< Intro >

– Welcome to another exciting
episode of Count Me In.

Today we have a special guest
with us, Janis Parthun.

VP, Advisory and Project Services, at RGP.

She is an expert in the field of
Environmental, Social,

Governance or ESG,
as many of us know it.

Janis brings a wealth of knowledge
providing a fresh perspective

on the complexities and significance of ESG.

She will walk us through
the intricacies of ESG,

discuss its growing prominence,

and share valuable insights
on its implementation.

So if you're looking to understand ESG better,

and how we can add value
to your business model,

this is one episode you won't want to miss.

Let's dive right in.

< Music >

– Janis, we're really excited to have you

on the Count Me In podcast.

As we go into today, we're
going to be talking about ESG

or Environmental, Social, and Governance,

and we hear a lot about that.

IMA talks a lot about that.

We've been publishing articles.

There's a lot of things
happening in the industry.

But maybe we can start off
just at a higher level

and talk about what does it mean,

what does it represent, in an organization?

– Yes, Adam, happy to do that.

The term ESG or Environmental,
Social, and Governance

can really differ just depending
on who you speak to.

But I'd like to establish some
initial background here.

Where environmental focuses

on the company's impact on the environment.

On the risks, and opportunities

associated with the impact of
climate change on the company,

its business, and its industry.

Social may focus on the company's
relationship with people and society,

or whether the company's
investing in its community.

And governance focuses on issues

such as how the company is run,

and possibly connect to executive compensation.

So ESG has been an important element

to organizations approach to create
value, as part of the business model,

and just to the greater society impact.

But what does this entail?
Is what I often hear.

And to elaborate a little bit more,

a company's overarching ESG program

will likely have top priorities
determined around ESG matters.

With goals, which includes metrics

and possibly targets for future
outlook set and established

To reach the goals and the targets,

the company may have
various initiatives and action,

in order to support their goals.

For example, a company may
have climate change

as one of its ESG priorities
or material topics,

and a goal to reduce emissions
with the target of 40% by 2040.

The organization, then, may
have an initiative or a project

to convert all transportation fleets

to electric vehicles, as a strategy
to reduce the emissions.

But when we're discussing ESG,

at the overarching program
or program level,

this is applicable across multiple
material topics or priority topics.

Now, the topic of ESG is not new,
and there are significant funds

and investments around this.

Currently, over 96% of the
S&P 500 already, voluntarily,

publish sustainability reports
in some form or fashion.

But an increasing interest
from parties to invest,

and companies wanting to
communicate or report on ESG.

Regulatory and standard-setting bodies

are also paying attention to how companies

are reporting on ESG matters.

– Definitely, and you see a lot

of the bigger organizations implementing it.

But smaller organizations may
not quite be ready or there, yet.

And if you are one of those organizations

that are saying, "You know what,
I want to jump into this, get into this."

What are some steps that a
typical company might undergo

to establish an ESG-type program?

Is there a specific, strategic, approach

that you need to take when
you're implementing that?

– Yes, that's a great point, Adam,

and there is a recommended
strategic approach to this.

So the other aspect to think about
is the ESG strategic roadmap

or steps that companies, typically, may
undergo to establish an ESG program.

First, is really having to determine materiality.

This is driven by stakeholder and market input,

industry profile, business strategy,

and suggested standards and frameworks.

And, then, setting goals and targets
and execute on the reporting.

So establishing process and oversight

to have that accountability, and report

or update related to performance metrics.

And, then, establishing quality control.

Establish process and governance

to ensure the quality control of the
data that's collected or reported,

and of course, reevaluate in that cycle.

But, more often than not, companies

are encountering challenges, during
the midpoint stages of executing

on the ESG program strategy.

And this includes adhering to regulations,

standards and frameworks, and just
trying to stay current and up to date.

There are several in the horizon,
and it's a lot going on

for companies to navigate through.

Program management and governance,

having organizational governance
over the ESG program,

and monitoring and tracking
against existing goals, appropriately,

and evaluating progress.

For example, do you have a
governance process around adding

or revising priorities or metrics?

And monitoring the actions
or involved in ESG committee

that helps govern the goals
set and tracked.

And data quality management;
is the information reliable?

For example, is the information
collected comprehensive

to the metrics being tracked?

Such as inclusive the
various regions and markets.

Is that information reliable?

Such as is it trackable
or include supporting details.

And with each of these challenges,

it's important to pull the right
resources in to help and address.

– Before we get too much into the details

of program management and those challenges.

You've mentioned a few times,
about different regulating bodies

have been watching in certain areas.

There are regulations and new
standards coming up,

and that can be challenging
for anybody and everybody.

A lot of people are overworked.

People are getting stressed out,

and the idea of having
more regulations to follow

can be very stress-inducing.

But, maybe, you can talk
a little bit more about

how it's affecting companies
and what people can expect?

– Yes, I can, definitely, elaborate
that a little bit more, Adam,

and dive a little bit deeper.

From a regulatory driver perspective,

and you're so right on this.

And there's such an increasing scrutiny

just on how companies are presenting

the ESG-related information.

As well as the push to reduce

the climate impact to the environment.

That multiple regulatory authorities
are pushing their agendas,

and that's what's creating
all this pressure, too.

For U.S. public companies the
pressure is coming from the SEC.

With the biggest proposal

on climate-related disclosures
announced last year.

To disclose governance,
strategy, risk management,

and targets on the climate impact

and, specifically, greenhouse gas emissions.

And there are multiple elements

within the proposal that's creating
concerns for many public companies.

Especially around disclosing climate-related

financial impact and Scope 3 Emissions.

I think by the time this recording is released,

the SEC will likely announce an update

and issue, possibly, a reduced-scope
version of the original proposal.

It is a lot to ask for companies
to disclose on those areas.

And this is just one specific proposal,

and there are several other
SEC proposals anticipated

to finalize in the horizon,
this year, as well.

Beyond the climate-related disclosures.

And in the EU, the pressure is
coming from the EU Commission.

The Commission recently
adopted a new rule, late last year,

The Corporate Sustainability
Reporting Directive or CSRD.

For companies to publish detailed
information on sustainability matters.

To increase the company's accountability,

and to prevent divergent
sustainability standards.

This is a pretty big ask since
there are 12 standards drafted

with 10 specific ESG topics.

Spanning from climate, to
workforce, to business conduct.

And this may also impact a U.S. company

if the company has subsidiaries
in the EU market.

And there are also country jurisdictional

specific requirements to consider.

That I won't mention here because
there's just a lot to capture.

But beyond reporting,
the EU is also proposing

another new rule to streamline information

about companies' environmental performance of products,

and to reduce misleading claims.

So just to add one more thing to this,

related to all this, is that
companies are also, increasingly,

being asked to communicate
and report information

that's understandable, across a
broad base of the investor community.

So more so around voluntary standards.

And this is happening through
recognized standards

and frameworks for comparability,

and there are a number of them as well.

So the top two standards

that are frequently referred
to is SASB and GRI.

But there are also others,
each with a specific mission.

And, again, this is just a lot for companies

to get a handle of and stay on top of.

And I just wanted to, at least,
share a little bit of the landscape

of the different type of requirements

or voluntary type of disclosures.

And, then, interesting enough,

just to highlight or illustrate a little bit.

So, for example, we at RGP
had helped one of our clients

on a related issue last year.

The Task Force for Climate-related
Financial Disclosures or TCFD,

issued new recommendations
in October 2021.

And the client needed to understand

the degree of the changes.

As well as consider how this
impacts the clients reporting

to another global environmental
disclosure system, the CDP

in connection to the TCFD changes.

So that's just one example.

But the reporting information

can also be interconnected
across the requirements.

– That's really interesting,

and as you're going into this process,

either get some help or make sure

you're staying on top of that,
or find an organization

that can help you stay on
top of those standards,

and help understand it better.

Because depending on
where your organization is,

will be what standards you
have to follow, obviously.

So we've talked about the standards

and the different regulations,

and you've gotten a very good
overview of that, for the audience.

But you mentioned aspects

of program management and governance

outside of their keeping up with
the standards and regulations.

You have to actually manage the program.

Maybe you can talk about
what you've seen

where companies are on track,
where they're not on track,

and maybe give some best practices.

– Yes, happy to do so, Adam,
it's a great point to bring up.

So I've seen companies where
they're really leading the pack,

and companies where they're falling short

on their ESG commitments
to their stakeholders.

Now, in terms of companies

where they're really on track
and where they're not.

Industries that are ahead
of the curve in ESG reporting

are in consumer products and real
estate, and for good reasons.

So for consumer products,
recent studies show that

consumers are shifting their
spending towards products

with ESG-related claims, and
products making ESG-related claims

have averaged higher cumulative
growth, over a five-year period.

This is a major reason that
consumer product companies

are pushing to be ahead of
the curve in ESG initiatives,

and to report on ESG commitments.

Chipotle is one setting
a good example, recently.

The company announced that
its 2023 ESG goals will be linked

to executive incentive compensation.

Impacting its 2023 annual
incentive bonus by 15%.

So making that commitment
to set the goals

and hold its people accountable,

to achieve the goals, is a great example.

For real estate, considering there's
a significant emission generation

from the real estate value chain,

ESG is now a top-risk priority
for the industry.

And CBRE is one setting a good example.

When the company entered into a new

five-year revolving credit
agreement, last year,

to increase it's revolving credit facility.

It linked the agreement with achieving

certain sustainability goals.

Such as to provide procurement
spending with sustainable suppliers

to converting vehicle fleet
to electric vehicles.

But there are instances where
the companies are using ESG

to promote and market
products misleadingly.

And this is a lesson learned
for one retail company last year.

On what might happen when your organization lacks the program

governance and the structure
to manage the ESG initiatives,

and the integrity of the data reported.

In this instance, the apparel
company was investigated

by regulators for misleading
sustainability-related products,

and had to remove the labels
from their products and websites.

I mean, the company really
broke the brand promise

of offering sustainable apparel.

It's clear that there's consumer demand

for more eco-friendly products.

But, again, this is where the
regulators are stepping in.

And the European Commission
had, recently, highlighted that

over 50% examined environmental claims,

in the EU study conducted,

were found to be vague,
misleading, or unfounded.

And because of this, the
Commission had since proposed

a rule that I just had mentioned
earlier to address.

And companies that are lagging
behind in ESG reporting

are more likely in IT or healthcare industry.

With less direct customer
or consumer pressures,

or just have other pressures
to take priority,

such as COVID-19 in the past few years.

And companies may also have
other external pressures,

such as having to obtain capital, for example,

from the mergers and acquisition perspective.

A number of studies indicate
that senior management suggest

they're willing to pay premiums

to purchase companies
with positive ESG records.

ESG is also influencing
capital raising process.

For example, this year, credit
ratings agency, Fitch Ratings,

announced plans to use its
climate vulnerability scores

to enhance the process
to consider credit-relevant,

climate-related risks or
its corporate credit ratings

for non-financial attributes.

So with the increasing
demands by stakeholders,

companies may wonder how
they can establish or elevate

to a solid ESG program and governance.

To start, it's about understanding

your priorities, based on your
industry profile and business model.

Because once the priorities are established,

organizations can drill down further.

Understand what specific metrics,

goals, and targets are relevant,

and integrate these activities
to the business strategy.

With all this having a structured,
more formal ESG program,

with governance structure,

can help set clear strategic goals and expectations.

That are recognizable by a broader audience,

and hold management and internal
stakeholders more accountable.

Whether public or private organization;

just having structure can really help

better communicate ESG efforts and progress

to the community, to creditors,
or investors that large

– Janis, as you're given that answer

one thing that really stuck
out to me is data quality.

And as we, in the accounting world,

know how important your data is,

and having numbers in the right place,

and reporting accurate numbers.

And I know that there are concerns

around the quality of data in
ESG information that is reported.

And you made some examples of people

not giving that accurate thing

and, especially, on how
they're marketing things.

What can companies do to
address these types of issues?

– Yes, that's a great point
to have a discussion.

Yes, data quality is a significant
concern for companies.

And the concerns used to be
more around the data collection

and the availability of the information.

But now companies are getting more comfort

around what information is available

just through understanding and research.

And it's been shifting more
focus on the data quality,

or the completeness and the accuracy

of the data collected,
calculated, and reported out.

And there's been an increasing focus

on the data quality with a number
of our clients in preparation,

more so for future assurance.

And this is an increasing trend

that's also being observed
at the board level.

According to a recent survey,
conducted with corporate directors.

Over 50% of public company director respondents

indicated that the higher quality of ESG information

is being presented to the board.

But, then, with a lower percentage

and less progress for private companies.

To address the concerns or focus area

companies are seeing how
they can prove the quality,

through building internal
control structure to ESG data.

And interesting, and timely enough,

the IMA, also, recently, issued a publication,

Achieving Effective Internal Control
over Sustainability Reporting.

That directly speaks to having effective control

and oversight to that ESG information.

To have that high-quality and fit
for purpose for decision-making.

This publication is really resourceful,

it's providing an overarching,
regulatory landscape

and incorporating the COSO
Internal Control Framework.

As, also, at RGP, we've also
built a consultation approach

on this for our clients,

incorporating the COSO
Internal Controls Framework.

So that we can be able
to help guide the clients

to be able to add control structure,

and improve the reliance
of ESG-related information.

Now, another strategy is around automation

for the data collection and reporting systems.

And while I don't, necessarily, think

there's one true solution leader, yet.

But there are definitely tools,

currently, out there in the market,

to help address either at the
initial collection process.

To the generation of the report or disclosures,

and there are, definitely, a few
that are more prominent.

But I do think that the
platforms are maturing.

They'll likely be a leader on this
as the platforms mature.

But it's also important to
consider what systems

you can leverage within your organization.

You'll want to think about what system

or a combination of systems,
can also be able to help you

pace all the way through.

– Definitely, and depending what systems,

as you can tell, as we talk about ESG,

it applies across multiple
functions within an organization.

But who are we, in IMA podcast,

to not talk about the finance
and controllership

function within an organization?

What role does the finance team provide

in the ESG reporting ecosystem?

– Well, Adam, within the finance organization.

Historically, controllership functions
are familiar with implementing

new reporting requirements.

Working across multiple stakeholders

and, at the same time, bringing that structure

and that rigor to the process outcome.

And this can be, similarly, said
about the FP&A's function, as well,

or the reporting and analysis role.

Leveraging the same expertise

to apply to ESG reporting.

I really see the future role of accounting

and finance professionals, to be
ranging from the orchestrator

to the gatekeeper of the ESG programs.

Depending on the industry and the
business model of the organization.

If the company is more
focused on addressing risk,

finance may likely play a more
significant role, as an orchestrator.

Versus if the focus is on supply chain;

operations or sustainability office

more likely would be the orchestrator.

While finance is the gatekeeper
for the reported information.

But regardless of which spectrum

of the role the finance organization fulfills.

One, definitive, role is to be the partner,

working collaboratively
alongside other functions.

I have seen similar experience
and value translate

from financial reporting to ESG reporting.

Besides staying on top of regulatory updates,

finance and accounting professionals

can also provide process
and governance structure

to sustainability reporting.

This includes developing standard
processes for data collection.

With associated reviewers and workflows,

with sign off functions to building

similar support structure
such as a SharePoint site.

For a one centralized
communication of requirements,

such as with dates, processes,
sources, and training.

The same attributes apply
to operational reporting.

As organizations are setting
goals and targets to monitor

and work across multiple stakeholders.

Finance professionals can also bring

that structure and the rigor
to process outcome.

The shift towards the future
role and change

can really be accomplished,

through guidance development and education.

Companies in more mature
stages of reporting,

are developing guidance
and, typically, expected

from the finance organizations
to enhance policies and procedures.

That add to the structure and the rigor.

But there are still many organizations

not at that mature stage,

and this is where education
and training is key.

To educate the finance
and accounting professionals,

to be the partners to the
ESG reporting ecosystem.

The other aspects to consider

is to educate the process or data owners.

Who may not have been
previously involved

from regulatory reporting
or audit perspective.

To be able to strive for and
achieve for that level of detail

and the quality of information expected.

And as finance and internal
control functions

are, increasingly, getting involved.

We at RGP are also developing
the project methodology

and an ESG training program.

To educate our consulting
team on ESG reporting,

and this is really to upskill our talent base,

and to be able to anticipate our client need,

and to be better prepared.

– That's awesome, and it sounds
like you're doing great work,

and those are some great insights.

And we've covered a lot during this podcast.

And, maybe, to finalize things,
maybe you can give

a summary of some final thoughts

that you want our listeners
to remember, as they walk away.

– Yes, happy to, and a key point
I want to emphasize is that,

now, there are many more
external pressures and expectations

to consider when companies
are issuing sustainability reports.

And it's important to bring
in the right people,

to either implement and manage
or to improve the ESG program.

And this includes bringing in finance

and accounting professionals.

Who can be a valuable partner,

working, collaboratively,
alongside other functions.

I am, personally, passionate
about this topic.

But more, importantly, how much value

our finance and accounting profession

can bring to a company's
sustainability program.

We should advocate more for this role,

and just provide the guidance

associated to support the profession.

And that's really my last
point, I want to emphasize.

So thank you, Adam, for
having me on this podcast.

And I'm very excited about
the future developments

to come related to sustainability reporting.

– Yes, thank you so much,
Janis, for coming on.

I really appreciate you sharing
your insight with the audience.

< Outro >

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