Unifying ESG and Financial Reporting Unifying ESG and Financial Reporting

Unifying ESG & Financial Reporting

Introduction

For some time now, an undercurrent has swirled around environmental, social, and governance (ESG) performance. The sustainability movement really gained momentum after the 1987 United Nations ‘Our Common Future’ report, better known as the ‘Brundtland Report’. Many organisations have reaped the benefits of voluntarily disclosing details about sustainable operations. However, significant change is on the horizon, and investors, employees, and the public are taking increasingly more interest in the data points being published, fuelling a ‘New Imperative’ for chief financial officers (CFOs).

Why Align ESG with Financial Reporting?

ESG Reporting Today

Regulatory Intervention

Key Considerations

Plenty of standalone ESG/sustainability reporting tools are available in the market. However, organisations must align ESG/sustainability reporting with a monthly financial close, consolidation, and reporting process in a platform with the following capabilities:

Unified: ·The platform should be one system and workflow for the users to leverage in data collection. For corporate teams, all financial and ESG data should then be available in a single platform for reporting and analysis.

CASE STUdy

With the rapid move of ESG and sustainability reporting from a voluntary to a mandatory process, CFOs and finance teams need to get engaged to ensure the accuracy and integrity of ESG and sustainability reporting to a variety of stakeholders. Aligning ESG reporting with the financial reporting process and system can yield several benefits to organisations.

Business Value

As ESG reporting transitions from voluntary to mandatory, the same level of governance, control, accuracy, and auditability needed for financial reporting will be required with ESG. CFOs and finance teams already fully understand how to drive control and accuracy in financial reporting. Accordingly, finance teams are best suited to oversee the collection, consolidation, and reporting of ESG and data alongside financial results. The mandatory ESG reporting requirements on the horizon mean that meeting organisational sustainability objectives will require a management process. Enter the corporate performance management (CPM) process that finance teams already employ to help meet financial objectives. Through this process, finance engages in goal setting, planning, monitoring and reporting, and analysing results to track progress and adjust as needed to stay on track. As emphasised in the recent ‘Measuring Sustainability. Creating Value’ Accenture survey report on ESG reporting, ‘Meeting demands for sustainability data will be integral to company performance. Making a CFO responsible for sustainability is essential for ensuring a company meets its ESG goals. Companies are much more likely to extensively embed ESG in core management processes when the CFO has accountability for ESG metrics’.

Introduction

Challenges

Why OneStream for Account Reconciliations

OneStream Aligns Account Reconciliations with Financial Reporting

KEY BENEFITS

Customer Success

About OneStream Software

Business Value

Case study

Key Considerations

Current Challenges

ESG Reporting Today

Why Align ESG with Financial Reporting?

Introduction

Current Challenges

People

Figure 2: Gartner — Why Investors Consider ESG

Why Do Investors Consider ESG in Their Investments?

Reduce Investment Risk

Input Costs

Supply Chain Reliability

Competitive Positioning

Innovation Strategy

Business Ethics

Consumer Preferences

Corporate Reputation

Fragmented Tools

As with any new data collection or management process, spreadsheets and email are often the initial tools of choice due to wide accessibility, easy usability, and low cost. However, if control and accuracy are required, this approach to ESG reporting quickly suffers from the same shortcomings as when the tools are used for financial reporting — they don’t deliver. A growing number of purpose-built ESG/sustainability reporting tools are available in the market that can replace spreadsheets. Yet despite providing value to the process, these tools create a data collection, consolidation, and reporting process that’s separate from the financial reporting process. The CPM solutions of the past tended to add capabilities in the form of modules, often with their own login, interface, and datastore. These modules required data to be moved between them (see Figure 3). If ESG metrics need to be reported alongside financial metrics, wouldn’t it be better for the data to be collected in the same system and processed in the same way as financial data?

Figure 3: Fragmented CPM Systems — Technical Debt

The answer is yes, which is exactly why increasingly more organisations are looking to extend the financial close, consolidation, and reporting capabilities in existing CPM platforms to handle ESG reporting. This approach is a viable way to align ESG reporting with financial consolidation and reporting — provided the application has the required features to support the efficient collection, consolidation, and reporting of ESG metrics.

These Financial Close, Consolidation, Reporting & Analytics features should include the following:

Collection of financial and non-financial data from a variety of internal and external systems Support for forms-based data entry of ESG metrics Providing and maintaining up-to-date emission factors for complex emission and Unit of Measure conversion calculations for ESG metrics Providing and maintaining multiple ESG reporting frameworks and metrics across industries Consolidation of ESG metrics and textual commentary across multiple hierarchies Extensive data validations, controls, and audit trails Ability to capture ESG targets and goals for comparison against actual results Production of a variety of output types, including standard reports, interactive dashboards and Excel®-based analysis of ESG metrics

Multiple Reporting Standards

Many competing standards exist for ESG/sustainability reporting, including the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Carbon Disclosure Project (CDP), and many other standards. However, movement toward a global standard emerged from the recent COP26 conference in 2021 and COP27 in 2022. And today the main regulatory bodies actively work towards commonality across the standards (interoperability). When the European Union (EU) announced its 750b EUR Green Deal in 2021, it came with a number of reporting requirements for larger companies. The EU taxonomy was introduced to ensure that funding went to so-called green assets instead of old (grey) technology. To measure progress towards the EUs ESG targets, The EFRAG (European Financial Reporting Advisory Group) was tasked by the EU Commission to implement the Corporate Sustainability Reporting Directive (CSRD) and the underlying European Sustainability Reporting Standards (ESRS).

Bringing Different Perspectives Together: Shaping the ISSB & IFRS Sustainability Disclosure Standards

World Economic Forum

WEF: a core set of common metrics and disclosures on non-financial factors

Task Force on Climate-related Financial Disclosures

The Financial Stability Board’s TCFD contributes a framework to help public companies and other organizations disclose climate-related risks & opportunities.

Value Reporting Foundation

Formed by the merger of the SASB and

Sustainability Accounting Standards Board

Integrated Reporting Framework

SASB contributes a complete set of globally applicable industry standards.

aim is to improve the quality of information available to providers of financial capital to enable a more efficient and productive allocation of capital.

Climate Disclosure Standards Board

CDSB contributes climate change related information of value to investors in mainstream financial reports.

IFRS FOUNDATION

International Sustainability Standards Board (ISSB)

Figure 5: Converging ESG Reporting Standards

Inconsistent DATA

Metric & Framework Workbench

Units of Measure & Conversion Calculations

Commentary & Qualitative Metrics

ESG Linked to Financial Planning

Reporting & Analysis

Integration connectors

LEVERAGING EXISTING PLATFORM CAPABILITIES

DATA COLLECTION • WORKFLOW • FINANCIAL INTELLIGENCE • CERTIFICATION EXTENSIBLE DIMENSIONALITY • CALCULATIONS

Figure 6: ESG Solution Components

Built-In Data Quality

At its core, a fully integrated CPM software platform with built-in financial data quality (see Figure 7) is critical to organisations being able to drive effective transformation across finance and lines of business. A key requirement is providing 100% visibility from reports to data sources — meaning all financial and operational data must be clearly visible and easily accessible. Why is this visibility so important? Organisations ultimately collect data from multiple underlying systems and then complete multiple calculations and consolidation steps. Within that context, full transparency provides users and auditors with the connections between the source data and the final reported data, including for all transformations, adjustments, and eliminations.

Figure 7: Built-In Data Quality Is Essential

The solution should also include guided workflows to protect business users from complexity by guiding them uniquely through all data management, verification, analysis, certification and locking processes. Are these workflows critical? Absolutely! The major challenge with ESG reporting is simply the number ofdata sources to collect from and the sheer volume of requests within an organization for this kind of data. Using disparate systems, that collection can take many hours or days. But having a unified system with the capability to guide users easily through thetasks will save both time and money. Yet most important is the system’s ability to validate and transform data to ensure complete and accurate ESG information. When so many different source systems and multiple spreadsheets are involved, the system must be able to fill in missing data fields, align analysis and ensure commonality in data before the information appears on reports. For example, if a typo occurs during manual data entry, the system should flag any value that seems out of place given the parameters of the company. Poor ESG metrics can make it difficult to attract valuable investment as liabilities are considered too high. Today, one major concern for organizations is attracting talent — which can also be affected by ESG metrics because people are becoming more selective about who they work for and with. ESG reporting now, perhaps more than ever, significantly impacts the profitability and bottom line of an organization. And as the global standards converge into a clearer position, organizations must bring ESG reporting together in a unified way.

Robust Reporting

Finally, the capability to create, view, and analyse in a variety of different reports and views is critically important. The capability to drill between reports and dashboards also means users can quickly and easily get the answers they need at any time. Having a broad range of reporting and analytics capabilities helps reduce reliance on spreadsheets and fragmented reporting tools to increase the speed, scope, and accuracy of reporting across the organisation. Accordingly, processes across the Office of the CFO must be unified and provide the organisation with self-service, easy-to-use reporting solutions for a variety of stakeholder groups. Regarding reporting and analytics, organisations must consider a strategic framework to not only automate and streamline ESG and financial reporting but also address the requirements of strategic partners in other areas of the organisation. A robust and streamlined reporting process can make a significant difference to the experiences of the users within an organisation.

Here are 5 of those benefits:

Eliminate duplicate data collection, consolidation and reporting processes: If the same process and system are used to collect ESG and finance data, then the data is collected once from each business unit and should be immediately available across the processes. Effectively, the overarching process could be one trial balance load with financial and ESG/operational data combined, which could drastically reduce the number of integrations and interfaces required.

Improve the accuracy and integrity of ESG and sustainability reporting: An effective data collection with strict audit controls alongside a standard, defined, and repeatable reporting process delivers maximum confidence and reliability. Effective data quality also enables an organisation to shorten the overall processes and budgeting cycles to get critical information to end users and stakeholders faster and more easily.

Align ESG and sustainability metrics with financial results: ESG data is collected using the same processes and technology used to collect the financial reporting data. This alignment delivers confidence in the end results because the same rigor, auditability, and traceability achieved with financial reporting data are applied to the ESG data. In addition, users can easily drill down to detail as and when requested, giving them and any stakeholders a trustworthy view of the supporting data.

Establish high-quality governance and control over ESG and sustainability metrics: If much of the ESG reporting process is currently done manually and using spreadsheets, then putting the process into a system will make a huge difference. Data can be collected with validations on load, a defined process with task lists and automation brings structure, and calculations should be fully traceable. Users can also easily analyse and explain the outputs using reports and analytics to ensure complete visibility and give confidence when filing with regulatory bodies.

Compare actual ESG and sustainability metrics with goals and targets: A unified platform approach which combines planning with the actual financial close and consolidation process eliminates risky integrations, validations, and reconciliations between multiple products, applications, and modules. As a result, ESG metrics can easily be planned and forecasted forward based on the actual figures, and comparative evaluations are available at any time.

ESG reporting is likely to be one of the most significant changes to corporate reporting for a generation. The research suggests that organisations taking higher levels of action on ESG can indeed perform better — according to Accenture, 2.6x higher on total shareholder return. An increasing number of organisations are recognising the benefits and are expressing their intentions with updated visions or missions around ESG. A compelling argument now exists to put down the foundational layer for alignment within organisations. While there are numerous challenges ahead for organisations of all sizes, one of the most important decisions to make will be implementing the right technology solution. The right solution can effectively align all aspects of reporting and elevate the organisations towards its goals. This new imperative is driving CFOs to take immediate interest and action. Finance teams have the skills and understanding to effectively unify ESG and financial reporting that are already employed to help meet financial objectives. Many of the ESG reporting solutions in the market are focused on only a specific aspect of ESG, such as environmental, health, and safety (EH&S) compliance. That means the solutions aren’t suited to the broader requirements of setting ESG goals and targets, tracking progress against targets, and modelling the impact of ESG initiatives on future financial results. With a unified CPM platform such as OneStream aligning ESG and financial reporting, all processes are handled within a single application and instance.

Conclusion

Intelligent Finance.

At OneStream, we call this

Learn More

To learn more, visit our ESG Webpage, download our Solution Brief or check out the Blog Posts in our ESG series. Further, if your organisation is ready to align ESG reporting with financial reporting and get ahead of the upcoming disclosure mandates, request a demo with OneStream today to get started.

CONCLUSION

While organisations are already reporting on ESG and sustainability, the data collection and reporting is often handled by sustainability teams, facilities, or human resources. This arrangement is particularly common with health and safety data. Now, though, finance teams also need to start paying attention. Organisations with negative ESG disclosures may be seen as risky investment propositions. To prevent such perceptions, CFOs and their teams need a robust framework to integrate ESG standards within the company's financial brand. Attracting, retaining, and increasing investments is, after all, a major focus for finance within any organisation. At the end of the day, investors are people and decisions can be taken rapidly if any risk is perceived. One recent ESG survey that Stanford Graduate School of Business researchers conducted with assistance from the MSCI Sustainability Institute offers some insight into the importance of ESG on investment. In the study, nearly half of all respondents said that ESG criteria play a vital role in their investment decision process. Most primarily see ESG as a tool to reduce volatility and risk in their portfolios.

ERP 1

ERP 2

ERP 3

GL Drill Back

Trial Balances

Mapping Rules & Consolidation

Consolidated Rollup

Financial Statements

Reports

Dashboards

Adhoc Analysis

MD & A

Presentations

Pre-Mapping Drill Down

Account Drill Down

Report Drill Down

Connected: The single platform must be able to connect to any number and type of data sources and contain all the elements required for reporting actuals and the forwardplanning of ESG metrics.

Intelligent: The solution should include the ability to define the ESG metrics in scope and to identify the relevant frameworks to which the metrics apply. A significant number of potential units of measure and conversion calculations are required, and these should be easy to configure and re-use across the processes as appropriate.

Flexible: ESG reporting generally encompasses high levels of commentary and qualitative metrics which must be collected within the solution and easily surfaced on reports or available alongside linked data.

Complete: The ability to plan forward on ESG metrics and targets and then view actuals against plans for ESG is another compelling reason a single platform is important. Having all data in one system is key not only for the user experience but also for the timeliness and effectiveness of the overall processes.

Regarding data, the concept of ‘rubbish in, rubbish out’ applies to ESG as much as to any other reporting area. Many of the early ESG regulators have expressed concern that, as the volume of filings increases, a decrease in disclosure quality has occurred. Organisations need a baseline level of standardised data to support relevance, objectivity, and comparability, but they face fragmented data from multiple sources. For example, when measuring greenhouse gas (GHG), organisations must recognise that the emissions from organisational activities come from a variety of sources, which are grouped into ‘scopes’ (see Figure 6). The scopes are detailed below:

The integration of ESG data needs to evolve — and quickly. Why? Well, the number of data sources is recognisably far greater for such reporting than in even the financial reporting process. The difference stems from ESG reporting involving multiple aspects of an organisation, such as reporting on health and safety, labor conditions, fuel usage, property management, waste management, and other aspects. How do organisations collect all this data? Despite technology improvements over the years, most large organisations have a multitude of operational systems from which to extract this data, which makes data collection for ESG quite challenging.

Figure 5: Greenhouse Gas Protocol Scopes

Emissions from everything else (suppliers, distributors, product use, etc.)

Emissions from purchased energy

Emissions from owned or operated assets (e.g., the fumes from an organization’s fleet of vehicles)

Scope 1

Scope 2

Scope 3

Purchased Electricity

Steam

Heating & Cooling for Own Use

Purchase Goods/ Services

Fuel/Energy Related Activities

Capital Goods

Transportation/ Distribution

Waste Generated in Operations

Employee Commuting

Business Travel

Leased Assets

Company Facilities

Company Vehicles

Transportation/ Distribution

Processing of Sold Products

Use of Sold Products

End-of-Life Treatment of Sold Products

Leased Assets

Franchises

Investments

Scope 2

Indirect

Scope 3

Indirect

Scope 3

Indirect

Scope 1

Direct

HFC

PFC

DOWNSTREAM ACTIVITIES

UPSTREAM ACTIVITIES

REPORTING COMPANY

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Struggling to get access to data you can trust.

Constantly managing rework & workarounds.

Grappling with the tyranny of the urgent.

Figure 1: Accenture — ESG Measurement and Management Study 2023

Now more than ever, a visible link exists between how an organisation conducts business and performs. According to Accenture’s Measuring Sustainability and Creating Value report, ‘Between 2013 and 2020, companies with consistently high ESG performance tended to score 2.6x higher on total shareholder return than medium ESG performers’. This finding is corroborated by a Kroll ESG and Global Investor Returns study of over 13,000 organisations between 2013 and 2021 that found organisations with better ESG ratings generally outperformed those with lower ratings. Today, ESG performance has become key, and CFOs must have a defined ESG plan to ensure the timely and accurate collection of data and the ability to measure the business impact of their activities. According to Accenture, a large majority of CFOs (78%) are feeling pressure from at least three different stakeholders to take more action on sustainability issues (See Figure 1). Many respondents say their companies aren’t fully prepared to meet these growing expectations and requirements. Upcoming regulations demand that companies report on risks and opportunities related to climate change and seek external assurance on their disclosures. Yet just 22% of CFOs say they are well prepared to do both.

Roughly $30 trillion is now invested in ‘sustainable’ assets. Amid that relatively recent inflow, stakeholders are increasingly interested in ESG reporting. They’re also interested in increasing demand for more detailed and frequent disclosures from public and private enterprises. As a result, corporate sustainability and climate change efforts are transitioning fast and garnering increased exposure and action in many countries. The EU’s Sustainable Finance Disclosure Regulation (SFDR), the UK’s Sustainability Disclosure Requirements (SDR), and the Australian Securities and Investments Commission (ASIC) are good examples. Also, countries like Japan, Brazil and China have implemented or are implementing mandatory disclosure regulations on Sustainable Performance of companies.

These regulations are helping advance our collective understanding of sustainable investment approaches and providing clarity over how sustainable investments are defined. This inertia is serving as a clear driver for companies to develop robust sustainability and ESG strategies with transparent reporting to stakeholders. As with any new data collection or management process, spreadsheets and email are the initial tools of choice. However, control and accuracy are required for ESG reporting, so organisations will run into the same challenges faced when these tools were used for financial reporting.

Essentially, a good record on ESG is considered less risky, offering a safer place to invest. The view is that there is more security against losing money. Investors consider ESG for several key reasons — which, according to Gartner, can be summarised as relating to financial, competitive, strategic, and perception concerns (see Figure 2).

Regulators/Government

Board Members

Shareholders/Investors

Civil Society

Competitors

Banks/Lenders

Clients/Customers

Insurers

Employees

Pressure to take less action

Pressure to take more action

17%

22%

15%

Regulators/Government

Board Members

Shareholders/Investors

Civil Society

Competitors

Banks/Lenders

Clients/Customers

Insurers

Employees

Pressure to take less action

Pressure to take more action

22%

19%

26%

23%

27%

72%

71%

55%

47%

54%

37%

31%

29%

18%

As of 2028, companies headquartered outside the EU, but with EU-based operations of a certain size, will have to report under the CSRD. One of the critiques on the CSRD was the administrative burden and the compressed timeline for implementation. Early in 2025, the European Commission proposed a number of simplifications to address these concerns (known as the Omnibus proposal). With the Trump administration in the US, the US SEC has put on hold its initial proposed reporting regulations. However, US States like California, New York and Connecticut have implemented own regulatory requirements for Climate disclosure, applying to companies of a certain size that do business in that state. Countries like Brazil, China, Japan, the UK and South Africa have implemented or are in the process of implementing ESG disclosure requirements. Today approximately 50% of Global Domestic Product (GDP) is under some sort of ESG reporting requirement. (See Figure 4) In June 2023 the ISSB (International Sustainability Standards Board – under IFRS). issued its first two IFRS® Sustainability Disclosure Standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. The main driver for the ISSB creation at COP26 (see Figure 5) was the lack of clear standards for current ESG data. Generally, the data provided is hard to audit and does not align with financial statements. These conditions make it extremely hard for investors and other stakeholders to determine the true risk exposure from the data provided.

Figure 4: Expanding ESG Regulation

CSRD

CSDDD

ISSB

OTHER

SEC INCOMING

LAC INCOMING

Poor ESG metrics can make it difficult to attract valuable investment as liabilities are considered too high. Today, one major concern for organisations is attracting talent, which can also be affected by ESG metrics because people are becoming more selective about who they work for and with. It is more important than ever before that organizations do not suffer reputational damage or even expensive legal claims as a result of poor ESG data. ESG reporting now, perhaps more than ever, significantly impacts the profitability and bottom line of an organisation. As the global standards converge into a clearer position, organisations must therefore bring ESG reporting together in a unified way.

Facing increasing pressure to report on sustainability performance, Accell Group embarked on a finance transformation journey to manage the group's environmental, social, and governance data and financial consolidation all in one software platform. Accell Group has been leveraging OneStream for consolidation and lease accounting processes, as well as ESG reporting, since 2022. This transformation reflects not only Accell Group's commitment to sustainability and transparency, but also the group's recognition of the importance of ESG reporting for stakeholders. One of the main benefits of aligning ESG reporting with financial close processes is the ability to unify data from multiple sources into a single platform. This capability makes it easier to track and report on key sustainability metrics (e.g., carbon emissions, energy usage, and employee diversity). By unifying all ESG data, Accell Group can easily compare and analyse performance across different business units and locations.

ESG data was previously collected in Excel® — sometimes by legal entity, sometimes by region — and this collection was done just once a year due to the cumbersome process. It would take a lot of time and a large group of people to complete. Now ESG data is merged with financial data via an ESG dashboard in OneStream.”

“

— Gijs van der Veen

Accell Senior Financial System Specialist

Accell Group designs simple and smart solutions to create a fantastic cycling experience for everyone who uses Accell bikes. A maker of bicycles, bicycle parts, and accessories, Accell is the European market leader in e-bikes and the second largest in bicycle parts and accessories, with numerous leading European bicycle brands under one roof. Well-known bicycle brands in the group's portfolio include Haibike, Winora, Ghost, Batavus, Koga, Lapierre, Raleigh, Sparta, Babboe, and Carqon.

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