The Birth of The ESG Controller: Who Would Make a Good One?

ESG stands for environmental, social and governance, three company efforts that businesses regularly report on. Bloomberg Law this month reported that the SEC is likely to begin actively reviewing the ESG reports from publicly traded companies. Why? Because investors, customers and some employees are making investment, purchase and employment decisions based on these ESG reports, and it is clear not all companies are walking the ESG talk they are giving. Typically, SEC compliance falls under finance, and that compliance is assured by the company’s controllers and internal audit.

Now, while compliance is compliance, financial compliance is vastly different from ESG compliance which is more operational in nature, with a huge HR component and a small financial component. In addition, as with all compliance efforts, the person in charge must take a balanced approach. If they are too rigid, they will cripple the company and eventually find themselves either sidelined or pushed out. If they are too lenient or just work on the optics of an inadequate effort, they will eventually run afoul of the SEC with significant adverse outcomes for both them and their company. This is a job that requires consensus, education, and active advocacy to drive its objectives and that means your typical financial controller would be ill-suited for the task.

Passion for ESG

This is a new job, and that means the advancement opportunities and metrics are not yet set. The first people to do this job will not be compensated or supported because there is not yet a baseline for how to staff and fund an ESG controller position. Initially, companies often underfund and understaff an effort like this until the funding and staffing norms are established.

Someone who is not enthusiastic about ESG is not going to survive this first phase because, to them, it will seem to be a thankless job where you only get attention if something goes wrong. Having a deep passion for the work should mitigate this initial development period. An employee who is enthusiastic about ESG progress is likely to focus excessively on that progress, better assuring a positive outcome for the effort.

Compliance experience

People who have never worked in compliance before often struggle with form over function. It is easy to falsify reports to get rewards, but the risk of getting caught far exceeds the benefits of this approach. New compliance officers often gravitate to creating the appearance of progress because they do not yet understand the risk of being caught. You certainly do not want the brand damage that would result if the public discovered your ESG efforts only existed on paper, and you would want your ESG controller to assure that was not the case.

Competence in the company’s LOB

Much of the work for an ESG Controller will be assuring the company’s operations are in compliance with related regulations and consistent with the firm’s ESG reporting. They will not be able to do that unless they understand intimately the company’s line of business (LOB). This technology knowledge will be instrumental in their ability to recommend ESG improvements, identify when a line manager is faking their ESG efforts, and be able to argue effectively to senior management for a course of action that meets the firm’s ESG needs without adversely impacting revenue or profit. The ESG controller must be able to defend the ESG positions, recommendations, and rulings they are likely to make in the job.

Outgoing, friendly, but not afraid of confrontation

The personality of this individual will be critical to their success. Often their success will depend on compliance and that means they must be good at working with people and overcoming objections without escalating. A controller who tends to escalate will become an annoyance to upper management which will eventually stop responding, effectively killing the effort. They will need to be able to share credit with the line managers who do the work and assure that those managers positively reward the controller’s efforts, or progress will not be made. They will need to have a strong set of interpersonal skills and a thick skin because, early on, they are likely to have to weather a substantial amount of pushback for some of what they’ll need to have done.

Wrapping up: The initial candidate

I do not think the ideal person exists yet because this role is brand new. I would start with a financial controller that is toward the end of their career, has a deep passion for ESG, and would be willing to spend three to five years to both flesh out their position and train their replacement. You would want someone who is already connected in the company, trusted, and knows how to collaborate with the executive team, somebody who is not only willing to take on the new role but wants to make one last change in their career before retiring.

Because they are close to retirement their concern over career advancement will be eliminated, their experience and existing relationships will enable success, and they will be less likely to see potential successors as threats and instead be more willing to both train them and to seek their help in defining the role. Part of that definition will include some extra training but that could be applied to the successor as the job evolves so that the successor’s training and role creation happen together.

With the SEC taking an interest in ESG, it is time to put some rigor behind the effort. That means the primary goal of the job creation effort should be making sure that it is both successful and effective.