily captured. Things like employee engagement. We're watching a competition for talent and we know that the younger generations look to purpose, not just profits. They look for both, and we don't capture that information in our mainstream finance and accounting world, but we know it creates value. Customers that will go the extra mile because they love our business, that's very real to small businesses and how they survive the pandemic. Customers love them and stayed with them. Suppliers stayed with them. We're hearing all sorts of supply chain issues. Well, if you have a good relationship with your suppliers, that relationship doesn't necessarily captured in mainstream traditional accounting, but we know it's creating value. It does translate to cash flows over the long term. It does lower cost of capital management oversight, reduction of risk. And this is why we think that a sustainable business is good business. So thank you both.
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