Ever-evolving CFOs now have another thing to manage: climate-risk disclosures
“Since the focus is on the role of the CFO, an increasing emphasis on ESG going forward will be important. At some point, a question is, how does the increasing span of CFO responsibilities get handled by mere mortals?”
That’s a response I received from a recent CFO Daily reader survey. And it certainly came to mind this week. The U.S. Securities and Exchange Commission (SEC) voted on Monday to propose mandatory climate-risk disclosures by public companies. The public has up to 60 days to comment before the SEC can finalize the mandate.
“The proposed rules would require disclosures on Form 10-K about a company’s governance, risk management, and strategy with respect to climate-related risks,” Gary Gensler, chair of the SEC, said in a statement on Monday. So, if a company publicly announces it plans to reduce carbon emissions, targets and commitments as well as a plan of execution would be required.
The rules would also require a company to disclose “certain disaggregated climate-related financial statement metrics that are mainly derived from existing financial statement line items,” according to the statement.
What does this mean for CFOs? For clarification, I had a chat with Jill Klindt, SVP and CFO at Workiva (NYSE: WK), a SaaS company. I first spoke with Klindt last year after the company added an ESG solution on its platform to automate a collection of data. When Workiva was founded in 2008, it began as a SEC reporting company.
“The SEC is asking you to put some numbers behind what you’re doing rather than just making fluffy or vague statements,” Klindt says. That means including the amount of capital expenditure or investment. “What’s the financial impact of what you’re saying you’re going to do?” she says. “I think that they want to make it clear how companies are getting to their goals over time.” For example, the SEC would be able to determine if a company is purchasing carbon offsets and buying its way into compliance, Klindt says.
As part of the SEC’s proposal, “you’re definitely going to need to report your Scope 1 and Scope 2 greenhouse gas emissions,” Klindt says. These are defined as emissions that “result directly or indirectly from facilities owned or activities controlled by a registrant,” Gensler said in his statement.
Meanwhile, some companies may need to include more information about Scope 3 emissions, she says. These are emissions aren’t produced directly from the reporting company but from the activities of its value chain.
Find out what you need to measure
I shared with Klindt the CFO Daily reader’s comment on finance chiefs now having to tackle ESG reporting.
“There’s some companies that are very advanced and are already putting out ESG reports that have some level of assurance behind the data from an external firm,” Klindt explains. “And it sounds like what that person is asking is, where do I start? The first step is really figuring out what you need to measure.”
That begins with measuring the carbon emissions of your business across the value chain and determining your biggest challenges, she says. It depends on the company and industry. But an example is waste and emissions coming from your offices, she says.
Workiva did an assessment and looked at risk factors. The company’s offices, employee commutes, and vendors were “a big piece of what adds into our total carbon picture,” Klindt says. Workiva pinpointed the office it needed to control, determined what it would measure and began taking “baby steps,” she says.
“We’ll get rid of all disposable cups in our Ames location, things as small as that to reduce waste,” Klindt explains. “We started to get a baseline for commute times from our employees and started to figure out how to track travel carbon emissions.” The company also completed an “energy audit for our headquarters,” Klindt says. Workiva manages its own data using the ESG software solution that it offers to clients, she says.
I asked Klindt how her thoughts on CFOs being front and center in ESG reporting. “I do think that it is the next step in the evolving role,” she told me. And it seems CFOs can continue to be human by letting technology assist.
Let me know your thoughts.
See you tomorrow.
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