As the requirements and restrictions on reporting keep increasing and become more rigid, it is essential for companies to keep up with these trends to ensure that their reports and statements are upto date. While the finance domain is the job of CFOs, the non-financial aspects of the company are also especially important. This is because these non-financial aspects like the environment, the society, and the policies of the company interact on a large scale with the main revenue generating operations. Much of the responsibility for ESG disclosures of a company lie on the shoulders of the CFO. Collecting all the information required from the different departments for the disclosure becomes the responsibility of finance department. Thus CFOs need to take charge of analysing, measuring, and reporting information on these factors as well, making ESG metrics important for CFOs to be familiar with.

Environment, Social, and Governance, all three are equally important. Each has its own way of gauging the performance under that factor, based on various metrics. Since each business or company interacts with each factor differently, it is important for CFOs to identify the metrics depending on its significance to the company. However, we will discuss about the the metrics under each factor (E, S, and G) broadly.

Environment

Every organisation's operations affect the environment in some way or the other, either through its primary activities (for example, mining, infrastructure, etc.) or through their day to day operations (for example, drawing electricity through thermal energy). The environment metrics that companies usually focus on are energy efficiency, water usage, carbon footprint, emission control, etc. How each are measured depends on the robustness of methods used to calculate them. Some examples are,

- GHG emissions: Scope 1, 2 & 3 GHG emissions measured in mtCO2e

- Energy management and intensity: Total energy consumption vs. the % of energy from renewable sources

- Waste management: Total weight of waste and % diverted or re-used

- Water management: Total volume of water and % diverted or re-used

Technology plays an important part in tracking the progress of the company in these metrics. CFOs can use this to their advantage while collecting data for disclosure reports.

Social

The second factor we will look into is Social. Organisations create a community of their stakeholders, who expect to get their expectations from the company met. This mean that customers, employees, shareholders, etc. need to be considered while taking decisions in the company. Employees need to be compensated well, customers must be given the products and services they demand for, shareholders need to believe that their investments in the company are worthwhile. The working environment created in the company is also essential to maintain and better over time because people want to work for companies where the work culture motivates them to be productive. High turnover of employees, fall in the customer base, investors pulling out, etc, are some problems that a CFO has to worry about. Thus the Social factor is very important to measure and improve. Some ways to measure its performance are,

- Diversity: Percentage of gender and ethnic identity representation for management and employees

- Work-related injuries: The total # of work-related injuries per X number of hours worked

- Employee turnover: Percentage rate of employee turnover and voluntary vs. involuntary comparison

- Employee engagement: Percentage of employees who respond to an annual, quarterly, or monthly employee survey

Policy intervention and HR initiative to improve this factor can be taken up. Ensuring that the social factor is taken care of is thus important for a CFO to ensure stability and unity in the company.

Governance

The final factor, Governance, talks about the internal structures of the organisation. Transparency and accountability are some values that are looked for in a company. It is through its structures that brings these to life in the company. Board diversity, executive pays, shareholder rights are measured under this factor. Malpractices by the company need to be curbed to ensure they don't attract any penalties. This factor also includes ensuring that policies, stakeholders considered while forming these policies, and other disclosure requirements are made accurately. Thus CFOs need to keep a watch on the same. Some ways to measure the metrics that come under this factor are,

- Board diversity: Percentage of gender and ethnic identity representation for the company's board of directors

- ESG risk incidents: # of ESG risk incidents by type, the monetary cost or loss of related penalties, and any resolution/mitigation steps

- Executive compensation: Ratio of CEO compensation to median for all employees

- ESG policy development and adherence: The # of ESG policies implemented and the percentage of employees (or partners) trained and following to those policies

Since reporting standards are increasing and regulations are tightening, CFOs need to be at the top of it to ensure that the company is abiding to the same. CFOs play a critical role in ESG reporting and decision-making, and by focusing on environmental, social, and governance metrics, they can drive sustainable success for their company. By tracking these metrics and using them to inform strategic decision-making, CFOs can build a more sustainable and responsible future for their company and the world.