Environmental, Social and Governance and the Role of FP&A

“The best way to predict future is to create it” said Peter Drucker a leading 20th century thinker of management.  At this time being on the precipice of vast changes in society, there’s opportunity to create the future and role of the Finance organization, especially that of the Financial Planning and Analysis (FP&A) function to drive the changes which can be added to their existing mandate.

Recently I had the chance to participate in a LinkedIn Live on Environmental, Social and Governance and the Role of FP&A.  My guest and partner in this discussion was none other than Chris Ortega, CEO of Fresh FP&A and a thought leader and leading influencer in the Finance and FP&A space.

Recognizing that the Environmental, Social and Governance topic (ESG) is evolving but top of mind for many in society and especially corporations, I had the chance to break down with Chris and get his insights on how this might impact and should impact the role of FP&A as they move forward and evolve.

Some of the highlights that we discussed included the fact that as FP&A evolves over time to Extended Planning & Analysis (xP&A), the role changes not just from one which integrates and connects plans from across the enterprise led by finance, but also leads to ESG reporting, especially in areas that concern filing to the SEC but also governments that want information on climate change, waste, pollution, and the tactics being taken in this area.  More than this we discussed how there’s a pressing need amongst investors for disclosure and data in this field.  Many Gen Z and Millennial investors are seeking accountability from corporations about their investments and tactics when it comes to social programs, D&I statistics and the environmental footprint.  The disclosure and data from these initiatives aren’t just limited to procedural filings but do have an impact based on potential employees who seek more than just the corporate mission, but also customers who want to spend their dollars with aligned organizations and investors who seek to invest in aligned ESG corporations.  With all this reporting and data available, the FP&A team stands at the forefront ready to take leadership in accounting for how the organization is coordinating its ESG investments but also the outcome.

As Chris mentioned during this discussion a primary reason for FP&A to take a lead in this area is to help attract and retain top finance talent who are conscious about having their values aligned with that of the organization they work with.  Also as mentioned before, a great way to understand your results is also the customer sentiment which more and more can be explained by whether their values align with that of your organization.

So, what can FP&A do to take a leadership role in ESG?  The first step might be to adopt modern technology for Planning, Forecasting and Analysis.  As the latest FP&A Trends 2022 Survey highlighted, 45% of FP&A teams still spend time on low value added activities in spreadsheets.  Modern Finance teams need to move to modern cloud based planning and analytical solutions that allow them to spend more time analyzing data, trends as well have real time reporting.  The real time reporting connected to enterprise-wide applications beyond finance, but connecting operations (including HR) brings all the data needed not just for finance but all relevant reporting including ESG into their hands and view to help explain and analyze data and drive better decisions

What is the most important takeaway that was learned from the discussion Chris, and I had?  For FP&A as Chris mentioned “A B C – Always Be Curious!”  By being curious finance can continuously dig into the details, and looking to break beyond quantitative data points but also qualitative factors that help them understand people (e.g., D&I metrics), understand vendors and customers, understand the environmental impact of action and inaction and ultimately use these data points to report correctly and act in alignment with organizational and societal values.

While there is still a lot to be discovered and learned about bringing ESG and Finance together, there are some great ways to get started.  To learn more about SAP’s Sustainability and ESG reporting solutions click here.  To learn more about SAP solutions for extended planning and analysis please see this link.