ESG Controllers Are Here To Stay: What You Need To Know

While the controller position dates back to the Industrial Revolution, the role became critical in the 20th century as businesses began to grow significantly and accounting standards and regulatory requirements became more prominent.

Following a similar precedent, a position known as the “ESG controller” is taking off – with a responsibility to mature corporate environmental, social and governance (ESG) reporting procedures. As waves of non-financial reporting regulations surge, many companies see value in applying an accounting mindset to data streams that may lack robust oversight and are at risk of regulatory scrutiny.

While hiring ESG controllers remains an early trend, corporate leaders have many questions about this role: How does this differ from a sustainability lead? When is the right time to hire an ESG controller? Is this a long-term need or a short-term solution?

While it may be too early to answer these questions confidently, we can observe that this is a growing trend that companies of any size should prepare for, as with any emerging area of risk.

Why is an ESG controller so critical? 

To date, Fortune 500 companies have been the early adopters in hiring ESG controllers. This makes sense, as the regulatory complexity of these multinational groups necessitates a controller skillset to complement the existing sustainability, legal and accounting functions. However, we also see smaller companies that are beginning to requisition this role. Reporting risks for inaccurate sustainability disclosures exist across markets, and the responsibility to comply with sustainability reporting regulations is a key gap in many organizations – particularly for publicly traded companies.

The ESG controller position sits at the intersection of finance, legal and sustainability – three separate functions that must come together to help a business meet its sustainability regulatory requirements.

Faced with a key position whose role requires a bit of a juggling act, companies need a leader who understands all three functions and can partner efficiently across teams to elevate sustainability reporting within the organization and paves the way for a smooth journey to compliance.

More specifically, an ESG controller is responsible for developing the company’s reporting framework, guiding the flow of the reporting process and ensuring compliance with the same level of rigor that exists in any other reporting function within the company.

Clearly, that is not an easy task when you consider the size and complexity of major companies, the increasing investor demand and the growing regulatory requirements for sustainability in the United States and Europe. Additionally, ESG controllers must consider a staggering number of individual data sources that comprise an organization’s sustainability reporting, all while navigating evolving reporting frameworks and regulations.

In addition to these big-picture considerations, an ESG controller needs to understand a variety of local-level topics within the company, such as:

• What is happening across the ESG landscape and how it affects the company
• What data is being gathered and reported
• Where the data is being sourced
• Who is reviewing the data and reporting
• What gaps or assumptions exist within that data
• How to articulate and educate company leaders on trends and changes, including the board of directors
• How to be adaptable to ongoing structural shifts in sustainability reporting
• How to know when the company is prepared for an audit over its ESG reporting

Collaboration is critical, of course, as the ESG controller needs to be on the same page as the other organizational leaders to ensure a smooth overall process without unnecessary replication of any roles or responsibilities.

By working together, ESG controllers can help increase the accuracy, timeliness and quality of the data that the company uses to improve its operations and, ultimately, its results. Certainly better, more organized data leads to more beneficial metrics and creates a smoother road to financial, reputational and regulatory success.

Climate reporting is one such area where efficiency gains in controllership can yield several positive outcomes. Many companies collect annual greenhouse gas disclosures after year-end close without any ability to review and manage emissions data over time. An ESG controller can support the development of reporting systems to disclose data in a timely and more accurate manner, creating opportunities for sustainability teams to compare performance, analyze trends and manage emissions sources.

The challenges of today and tomorrow 

Many organizations question what the future will bring for sustainability reporting. For an indication of future state, look no further than the evolution of cybersecurity risk disclosure. Years ago, cybersecurity risks were not considered an area of strategic importance for many businesses. Now, cybersecurity is considered a top risk for most companies with strict reporting requirements for risk management and incident reporting. Climate and other sustainability disclosures are following a similar playbook, where companies need to upskill their internal capabilities and develop the right frameworks while regulations are still in flux. In this context, it seems only natural to have an ESG controller, as you would a chief information security officer (CISO) for information security governance.

That said, one of the biggest challenges in hiring an ESG controller is finding someone who satisfies both the accounting background and the sustainability experience. This is particularly difficult because sustainability expertise is still nascent, and the intersection of these skillsets is rare. Given the early days of this role and the lack of available candidates, engaging a CPA firm with sustainability expertise can be an effective way to provide this skillset.

At Baker Tilly, our ESG and sustainability professionals bridge this skillset divide and ensure companies have mature sustainability reporting that aligns with existing compliance procedures. This strategy allows organizations to avoid the time and expense associated with bringing in full-time employees – at least in the short term – while still accomplishing the critical yet complex tasks associated with an ESG controller.

Baker Tilly projects related to ESG controllership span several priority areas, including:

• Reporting readiness for key regulations
• Assurance readiness for key regulations
• Reporting services, including implementation of digital reporting tools
• Review of risk management procedures and incorporation of sustainability-related risks
• Review of internal audit procedures and incorporation of sustainability-related audits
• Application of the Committee of Sponsoring Organizations (COSO) sustainability framework and other controls procedures

To further discuss how Baker Tilly can help your company evaluate its sustainability reporting strategy while navigating an evolving regulatory landscape, contact a specialist today or visit bakertilly.com.