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How EY can help
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Through enhanced corporate reporting, EY can support finance teams to meet demands for high-quality enhanced financial and nonfinancial information.
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To prioritize activities, companies may want to consider performing a risk assessment to identify key ESG reporting processes and metrics that should be subject to a stronger internal control environment based on regulatory reporting requirements and the results of existing materiality assessments.
For each prioritized metric, companies are likely building a process library leveraging ICSR that formally documents the current end-to-end metric reporting process, including identified risks and related controls documented in a risk and controls matrix for each process.
Interdisciplinary skill sets are needed to enhance current state ESG reporting processes and design effective controls. For example, some finance teams are assigning an ESG controller to:
- Understand the regulatory reporting requirements.
- Identify data sources and assess the level of confidence in systems and third-party data.
- Challenge the assumptions used in judgments and estimates.
- Formalize policies, including defining relevant guidelines (e.g., Greenhouse Gas Protocol), establish estimation approaches and drive consistent compliance.
- Design effective controls, determine the extent of procedures performed over data and calculations, and determine required documentation that should be maintained and ultimately monitor the effectiveness of controls once in place.
Conversely, sustainability teams know the subject matter and are best positioned to:
- Define policies, including selecting calculation methodologies and estimation approaches, and determine appropriate sources of information.
- Perform control procedures, including performing calculations and reviewing outputs.
Many functions responsible for ESG data and calculations are not familiar with internal controls and the importance of accurate data. Assigning individuals responsible for the completeness and accuracy of information and providing them with training and guidance regarding control expectations can result in greater success in achieving operating effectiveness.
Companies may identify deficiencies in the design or operating effectiveness of controls as they begin implementing them. Monitoring controls and communicating results to those charged with governance will likely be key to proper oversight and effective change management.