This forthcoming guidance, as well as heightened expectations from investors and consumers, has put pressure on accounting and finance departments to quickly create a system that will allow their organizations to meet new guidelines and properly monitor environmental impact.

Failing to prioritize these efforts can negatively impact a businesses’ bottom line in several ways, including:

1. The Risk: Brand Reputation

A global survey from non-profit OCEG found that 78% of executives believe that ESG has an impact on a brand’s reputation, and nearly half agree that a negative consumer perception can have an impact on revenue. Companies must show consumers that they are making meaningful progress toward implementing environmental standards and pursuing goals that align with their values. Brands that fail to do so could face backlash from consumers – even those considered loyal – or be found guilty of greenwashing, defined by Merriam-Webster as “the act or practice of making a product, policy, activity, etc. appear to be more environmentally friendly or less environmentally damaging than it really is.”

To successfully reduce their negative impact on the environment, companies must first understand their existing carbon footprint. Carbon accounting and sustainability management solutions that help businesses track important factors like gas emissions, energy consumption, water usage and waste management are integral to monitoring overall environmental impact. Having access to this information will strengthen the accuracy and completeness of an organization’s reporting efforts, and also, empower them to make informed decisions to make meaningful progress against their sustainability goals.

2. The Risk: Failing to Meet Investor Expectations

Widespread ESG adoption isn’t exclusive to corporations. ESG assessments are now a common requirement from investors and capital partners. BlackRock, State Street and other institutional investors are considering ESG metrics and ESG-related risks as part of the standard financial analysis in vetting prospective investments.

Finance and accounting professionals have a burden to produce accurate reports and data to illustrate ESG tracking and risk evaluations. Those that cannot meet this bar will interfere with potential opportunities and partnerships, or, worse yet, suffer devalued stock or a maligned reputation.

3. The Risk: Operational Efficiency

Many companies have willingly adopted their own methods of ESG reporting, but the ISSB recently unveiled global reporting standards for climate-related disclosures and the SEC is expected to follow suit later this year.

Exacerbated by new lease accounting standards, finance professionals now have substantial regulatory obligations to maintain. Financial teams must routinely track and manage lease records, and properly record and report this data to sustain compliance. It’s no easy task. Even the most experienced professionals struggle, especially as regulations intensify and change. At any time, a company can fall out of compliance, and The Public Company Accounting Oversight Board is watching for this. The organization recently voted to strengthen its standard to require auditors to be more proactive in identifying non-compliance.

Regulatory compliance is a significant undertaking, and without the proper procedures and tools in place, finance and accounting professionals can fall short, making critical errors that can trigger the problems outlined above. Achieving a successful ESG reporting framework often boils down to a well-defined system of controls and procedures.

Organizations that diligently track and manage their records establish a foundation of trust and reliability in their financial reporting. By maintaining comprehensive and up-to-date data, they can greatly reduce the risk of errors, discrepancies and incomplete information, ultimately safeguarding the integrity of their financial statements. Furthermore, having a centralized system for record management empowers businesses to identify and implement changes or adjustments needed to maintain compliance with the latest regulatory requirements.

When properly managed and prioritized, financial, operational and legal data has the potential to contribute significant strategic value to a business that extends far beyond meeting compliance requirements – but that can’t be accomplished without a strong lease controls framework in place. 

=====

Joe Fitzgerald is Senior Vice President of Market Strategy at Visual Lease, the #1 lease optimization solution provider, empowering organizations to leverage their lease portfolio for strategic financial and operational outcomes. He has over 20 years of experience in accounting and consulting with enterprise clients to help them navigate the challenges related to the operations, technology, and data management necessary to comply with the latest lease accounting standards. In his current role as Senior Vice President of Market Strategy at Visual Lease, Fitzgerald is responsible for informing product innovation, deepening strategic partnerships, supporting customers and providing GTM thought leadership.