Businesses are increasingly reporting on environmental, social and governance (ESG) issues, but the topic isn’t a top priority among CFOs, according to PricewaterhouseCoopers’ latest CFO Pulse survey installment.
182 CFOs surveyed in early March said their departments’ top priorities are establishing the finance function as a strategic business partner (47%), increasing automation (41%) and managing costs (39%). Enhancing ESG reporting was ranked seventh, behind investing in compliance functions and improving risk management.
In the past year, investors have pressured companies for more detailed reporting on sustainability and diversity, largely in response to a boom in demands for climate change and activism and ESG-specific investment funds.
“The finance function is partnering with the rest of the business [on ESG] and getting beyond the finance reports,” Wes Bricker, vice chair and assurance leader at PwC, said in a webcast, according to Accounting Today. “[ESG] was not a priority a few years ago; we're seeing a bigger trend of CFOs reaching deeper into the company, partnering with their business leaders and understanding data, oftentimes non-financial, that's relevant to [advancing] the business.”
Only 21% of the surveyed CFOs prioritize enhancing ESG reporting and disclosures in 2021; failing to prioritize it could mean falling behind on the expectations around disclosures that are building.
Sixty-eight percent of CFOs are focused on metrics, material issues and frameworks. “CFOs see it as part of their mandate to understand how to measure relevant non-financial information,” Bricker said. “That's the foundation for reporting up to the audit committee, board, risk [and] compensation committees.”
Bricker, a former chief accountant at the Securities and Exchange Commission, said the SEC is giving more attention to ESG reporting and disclosures under Allison Herren Lee, the regulator's acting chair.
“Acting Chair Lee has prioritized climate change,” Bricker said, according to Accounting Today. “[Former SEC chair] Jay Clayton focused on human capital, which is the S in ESG. and [former SEC chair] Mary Jo White focused on governance, such as cybersecurity and breaches and how that information needed to come up through companies to the board to be properly overseen and resolved.”
Over time, he said, the SEC has prioritized different elements of ESG. “I think it’s important to see climate change in the context of a broader effort by the commission on reinforcing high-quality disclosure, which is the bedrock of our capital markets,” he added.
The ESG requirements are moving finance chiefs towards action. Sixty-two percent of CFOs predict their company will increase diversity and inclusion training, and 51% anticipate an increase in D&I reporting to internal stakeholders.
Overall, CFOs expressed a renewed sense of optimism towards economic recovery in 2021. More than 80% are optimistic towards their company’s recovery, as compared with the broader C-suite’s positive outlook of 76%.
CFOs also maintain a hugely positive revenue outlook; 87% expect growth in the next 12 months, up from 25% in the September Pulse survey. Just 1 in 25 CFOs anticipate a decline in company revenue; over half expected a drop in September.
“Fueled by the focus on moving from vaccines to vaccinations at scale, the encouraging economic data that we have, gains in our labor market and continuing expansion in manufacturing, I feel really good about how CFOs see the U.S. economic recovery,” Bricker said.