© BRO Vector/iStock/Getty Images Plus
Environmental, Social, and Governance (ESG) investing is already a top issue for many CFOs and investors. During this year's Corporate Financial Reporting Insights Virtual Conference 2020, attendees will learn how the finance function is responding to investor expectations and what the future holds for sustainability reporting from a panel of experts. FEI Daily spoke with Marc Siegel, Partner, Financial Accounting Advisory Services at EY, about the rise non-financial reporting and what he hopes to learn from his fellow panelists.
FEI Daily: Tell me about the panelists and what they each bring to the discussion.
Marc Siegel: We have multiple perspectives on the panel. Our moderator John DeRose leads EY’s non-financial reporting practice, and helps our clients with all their sustainability reporting, including providing assurance services so we’ll have that perspective. Merilee Buckley is the Chief Accounting Officer at Etsy and is very much involved with their sustainability reporting. Etsy is one of the few companies to include a significant amount of this information in the 10-K, so her insights as to how that has gone will be good for this audience. Keith Bell, Senior Vice President at Travelers in their finance group also is involved with sustainability reporting. Travelers provides the vast majority of their ESG information on the website and in separate reports outside of the regulatory filings. I’m talking to clients all the time about their financial and non-financial reporting and trying to help them make their communications most effective while still complying with all the rules. I also sit as a board member at the Sustainability Accounting Standards Board (SASB), which publishes recommended ESG disclosures on a sector by sector basis.
FEI Daily: Why is ESG important to you?
Siegel: Of the many lessons learned in 2020, it’s become even more clear that the financial figures just don’t always tell the whole story. On average, more than 50% of market capitalization comes from assets that aren’t recognized on the balance sheet and valuations are very much driven by a nebulous “multiple” to a company’s earnings. ESG can help frame the conversation about what is driving the difference between book and market value and what is behind the multiple. Investors are incorporating ESG into their fundamental investing process in ever-increasing ways. Our recent global investor survey indicated that 98% of investors use non-financial information. If accounting change was the disrupter of the last decade, it seems very likely to me that non-financial reporting and the role of the finance function is going to be the driver of the 2020s.
FEI Daily: Why should it be important to CFRI attendees?
Siegel: As ESG information is being requested and used more and more by analysts, the C-Suite and boards have become increasingly interested in it as well. As such, finance will certainly be looked upon to help ensure that the non-financial data is collected, controlled, and reported with similar rigor to financial information, whether it is mandated or not. We’ve already seen more companies brining the ESG information closer and closer to their annual reports and 10-K’s and the SEC recently mandated human capital disclosures to be included in regulatory filings. While finance people need not be subject matter experts in ESG, it seems to me that the skill sets that reside in finance are very complementary to those in the sustainability function. Audit committees and others will be looking at finance leaders to help ensure that this ESG information that is being used by the markets is of high quality, and importantly, isn’t inconsistent with the other information which is communicated to investors in the 10-K already.
FEI Daily: Has the COVID pandemic and the responses to it slowed the momentum around non-financial reporting?
Siegel: Actually, we are seeing quite the opposite. So far this year alone there have been over 400 companies which have published SASB information in some way shape or form. The last few months have seen on average two new companies a day. Investors have been asking more for ESG information as the financial numbers became a bit less relevant earlier this year. The World Economic Forum had a subcommittee of over 120 CEO’s publish a white paper suggesting that every company voluntarily disclose 21 core ESG metrics so they can be compared across sector and geography. The SEC’s recently mandated human capital disclosures are really the first requirement to put ESG into the 10-K. And the IFRS Foundation issued an Invitation to Comment on their proposal to set up a standards board sitting alongside the IASB, which would be specifically charged with creating sustainability standards. If anything, the momentum around non-financial reporting has accelerated.
FEI Daily: What are you most looking forward to discussing with the panelists? What do you hope to learn?
Siegel: I’m really looking forward to hearing how the panelists think that the finance function can help their respective organizations by getting involved in ESG. I’m also curious to hear how at Travelers and Etsy they have overcome the obstacles to become more involved and become leaders in non-financial reporting. What lessons have they learned?
Join Marc at the Corporate Financial Reporting Insights Virtual Conference 2020 November 2-18, where he will be moderating the “The Role of Finance in ESG and Non-Financial Reporting ” panel.