The art of merging ESG reporting and financial reporting… Holistic performance for companies

23 Apr 2023

Faced with the challenges of climate change, the preservation of natural resources and social equity, companies are more than ever encouraged to disclose information on their environmental, social and governance performance. ESG regulation represents a tremendous opportunity to intelligently integrate ESG reporting into traditional financial reporting, which will provide a more comprehensive and relevant view of companies’ performance.

The banking and energy sectors play a crucial role in the global economy and have a significant impact on the environment and society. Banks are at the forefront of supporting the transition to a sustainable and inclusive economy, with both financing sustainable projects and managing the ESG risks associated with their loan portfolios. The energy sector, on the other hand, is at the heart of environmental challenges, including climate change and the management of natural resources.  These 2 sectors should be the first to implement this integrated reporting.

Alignment of financial and ESG indicators

One of the key elements for integrating ESG reporting into traditional reporting is to align business and financial indicators with relevant ESG indicators. Companies need to identify the links between ESG and financial performance, highlighting how ESG factors influence revenues, costs, risks, and long-term value. For example, banks can assess the impact of their green loans on profitability, while energy companies can measure the effect of renewable energy investments on their balance sheets.

Integrated reporting to shape a coherent narrative

Financial department, as steering leader, plays a crucial role in the development of integrated reporting, coordinating the different functions of the company and harmonizing business, financial and ESG data. It will be necessary to be creative and adopt rules that are compatible with the rules of perspective in art, allowing financial and non-financial management information to be structured in a coherent and comparable way, in order to present a realistic and intelligible picture of the overall performance of the company.

Communication of a clear strategy and objectives

To effectively integrate ESG reporting into financial reporting, companies must, beyond the legal aspect (PACTE law in France), communicate a clear strategy and objectives related to sustainability. This involves explaining how ESG issues are integrated into the company’s vision, mission, and strategic objectives, as well as describing quantitative and qualitative targets for each relevant ESG aspect.  For example, an energy company could describe its commitment to achieve carbon neutrality by 2035, outlining the different stages of this transition, gradually unveiling the convergence towards its goal.

Strengthening governance and accountability

Strong governance and clear accountability for ESG issues are key to ensure the successful merger of ESG and financial reporting. Companies should establish mechanisms to oversee and monitor ESG performance, such as board-level sustainability committees and ESG risk management and steering systems. In addition, executive and team compensation should be linked to ESG performance to encourage responsible decision-making.

By relying on powerful and flexible technological tools, as well as the talent of its teams, the finance department is able to manage integrated reporting in an agile and responsive way, adapting to changes in standards, regulations and stakeholder expectations. It contributes to strengthening the credibility and relevance of integrated reporting, offering a complete and transparent view of the company’s performance in the financial, environmental, social and governance areas.


Redouan ZNAGUI

Founder & CEO / Beyond Horizons – New Finance New Vision