ESG Reporting: What Finance Teams Must Prepare For

Environmental, social and governance (ESG) reporting has moved from a peripheral concern to a mainstream requirement, and finance teams increasingly find themselves at the centre of it. What began as voluntary disclosure by larger companies has been developing into a more formalised, more demanding and more widely-applicable set of reporting requirements, and the direction of travel is toward ESG reporting becoming a standard part of corporate reporting much as financial reporting is. For finance teams, this means ESG reporting is something to prepare for — to understand what is coming, to assess what will apply to the business, and to build the capability to meet the requirements — rather than something to address only when it becomes mandatory. A finance team that prepares for ESG reporting in good time is positioned to meet the requirements smoothly; one that waits faces a scramble when the requirements arrive.

This guide is written for finance teams and leaders who need to understand and prepare for ESG reporting. It covers why finance is increasingly involved in ESG reporting, the direction of travel in ESG reporting requirements, what finance teams will need to do, the practical challenges of ESG reporting, and how to prepare. It is an orientation to a developing and complex area rather than a detailed technical manual, and because the requirements are evolving rapidly, the relevant standards and regulations, together with specialist guidance, are the essential references for the current and emerging detail. The aim is the understanding a finance team needs to prepare for ESG reporting and to position the business to meet the requirements as they develop.

Why Finance Is Increasingly Involved in ESG Reporting

ESG reporting was historically often handled outside finance — by sustainability teams, by corporate affairs, or as a voluntary communications exercise — but it is increasingly becoming a finance responsibility, for several reasons. As ESG reporting becomes more formalised and more like financial reporting — with standards, requirements, and the expectation of reliable, assured information — it increasingly requires the rigour, the controls, and the reporting discipline that finance brings. ESG information that must be reliable, consistent and assured needs the kind of robust reporting process that finance is built to provide, which draws ESG reporting toward the finance function.

The integration of ESG with financial reporting is also drawing finance in. As ESG reporting develops, it is increasingly connected to financial reporting — reported alongside it, subject to similar rigour, and in some frameworks integrated with it — which makes finance a natural home for it. The data and the systems that ESG reporting requires also overlap with finance’s domain, and the assurance that ESG reporting increasingly attracts parallels the audit of financial information. For these reasons, finance teams are increasingly responsible for, or central to, ESG reporting, and a finance team should expect ESG reporting to become part of its remit rather than something handled entirely elsewhere. Understanding why finance is being drawn into ESG reporting — the formalisation, the need for rigour, the integration with financial reporting, the assurance — helps a finance team anticipate its growing role and prepare for it. This is a developing responsibility that finance teams should expect to take on.

The Direction of Travel

The direction of travel in ESG reporting is toward more formalised, more demanding, and more widely-applicable requirements, and understanding this direction helps a finance team prepare. ESG reporting has been moving from voluntary, varied disclosure toward standardised, mandatory reporting, with the development of reporting standards and regulatory requirements that formalise what must be reported and how. The requirements have been expanding in scope — covering more aspects of ESG, demanding more detailed and more reliable information — and in application, extending to more businesses over time as the requirements develop and thresholds change. The trajectory is toward ESG reporting becoming a standard, formalised part of corporate reporting.

This direction means that ESG reporting is likely to become more demanding and more widely applicable over time, affecting businesses that may not be subject to significant requirements today. A finance team should understand this trajectory, because it affects what the business will need to do and when, and preparing for the direction of travel — rather than only the current requirements — positions the business to meet the requirements as they develop rather than scrambling when they arrive. The specifics of the requirements, the standards, and the application are developing and vary by jurisdiction and business, so a finance team must follow the relevant developments and assess what will apply to the business, working from the current and emerging standards and regulations. Understanding the direction of travel — toward formalised, demanding, widely-applicable ESG reporting — is the basis for preparing, even where the specific requirements for a particular business are still developing. The prudent finance team prepares for where ESG reporting is heading, not just where it is.

What Finance Teams Will Need to Do

As ESG reporting requirements develop and apply, finance teams will need to do several things. They will need to report the required ESG information — gathering, measuring, and disclosing the environmental, social and governance information the requirements demand, to the standard required, much as they report financial information. This is a substantial undertaking, because ESG information often spans data the business has not previously gathered or measured in a reporting-ready way, requiring new data collection, measurement and reporting processes. The finance team will need to build the capability to produce reliable ESG information, which parallels but extends beyond its financial reporting capability.

Finance teams will also need the controls and rigour to make the ESG information reliable, because ESG reporting increasingly demands the reliability and assurance that financial reporting requires — the data must be accurate, the measurement sound, the reporting controlled, and increasingly the information assured. This requires applying to ESG information the kind of controls and discipline that finance applies to financial information, which is part of why finance is drawn into ESG reporting. And finance teams will need to integrate ESG reporting with the business’s wider reporting and to manage it as an ongoing reporting obligation, not a one-off exercise. The finance team that builds these capabilities — gathering and reporting the ESG information, applying the controls and rigour, integrating and managing it as an ongoing obligation — meets the developing ESG requirements; one that does not faces difficulty as the requirements apply. Understanding what finance teams will need to do is the basis for building the capability, and it shows that ESG reporting extends the finance function’s reporting role into a new domain.

The Practical Challenges of ESG Reporting

ESG reporting presents practical challenges that finance teams must navigate, and these are part of what makes preparing for it important. The data is a central challenge — ESG reporting requires data that the business may not currently gather, measure, or hold in a reporting-ready form, spanning environmental data, social data, and governance information that has not traditionally been part of financial reporting. Establishing the data collection and measurement for ESG reporting is a substantial undertaking, often requiring new processes, systems and sources, and it is one of the biggest practical challenges of ESG reporting. The data challenge is frequently underestimated and is a common cause of difficulty.

The evolving and complex nature of the requirements is another challenge — the standards and regulations are developing, vary by jurisdiction, and are genuinely complex, which makes understanding and meeting them demanding and requires keeping current with the developments. The measurement and methodology challenges are significant too, because measuring ESG information — particularly environmental metrics — involves methodologies and judgements that are less established than financial measurement. And the assurance that ESG reporting increasingly attracts raises the standard the information must meet. The finance team that anticipates these challenges — the data, the evolving requirements, the measurement, the assurance — can prepare for them, building the data, the understanding, and the capability over time rather than confronting them all at once when the requirements apply. Anticipating and preparing for the practical challenges is much of what preparing for ESG reporting involves, and the data challenge in particular rewards early attention because establishing the data takes time.

How to Prepare

A finance team preparing for ESG reporting should do so deliberately and in good time, given the developing requirements and the practical challenges. The first step is to understand the direction of travel and assess what will apply to the business — following the developments in ESG reporting requirements, and assessing which requirements the business is or will be subject to, and when — because this defines what the business must prepare for. This assessment, given the complexity and the evolution, may warrant specialist input, but the finance team should understand enough to scope the business’s obligations and their timing.

With the obligations understood, the finance team should build the capability over time — establishing the data collection and measurement, which takes time and rewards an early start; developing the understanding of the requirements and the methodologies; building the reporting processes and controls; and integrating ESG reporting into the business’s reporting framework. Building this capability ahead of the requirements applying, rather than scrambling when they arrive, is the essence of preparing well, and the data in particular should be addressed early because establishing it is time-consuming. The finance team should also stay current with the developing requirements, because they are evolving and the business’s obligations may change. The finance team that prepares this way — understanding the direction and the obligations, building the capability over time, addressing the data early, staying current — positions the business to meet ESG reporting requirements smoothly as they apply; one that waits faces a scramble. Preparing for ESG reporting is a developing but increasingly important part of the finance function’s remit, and the finance professionals who can build this capability are increasingly valued as ESG reporting becomes mainstream. This complements the FC-focused treatment in our guide on ESG and sustainability reporting for financial controllers, with a focus here on what finance teams must prepare for. Given how rapidly this area is developing, the current standards, regulations and specialist guidance should always be the reference.

ESG Reporting and the Finance Function’s Evolving Role

The growing involvement of finance in ESG reporting is part of a broader evolution of the finance function’s role, and understanding this helps a finance team see ESG reporting in context. The finance function has increasingly been taking on responsibilities beyond traditional financial reporting — broader reporting, broader analysis, a broader role in the business — and ESG reporting is part of this expansion. As ESG information becomes subject to the rigour, controls and assurance that finance provides, finance becomes its natural home, extending the function’s reporting role into the ESG domain. A finance team should see ESG reporting not as an alien imposition but as an extension of its reporting role into a new and growing area.

This evolution means that the capabilities finance brings — the reporting discipline, the controls, the data management, the assurance-readiness — become valuable in the ESG domain, and a finance team that applies its existing strengths to ESG reporting is well-placed to take it on. It also means that ESG reporting capability becomes part of what a modern finance function offers, and finance professionals who can build it become more valuable as the requirements grow. The finance team that embraces ESG reporting as part of its evolving role — applying its reporting strengths to the new domain and building the additional capability the domain requires — positions itself well for a future in which ESG reporting is a standard part of the finance function’s remit. Seeing ESG reporting as part of the finance function’s evolving role, rather than a separate burden, is the constructive way to approach it, and it reflects the broader expansion of what finance does that characterises the modern function.