2025 ESG Health Check: What CFOs Need to Know

ESG reporting has dominated the headlines and kept many CFOs on their toes over the last several years. With the SEC’s long-awaited ESG disclosure guidance finally debuting in March of 2024, only to be marred in legal challenges before the SEC ultimately paused its defense of the rules in February, U.S. CFOs continue to find themselves in the unenviable position of trying to navigate pressure from stakeholders on hitting sustainability goals – and adhering to the guidelines that exist in the foreign jurisdictions they operate in – without clear US specific guidance.

Compounding this is a 2025 landscape which is going to see more organizations required to report sustainability information, even if those requirements are not mandated by US regulations. For example,  in 2025, multinational companies will be busy contending with phase 2 of CSRD  as well as any new ambitious legislation from countries like the UK – which recently announced it aimed to cut emissions by 81 percent by 2035. US CFOs are once again finding themselves having to navigate multiple stakeholder demands for ESG information, including around climate risks.

This is not easy. However, with a methodical and strategic approach it is possible for CFOs to make sure that their existing processes are capable of finding a way to meet these demands, while remaining nimble and responsive to the more amorphous demands that they face in the US.

Here are a few key items that CFOs need to answer as they health check their ESG oversight capabilities and seek to make sure that their organizations can meet these challenges in 2025 and for years to come.

Organization Awareness and Governance

Whether it is digital transformation or ESG initiatives, one of the largest barriers organizations face when it comes to their initiatives is whether they have executive buy-in and the proper governance structures in place. Simply put, if businesses do not ensure that all key major stakeholders are aligned on goals and outcomes, and that they are being executed and overseen in an accountable way, there is very little chance that they will be able to effectively meet their ESG expectations and goals.

Doing so is of course easier said than done – especially in relation to initiatives involving ESG which require collaboration between numerous organizational branches and moving parts. However, as the year begins CFOs need to take a step back and make sure that they have clearly stated their existing ESG goals and priorities and wrap in any feedback. This includes making sure that CFOs have a clear understanding of the material needs of each relevant stakeholder, and if not, working with these stakeholders to close gaps and establish the correct controls.

Enterprise Risk Management

Enterprise risk management requires businesses to have a finger on the pulse of a myriad of operational, strategic and reputational risks. For many businesses, ESG sits across all of these areas which is why making sure that their visibility into enterprise-wide risk is as clear as possible. CFOs need to engage in a cross-functional and multi-layered review of their risk landscapes that considers both financial and non-financial variables – ranging from identifying internal and third-party risks to rectifying materiality concerns and beyond. For example, these risk assessments should take into consideration emerging environmental risks related to climate and nature.

Understanding Your Compliance Road Map

By the middle of 2024, 75 countries and territories had either mandatory or voluntary ESG-related standards on the books; creating a web of compliance burdens that would make even the most experienced professionals shudder. And because of how quickly moving the ESG landscape is, and how vast the compliance landscape is, CFOs and their broader organizations need to constantly engage in a process of reevaluating their compliance needs. Do we have a grasp on our current and future sustainability reporting and assurance requirements? What consolidated or local/statutory requirements exist? What evolving mandated requirements do we need to meet from regulators, investors and customers such as CSRD in 2025 or California’s pending climate regulations in 2026? These are just a few of the questions that CFOs and their teams need to ask themselves as they plan for the year ahead – and throughout the course of next year.

Bespoke ESG Reporting Workflows

Proper ESG reporting workflows require that businesses develop a sustainability reporting program to meet the demands of their stakeholders and allows them to achieve internal control over sustainability reporting (ICSR). No two organizations are exactly the same, so these reporting workflows need to be bespoke to each organization and both allow for organizations to make sense of the confluence of inputs that are being captured across stakeholders and enable continual evolution as expectations change overtime. Because of how sprawling ESG is, to truly gain control over sustainability reporting information, organizations need to develop a standalone reporting processes and frameworks. From identifying material issues to data capture and final reporting outputs, building a formal ESG-specific reporting program will help CFOs get a better grasp of what challenges and opportunities exist and how to best meet them within their organizations. Finally, to button up the reporting process, as stakeholders look to gain more trust and demand third-party assurance, businesses need to make sure that they have this information compiled in a way that meets any external assurance requirements.

Looking forward

Even though regulations may shift and evolve, with the amount of attention ESG continues to receive from internal and external stakeholders ESG is not going anywhere anytime soon. And by keeping these few key aspects in mind, CFOs will not only be able to help mitigate existing oversight headaches but set their organizations up for future ESG success for years to come.

Originally published by CPA Practice Advisor.