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Increase in regulatory reporting across jurisdictions drives demand for ESG controller role

Natalie Runyon  Director / ESG content & Advisory Services / Thomson Reuters Institute

· 5 minute read

Natalie Runyon  Director / ESG content & Advisory Services / Thomson Reuters Institute

· 5 minute read

As the need to formalize ESG initiatives across companies increases, many are turning to a new professional — an ESG controller — to get the job done

Only about 45% of professionals say they are confident in the ability of their organizations’ financial reporting teams to gather and report on environmental, social and governance (ESG) financial metrics to meet proposed and existing regulatory requirements, according to a recent Deloitte poll. This strongly points to a need for a dedicated role to ensure standards for data integrity are met. The creation of a new role — ESG controller — is gaining popularity among companies as they seek to meet these requirements.

An ESG controller is a professional who oversees and manages the integration of ESG issues into an organization’s operations and financial reporting protocols. The role usually sits within the corporate finance function and is responsible for oversight of ESG-related disclosures in an organization’s financial and reporting processes.

ESG controllers play a central role in the integration of ESG issues into enterprise financial planning, risk management, and decision-making processes. While specific responsibilities will vary depending upon the organization’s needs, the top five areas of accountability include:

      • ESG reporting process development and integration — ESG controllers develop ESG reporting policies and procedures and create standardized and controlled processes to ensure timely and accurate reporting of ESG disclosures. They work with controllers in other business lines to integrate existing end-to-end processes involving reporting for financial and non-financial data into the enterprise reporting framework of the organization.
      • ESG reporting and compliance — ESG controllers are responsible for collecting, analyzing, and reporting relevant ESG information in compliance with industry standards, regulations, and reporting frameworks, such as the Global Reporting Initiative, the International Sustainability Standards Board, and the Taskforce for Climate-related Financial Disclosures. The scope of ESG issues that may require reporting include greenhouse gas emissions (GHG), water usage, diversity & inclusion, human rights, corporate governance, and data privacy and protection.
      • Data management and analysis — ESG controllers are responsible for establishing robust data management systems to ensure data accuracy, consistency, and integrity.
      • ESG risk management — ESG controllers are the experts on disclosure requirements for the organization. They are central for staying abreast of disclosure trends in order to proactively ensure that any new ESG disclosure expectations and requirements are met. Finally, they act as a central point of contact to coordinate relevant internal audits or other external reviews as well as work with outside parties that may be conducting assurance.

The ESG controller role is likely to continue to gain traction as the scope of ESG regulations on reporting expands and increases in complexity and across jurisdictions. Indeed, many jurisdictions, governments, and countries have passed or have proposed new ESG regulations recently, including the European Union, Australia, Canada, Chile, Colombia, India, Singapore, the United States, and the United Kingdom.

In addition, the ongoing manual nature of data collection, aggregation, and verification is another driver in the growth of this type of role. Data collection to support ESG efforts remains the biggest challenge, according to more than one-quarter of sustainability professionals in the Deloitte poll.

Further, ESG information collection, analysis, and reporting from suppliers and vendors — referred to as Scope 3 emissions — is one area that involves the most complexity and one in which manual processes is the most common way of fulfilling the requirements. In fact, more than half (54%) of sustainability professionals report that they currently use a manual process, including Excel spreadsheets, for Scope 3 reporting, according to a Reuters Insight survey.

Worse yet, manually gathering information increases the risk of mistakes and reporting inaccurate data upstream. A fully dedicated role — such as an ESG controller with responsibility for verifying data accuracy, consistency, and integrity — decreases the likelihood that reporting errors would occur.

The ESG controller role is likely to continue to gain traction as the scope of ESG regulations on reporting expands and increases in complexity and across jurisdictions.

The scope of regulatory reporting disclosures across ESG issues is expanding, and this is driving the need for enlarging the scope of accountability for ESG reporting into the finance function. Indeed, finance professionals have been measuring financial data for a long time, and it only makes sense that responsibility for the analysis of non-financial data would sit under the chief financial officer role. In fact, more than half of sustainability professionals (53.4%) say their finance functions have some level of influence on organizational ESG matters, according to the Deloitte poll.

In addition, significant involvement of the corporate finance function in the creation of an ESG controller role increases the confidence in data integrity across the organization. According to the same Deloitte poll, professionals with finance partners that influence ESG outcomes report higher confidence in reporting around data integrity than those that indicated that their finance team has no organizational influence.

While this role is emerging, it does not appear organizations across the board are ready to invest in ESG controller roles. Only 16% of professionals in the Deloitte poll reported that their organizations already have a full-time person dedicated to the ESG controller role, and only 7% of professionals indicated that their organizations have plans to hire someone for the role within the next 12 months.

Like most things related to ESG, however, there is a slow drip of change that builds until a tipping point is reached, and then, momentum spurs the acceleration of transformative action. The ESG controller role is likely to follow the same trend because the professionals in this role serve as the driving force behind ESG transparency and accountability. By meticulously collecting and analyzing relevant data, ESG controllers provide accurate and comprehensive information that empowers stakeholders to make better-informed decisions.

As the importance of ESG considerations continues to grow, the role of ESG controllers becomes increasingly vital in driving positive change and shaping a more sustainable future for businesses and society as a whole.

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