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Enhanced sustainability reporting

Practical implications for finance functions

Alex Hindson, Partner, Risk Consulting and Head of Sustainability
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In the last quarter of 2023, there was a significant increase in discussions with clients and prospects. The financial controller and team took the lead on discussions related to sustainability and climate risk related reporting.

Finance teams are increasingly recognising the implications of recent regulatory developments, such as, the new International Financial Reporting Standards (IFRS) and Corporate Social Responsibility Directive (CSRD) requirements. These are more closely integrated into financial reporting than the previous Taskforce on Climate-related Financial Disclosures (TCFD) disclosure requirements. There is anticipation that these standards will apply more broadly, with the requirements impacting smaller companies than is currently the case, and necessitate higher preparation standards, consistent with financial disclosures.

As we move more into 2024, organisations, subject to these new sustainability disclosure requirements, are starting to see this year as a transitional phase. The finance function is becoming directly involved in the process of ensuring the new sustainability reporting requirements are delivered in line with expectations, particularly where they are subject to significant external scrutiny, including from external audit firms.

The question is, how prepared are finance professionals to take on these new responsibilities and how well do they understand the information their sustainability colleagues are providing them for disclosure purposes?

Implications for finance professionals

We have identified five important implications for finance teams operating in financial services and insurance as they navigate the tasks ahead in 2024:

1 - Finance teams need to understand sustainability reporting requirements
A clear implication of the extensive changes made to non-financial disclosure requirements, aligning them with annual financial reporting cycles, is that finance teams must become more familiar with the subject matter and ensure compliance with overall reporting requirements. Starting by engaging closely with sustainability colleagues is crucial, and there are other avenues for building knowledge, such as obtaining the Sustainability Certificate for finance professionals provided by the ICAEW. The goal is to have sufficient mastery of the subject matter, to oversee the disclosure process and be able to respond, alongside sustainability professionals, to questions arising from the board, audit committee, and/or external auditors
2 - Finance teams need to comprehend the capabilities and limitations of sustainability teams

Particularly when finance is being asked to oversee and steer all disclosures, it becomes essential for the team to assess and understand the capabilities of their sustainability colleagues in producing disclosures consistent with external standards. Sustainability teams are subject matter experts with regard to sustainability and climate change programmes and external reporting specifications, but they may lack the experience required to adequately document reporting processes from source through to final report.

This includes creating a robust audit trail and ensuring information can be challenged and, if necessary, replicated by an external third party. It is equally important to recognise where teams have limitations, and this can inform the separation of duties and assignment of responsibilities. Organisations may also decide that it is time to invest in systems to enable and control the reporting process more effectively.

3 - Understanding sustainability materiality is crucial

While finance professionals may pride themselves on grasping materiality, new regulations like CSRD and associated IFRS standards introduce the concept of double materiality. In this context, materiality considers both the impact of environmental and social factors on the organisation, operationally and financially, as well as the organisation's impact on the broader environment and society. 

This is an important topic to grasp, as materiality assessments in this context can impact on the scope and depth of reporting. 

For example, CSRD is supported by 12 separate standards. Completion of a robust materiality assessment is key to defining the scope of required disclosures. Reporting entities must disclose against each standard which is considered material. It is therefore important that the materiality assessment itself is robust, as it will be subject to significant scrutiny, because of the requirement for independent external limited assurance review of these disclosures. 

In our view, completing the materiality assessment thoroughly and comprehensively is imperative. The process should be well-documented, demonstrating effective internal controls over the analysis. This ensures the maintenance of an adequate audit trail over stakeholder engagement and management judgments.

4 - Establish appropriate policy management framework

We have learned from working with international insurance groups of the importance of having an effective approach to policy management. An organisation needs to adopt a structured approach to managing and reporting on sustainability related policy and procedural documents.

For example, where a European holding company is reporting against CSRD on a consolidated basis and one or more stand-alone entities are also within the scope of the regulations, it would be expected that policies operate consistently across the holding company and all subsidiaries. How these are managed consistently over time and to allow for local regulatory interpretations needs careful thought. Being able to evidence consistent internal controls over these key non-financial controls on an ongoing basis, will increasingly become important to support these disclosure processes.

5 - Invest in sustainability reporting tools
Organisations will need to decide if they can manage sustainability reporting manually, using Microsoft-suite type documents, or whether the time is approaching where they need to invest in more tailored solutions. A wide range of providers are coming to market with solutions tailored to specific reporting frameworks. Many organisations have started to use these for capturing and reporting Greenhouse Gas emission data, particularly where they are geographically diverse in terms of their operating footprint. These types of systems provide integration with other systems and strong audit trails and are starting to expand their scope to wider ESG reporting factors beyond carbon emission data.

To effectively respond to this evolving landscape, insurers are advised to:

We strongly recommend leveraging 2024 as a transitional year to clarify process requirements and strengthen capabilities. Now is the time to take control of the agenda and ensure thorough preparation by:
1 - Think about organisation design

It is worth taking a step back to consider the respective roles within the end-to-end sustainability reporting process. Although all organisations look for collaboration across team boundaries, the reality of boards expecting single point accountabilities alongside tight reporting deadlines, means that those in the frame for the final disclosure outcome will want to have oversight and control of their resources. For some organisations, they will want the finance function to manage and control the ‘last mile’ of all external disclosures, implying the need for sustainability reporting capability joining the financial controlling team. Other organisations will prefer to keep the sustainability capabilities centralised, implying a need to implanting disclosure and reporting disciplines within the wider sustainability team. 

Regardless of the final organisational design, boards and management, tasked with approving the robustness of the final deliverables, will find role clarity, adequate resources, and confidence in overall capability crucial.

2 - Strengthen controls and reporting processes

Finance teams will need to support and coach sustainability teams involved in disclosure processes, to ensure that adequate internal controls and procedures are established and capable of supporting the disclosure of information to a standard consistent with disclosure requirements. This may take some time for organisations to establish and mature. It is a challenge for many firms – there remains a significant gap between financial and non-financial reporting in terms of levels of testing and assurance in place to protect the organisation against the risks of misstatement.

A good place to start is with an evaluation of existing controls, and how they compare to those of more established financial reporting. This should include ‘hard controls’ in relation to the collation and analysis of sustainability-related data, as well as ‘soft controls’ around report structure and presentation, explanation, and transparency in respect of limitations and measurement uncertainty.

The level of challenge involved in bringing non-financial teams up to the required standards, may determine what represents the most effective organisation design in some cases.

3 - Complete a dry run exercise

We strongly recommend that organisations complete a dry run exercise to assess their readiness to report in line with the new requirements impacting them. These new requirements will typically impact larger listed insurers first but are will eventually affect organisations of all sizes and complexity. Although, smaller private insurers have longer to respond, they may have considerably less resources available to them. This will also support you to improve incrementally toward assurance-ready reporting, especially for international groups, that are also responding to the implementation of IFRS or CSRD across multiple territories.

Determining how to best be organised to respond to the increasingly challenging sustainability reporting environment is a growing issue for many organisations. At Crowe, we support our clients’ sustainability journeys by:

  • providing an overview of the existing frameworks and initiatives, as well as the current market and industry insights
  • helping to determine how to embed climate risk and sustainability factors into their existing reporting and disclosure processes
  • reviewing their draft disclosures and providing informal and/or formal feedback.
Please contact Alex Hindson or your usual Crowe contact for more information.


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Alex Hindson
Alex Hindson
Partner, Head of Sustainability