Who is responsible for ESG reporting?

Can the company’s accounting department take on new responsibilities, such as calculating the servers’ carbon footprint, or is the way your suppliers operate ethically?

The overwhelming business answer is yes. A survey conducted by our partners at Lucanet shows that in 50% of cases, finance departments are responsible for ESG reporting.

And is this the right approach? What are the risks of assigning such responsibilities to employees from traditionally more conservative departments? And what is the profile of the right “ESG person”? These questions may sound abstract, but their answers already excite over 50,000 companies in Europe, about 500 in Bulgaria).

Sustainability reporting is becoming mandatory for more and more companies

The need to report on ESG regulations is a new topic that is entering companies’ sights and activities.

Companies with experience in business sustainability reporting have a different approach regarding the organization and defining roles in the process. When we talk about the competencies and skills of the employees responsible for this process, they should be the same in all companies, namely:

• Understand ESG reporting standards and the process of defining material topics;
• Be aware of what information they need to gather as a result of the company’s material topics assessment;
• Know the organizational structure of the company to know who to turn to for data;
• To support their colleagues with instructions on the details of the information required, as some of it is presented in quantitative measures, but most of it is qualitative;
• To organise the compilation of the information into a form that meets European standards for sustainability reporting and is audit-ready.

The main tasks of the ESG Reporting Officer in the organisation will be to carry out coordination and communication on these issues, and on the final straight to submit a report for validation.

Read more: What is ESG and how do you comply with sustainability reporting regulations in a timely manner?

Which team is responsible for ESG reporting?

There is no definitive answer because companies take different approaches to selecting an employee to monitor the business’s ESG performance.

Our observations suggest that this is not good practice from the perspective that these departments deal mainly with data in financial terms, whereas under ESG standards there is a heterogeneous type of information that is included in reports.

There are over 1100 ESG indicators, most of which require information of a qualitative/textual nature—sharing policies, measures, and targets to reduce negative impacts, plans, and analysis. They address different aspects of the business—ecology, health and safety, human resource management, development, training, cyber security, ethical behaviour, supplier selection, and many more.

In terms of finance and accounting professionals being able to systematize data and perform reporting, engaging with ESG reports can be seen as a good choice. The question in this case is to what extent they can bear new responsibilities, take on new knowledge, and, last but not least, whether they are motivated.

Read more: The most important ESG metrics for CFOs

Why might finance and accounting departments not be the best choice regarding ESG reporting?

The main disadvantage of this practice is that employees in these units are very busy with ongoing tasks and regularly meeting deadlines for data aggregation.

All of this creates the risk that these employees will be put under a lot of stress due to being assigned additional responsibilities, demotivating them and creating tension throughout the organisation.

Competencies of the internal “ESG person.”

In our observation, for larger companies and those with more companies and production activities at different points, the better practice would be to have a person in charge who is solely dedicated to ESG reporting and ESG activities.

If the company decides to assign these responsibilities to an employee, the employee needs to have the following skills:

• Good organisational and communication skills;
• Flexibility and adaptability to change (the regulatory framework is constantly being upgraded in terms of reporting);
• Good knowledge of the organisation’s processes – be familiar with the business strategy, applicable policies and plans, and have a very good understanding of the organisational structure and responsibilities of individual team members.

In case this employee does not have ESG reporting competencies, it is important that he/she builds more knowledge by familiarizing himself/herself with the CSRD (Corporate Sustainability Reporting Directive), the EU Taxonomy and the ESRS (European Sustainability Reporting Standards).

Without knowledge of the European regulatory framework for ESG reporting and monitoring its development, fulfilling this role would be very challenging.

In addition to creating this function, companies can improve processes by providing the following:

• Clear communication from management to all those affected by the process to understand the need for reporting;
• Training of the functions that manage data sources and processes. It should be clear what type of information needs to be collected, whether systems need to be re-tuned and how to document this process. Technology solutions also need to be used for this purpose in some cases.

Read more: ESG reporting in practice – examples and new aspects

External ESG consultant

If the company decides to bring a new person into the ESG reporting process, they will need to get to know the internal organization, business processes and operations of the enterprise well. In this case, it is beneficial if the employee has experience in reporting on sustainability topics. This will give the new person the opportunity to focus on getting to know the company.

One person or a team?

Companies required to report under the CSRD also have another crucial decision: ‘How many employees will they need to keep ‘up to date’ with European sustainability reporting standards?’

In our experience, in large companies (as defined by the Accounting Act) one employee can handle the commitments around ESG reporting. In large holding companies, however, one person may not be enough.

When we talk about production processes, most companies have employees who deal with environmental issues. These are the specialists who provide data to the ESG coordinator related to the five main environmental topics.

Other examples are the representatives of the Human Resources department and the Health and Safety department. They provide information on the core reporting standard “Own Workforce” on which each company reports.

In turn, companies’ legal departments can provide information relating to data protection and anti-corruption policies.

The procurement department would be best placed to assess its suppliers, provide data on them and also on the policies that are applied when selecting suppliers, for example, are environmental and social selection criteria in place.

Read more: What is ESG software?

In conclusion

We can summarise that there is no universal answer to the question “Who in the company is responsible for ESG reporting?”. It is a multidisciplinary process involving different functions depending on the company’s activities. Each company needs to understand what the process means to them and how it impacts the organisation.

No business nowadays can grow and be competitive without the use of IT systems. Choosing the right software solution and implementing it is a complex, difficult but critically important decision.

At Balkan Services we have expert knowledge of business, technology and legislation, and we speak all three languages. We will listen carefully and advise you on choosing the right business system for your needs.

Balkan Services has been supporting businesses on their digital transformation journey since 2006. We have already helped over 390 companies digitize their businesses by implementing well-established software solutions and managing IT infrastructure.