Four moves Australian CFOs can make to get the most of sustainability reporting
The movement towards widespread climate reporting laws remains a global long-term trend. Given Australia is out in front, our focus is on supporting business to get to compliance and drive future strategic advantage through these no-regret moves.
In the space of just a few short years corporate sustainability has shifted from being a peripheral concern to a central pillar of strategy. It has become just as important to a business’s reputation and profitability as it is to reducing environmental and social harm.
At the core of any good corporate sustainability strategy is robust climate reporting. This has resulted in climate risks and opportunities becoming an increasing focus of CFOs. And now, the recent activation of Australian mandatory climate-related financial disclosure laws means climate reporting is a topic CFOs can’t ignore.
Most CFOs know this, but the data suggests they are still wrapping their heads around how to deliver on this new obligation in a pragmatic way that leverages existing infrastructure and processes.
For example, while more than 60 per cent of respondents to Deloitte’s most recent CFO Survey indicated that they are now primarily responsible for climate reporting, only 15 per cent said they were using it to differentiate themselves from competitors along environmental, social, and governance lines. Many more highlighted they felt ill equipped to deliver the “nuts and bolts” of climate reporting at pace.
To us, it’s no surprise that some CFOs are yet to fully realise the strategic and operational opportunities presented by getting climate reporting right. Geopolitical shifts, and delays or uncertainty around reporting timelines in the region, have encouraged many CFOs to take a ‘wait and see approach’.
Proposed regulatory changes to the CSRD (the EU’s equivalent reporting framework) known as the ‘omnibus’ package highlights the need to be alive to the changing landscape. This is a significant task for Australian companies that operate internationally.
Despite current uncertainty, we believe the movement towards widespread climate reporting laws remains a global long-term trend. Given Australia is out in front, with the first group of companies looking to disclose as early as this year, our focus is on supporting business to get to compliance and drive future strategic advantage through these no-regret moves.
Use what you got – especially when it comes to controls and risk management
Building a new reporting framework is daunting enough, let alone fine-tuning it for strategic advantage. That’s why one good first step is to leverage existing capabilities within the organisation wherever possible. Many companies already have strong finance, risk, and strategy functions that can be applied to the context of climate risk.
For instance, organisations can weave climate considerations into routine controls and governance reviews, ensuring sustainability is integrated into broader business processes. The best place to start is considering how the current enterprise risk management framework and associated risk registers and processes can be uplifted to meet these new requirements.
Embedding climate data requirements into pre-existing digital transformation initiatives can also help businesses position themselves for long-term success.
Take a modular approach to reform – and bring the team with you
When confronted with challenges, we’ve seen the most success where CFOs take a targeted approach to reform. By focusing on one area, like improving supply chain transparency with a pilot supplier category or specific supplier, companies can quickly learn, get people on board, and set a foundation for future success. This way, businesses can stay flexible and adapt to changes, instead of committing to big, long-term projects that could take years to show results.
Taking a modular approach supports CFOs to align stakeholders - both internal and external – who may be new to the domain or anxious about the incorporation of climate content and responsibilities in their existing role. Embedding sustainability KPIs across departments such as procurement, sales, and operations is essential for streamlining reporting efforts, but demonstrating these KPIs are achievable through pilots and tests goes a long way to supporting execution.
Consider where technology point solutions can be deployed
Outside of data, technology plays an important role in streamlining reporting readiness efforts. For example, automating greenhouse gas calculation with an external tool can allow finance teams to focus on higher-value activities (like addressing data gaps or highlighting opportunities for mitigation and cost saving), rather than manual tasks.
Exploring how AI can be leveraged to support real-time extraction of insights is valuable even at an early stage. With minimal training, AI products can process large data sets (a key pain point for organisations managing new physical risk data sets or many physical assets), enabling teams to utilise data more effectively and begin to integrate new risk information into their decision-making.
This capability not only focuses attention on extracting insights quickly, but also makes it easier to incorporate new data sources, such as geospatial data and digital twins, into daily operations, giving teams greater access to information in real time.
Invest in getting the data right
It’s impossible to gain strategic insights from a climate reporting framework if it is not being fed the right data. The AASB S2 climate reporting requirements often mean that accurate data from various business units needs to be aggregated, cleansed, and analysed for the first time.
This data needs to be consistent not only across departments but also across regions, as companies often operate in multiple geographies with varying regulatory requirements. The complexity of managing this data can overwhelm organisations lacking the infrastructure or expertise, but investing in getting it right is worth it.
All CFOs know that high-quality data provides enhanced assurance as well as insights into cost reduction, accelerates commercial initiatives, and is crucial to accurately gauging the resilience of operations against changing economic conditions.
Being able to visualise this data and translate it into actionable insights for procurement and operations teams is key – but often a long-term project. This in mind, investing up front in understanding, mapping and setting up a robust process for data consolidation (even if only on spreadsheets initially) will support future optimisation efforts and reduce the burden of preparing disclosures even in year one.
Darren Gerber is Climate & Sustainability Partner at Deloitte Australia.
Andrea Culligan is Partner, Strategy, Innovation & Ventures at Deloitte Australia.
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