Sophie Bailey - Sustainability Meets Finance - Deloitte

Speaker A: Foreign.

Speaker B: Welcome to the latest episode of the Conscious Finance Podcast. I'm really excited to be joined today by Sophie Bailey, who is the, uh, ESG Advisory Director at Deloitte. Welcome.

Speaker A: Good to be here.

Speaker B: Thanks for coming on.

Speaker A: Yeah.

Speaker B: So we got to know each other many moons ago, didn't we, when, um, you were, uh, I think at kpmg.

Speaker A: Yeah, when I was at KPMG at the time. Yeah. Working in audit.

Speaker B: Working audit. Running all the parties for all the ACAs.

Speaker A: Yeah, running. Running all of the chartered, uh, Accountants Student Society.

Speaker B: That was it.

Speaker A: Bad cast. Bad Cass is called.

Speaker B: And that's the Southwest one.

Speaker A: Yeah, that's the Southwest one. Um, and then there's a kind of. There's an adults one, there's one for qualified. The SCW Wesker stuff. Yeah. But, yeah, I used to run. Used to run that back in the day, which is how we know it.

Speaker B: Yeah, we sponsored many of your drinks evenings and things like that. So, yeah, we go way back, and it's amazing to see your career and how it's, um, progressed since then.

Speaker A: Yeah, um, it's been a wild ride.

Speaker B: Yeah, absolutely. So I think that's something that I'd like to just dig into straight away, really, in terms of your. Your journey, because I think there's a lot of people out there that get into the. The Big Four and wonder, uh, you know, where can I go from here? Um, and a lot of people will make the move into industry, climb up the ranks in industry, or they'll stay in Audit and climb up the ranks through to partner.

Speaker A: Yeah.

Speaker B: Um, but your route is, um, you know, down that sustainability ESG path, which I think more and more people want to get into and have a passion about, especially Gen Z's coming through, you know, more aware of the importance of, uh, change that needs to happen when it comes to how we treat our planet. Um, so I think it would be quite. It's quite an inspiring story for those that maybe don't know how to get there and how you got into it and why you got into it, really.

Speaker A: So, of course, I mean, so I was always fascinated by business at school. I found it very interesting how organizations worked and stuff, and we're gonna go back a little way, so bear with me.

Speaker B: Good.

Speaker A: Let's start from childhood. In my early childhood.

Speaker B: So you were a baby when I was.

Speaker A: No. So. But. But I was really interested in that. And I also really enjoyed geography at school, which obviously has strong links to the sustainability agenda. And I also was quite a ballsy kid, I suppose. So. I emailed the head of corporate legal affairs at Tesco and was like, hey, I'm Sophie Bailey.

Speaker B: No way.

Speaker A: I want to do something related to geography. What did Tesco do? And long story short, I ended up interning at Tesco for three years in their climate change team.

Speaker B: Wow, I didn't even see that.

Speaker A: And I had, I had this amazing, too far ago and I had this amazing conversation with the head of sustainability on like, well, why do you do like Tesco does, used to do a lot of stuff quite quietly and they still, they're still quite quiet about it. And I sort of said, well why, why do you do this? And they basically said to me, look, if we, we're nearly 150 years old as a business, if we want to survive for the next 150 years, we have got to start tackling this. And so that really got me thinking and when I got to the end of my degree I, I was offered a PhD, but I'd also got the chance to go do audit and get the aca. And I knew that finance and understanding how a business works from a financial perspective is really important. So that kind of led me to join kpmg and I did that for three and a half, well, four years really by the time, you know, I got my ACA and then I did a year more. Um, but throughout that time I was seeking out within KPMG who was doing this sustainability stuff. And eventually I got the opportunity to get a secondment into that team that

Speaker B: was just through pure will and determination.

Speaker A: Yeah, determination. So speaking to people, telling people I was interested, obviously working with the partners in my team, saying I'm really interested in doing this and ultimately getting the contacts to be able to have those discussions. And I was introduced to loads of different people around the world because I was tempted to go on second. I didn't do that, but I stayed and moved into sustainability and at uh, you know, and started to really see that link between sustainability and finance because I was moving to the sustainability assurance team as was. Um, so looking at is the data robust? Is it good enough? Can we sign off on this? And that's taking me on this amazing journey where I've got to influence how organizations think about sustainability. So yes, assurance, but also what strategy, what does that look like? And I, I helped um, KPMG to build their kind of overall approach to sustainability from a market facing perspective as well as internal as well as internally. And then about two years ago I was approached by Deloitte and that's where I work now. And, and the move to Deloitte has actually been one that's more around realigning what I do to be more strategic. So I wanted to move away from assurance as much as that still fascinates me. I still do a little bit of it now, but move towards, okay, well how do you build good strategy, good data, good reporting that allows you as an organization to make decisions around sustainability and basically do the right thing?

Speaker B: Mhm.

Speaker A: Um, so, you know, bit of an interesting path, but I think for me the big lesson has been if there's something you really want to do, particularly in a big organization like Big four, but also any of the accounting firms, you know, loads of organizations are starting to do this. You have to start to ask questions, start to get interested, start to think about it and talk to people about what you do, uh, or what you want to do. And that has opened up doors. And so even now if someone approaches me and says, hey, I'd really love to get involved, I'll have a conversation, we'll talk about what they can do. Because you know, this is going to be a massive part of, I think every, every accountant and um, financial person's life now because it's getting integrated into sustainability. Sorry, into financial reporting and.

Speaker B: Yeah, so yes, yeah, I mean that's quite, um, inspiring actually because I think a lot, a lot of people hold themselves back by the fear of no, you know what I mean, it's just like, and what you said there in both instances really from the opportunity with Tesco, sending him an email as a 16 year old or however old you maybe a bit older. But you know, not many, not many people do that at that age. And then look what happened. And then, you know, being in KPMG and then just not keep knocking on the door saying, hey, hey, I want to do this, I'm over here, can I, can I come and join you sort of thing. Um, look what happened. And it's like if, if you were afraid of them saying no, you never would have asked a question.

Speaker A: Yeah. And I think, I think um, you know, no matter where you work, I think that's a really important thing to do. You've got to keep being annoying, but not, but in a really good, you know, wholesome and holistic way because you know, what's the worst that can happen? You might get to go and work for a team or do, you know, you'll say, oh, I'm really interested in sustainability. And your head of finance might go, oh, you know what, we have our uh, climate Reporting we've got to do, and we don't know where to start. Can you take a look at it and run a special project for a few weeks? You know, there's so much to do in the space, and if you're passionate about it and you want it, you know, you can go get it. And I think don't yet, don't be afraid, because could it could lead somewhere interesting? Because I would never have. I don't know, I would. If, if we'd have spoken when we first met, I probably wouldn't have told you that. Oh, 100% this is where I'm going to be. You know, my view was I would, uh, get my ACA and go into industry and never, never look back. Um, and that's not how it's worked out. And, you know, I love, I love working with those different companies.

Speaker B: And. Yeah, you know, what is it, what is it in you, your upbringing, your background, that sort of gives you that confidence to go and seek out opportunities on your terms, I guess.

Speaker A: Yeah, on my house, I think for me, actually, I. So I went to quite a academic school in the end, and interestingly, that meant I learned quite quickly that you can't be good at everything because, my God, we had some people at school who were really good at lots of things. And so you're, you know, you kind of sit in a room with your classmates and you go, you know, actually, I'm. I'm just terrible at Spanish or French or English or maths or whatever that might be, and that that's okay. And so I think learning that you can kind of have a go but fail, that has been really important to me quite early on.

Speaker B: Yeah.

Speaker A: And it's something I really speak to a lot of my teams about and encourage my teams in, because, you know, sometimes you've just got to have a go. You've got to play with the problem. You've got to think about it a bit. And I think, you know, that's really been instilled in me from a young age that, like, it's okay to fail.

Speaker B: It's that fail fast, learn fast.

Speaker A: 100.

Speaker B: Yeah.

Speaker A: And it's. It sounds very gimmicky, but it's so true because actually it now has brought me to a place as well. You know, sustainability is very new still. I know we've talked about it for a long time. It's been around for a long time, but the way that we're doing things now from a business perspective is still very new, particularly the regulation. And you've Kind of got to figure it out as you go along, and it has to be logical and you have to be trying to do the right thing. But a lot of it is, will this work? Is this the right answer? Uh, and actually being able to say to a client, like, I don't actually know, but we can work out with you, you know, that. That's pretty cool. And.

Speaker B: Yeah, really cool. And I think, you know, I think that fear holds a lot of people back. And, um, and I think it's just an obstacle. You have to sort of push yourself out, out of or over even initially, because once you start doing it, it feels really, really uncomfortable. But then when you, when you've done it a few times before, then it just becomes a bit more normal to go and seek out discomfort or things that will help you, help you grow. And I think it's really like if you, if you looked at m. Science. Yeah, right. In terms of one of the, one of the greatest, um, uh, institutions or whatever you want to call it in terms of. In our world and the advancements that science has created, um, if they were afraid of making mistakes, then, you know, where would we be? It's like the whole, the whole idea of it is you test hypotheses, it doesn't work, you go again.

Speaker A: Yeah, yeah.

Speaker B: Um, and, you know, if Thomas Edison hadn't had that mindset, then, uh, he was too afraid of making mistakes and we probably would be dining in the dark.

Speaker A: Yeah. And. And ultimately, you know, science is about the fact that eventually you're going to be proved wrong.

Speaker B: Yeah, absolutely.

Speaker A: And also that's okay.

Speaker B: It's not being afraid of that.

Speaker A: Yeah, yeah, yeah, exactly.

Speaker B: Yeah. I love that. Um, so going back to your, Your, um, path for sustainability, I didn't, I hadn't realized it was so early on in your career, actually, before audit, it was in test.

Speaker A: Yeah, yeah.

Speaker B: And. And you mentioned, you know, it was your passion for geography that might have installed it, but was there a sort of an event in your life or something that really made you think, wow, I need to go down this path?

Speaker A: Yeah, I actually, there really was for me. So as I mentioned, I keep doing that. It's gonna happen a lot. As I mentioned before, I, um, I was offered a Ph.D. and I, I thought quite hard about, you know, what that would lead to. You know, am I going to end up going, uh, into government or civil service or what? You know, what would that look like? Would I be a research scientist, whatever? And I thought a lot about. I'm an overthinker as we know. But no, I thought a lot about it and I realized that you know, government is fantastic and important and a regulatory driver, but it's quite short termist. You know, you've got people in power for five years, maybe 10. But you know there's, we have a lot of churn. And I think I realized that if you want to drive change again, it has to come from businesses. I mentioned these sort of if you want to survive for the next 150 years, that, that, that uh, lady at Tesco said, well it's the same thing. Businesses have a desire to continue and strive and continue to create value. And you know, we can discuss what different types of value that might be, but they want to survive for the next 10, 20, 100 years. And I think that's a very different mindset to government in many ways. And I think as uh, a as for me, business is going to drive the change in sustainability. And yes, we have regulation coming in now, but actually organizations up until now have been doing this because they think it's the right thing to do or they recognize that there is a value creation element to it. Uh, and so that's why I moved in ultimately to finance in the first instance, although it wasn't quite that thought through. But you know, I recognize that businesses wanted to, were a big driver of change and development and that's why.

Speaker B: What's your view on the role of a business, uh, when it comes to driving social environmental change?

Speaker A: They have, we have, there has to be at the heart of it. Right. Um, you know, I think we, we have an expectation that uh, businesses generally are trying to do the right thing and you know, do we, who has that expectation? I don't know. I want to have that expectation.

Speaker B: I think you've heard of capitalism, right?

Speaker A: I have heard of capitalism and I, but I think, I think that you know, there is a recognition that you can't continue to run towards money at the expense of absolutely everything else because it's not you, it's not tenable. And um, businesses, if a business says, you know, think about how massive an organization's supply chain is, right? If, if one big PLC business turns around and goes, you know what, all of our suppliers have to do this, all of their suppliers have to do that. Um, and so you can make a huge amount of difference with policy, with decision making, with considering how you do business and what good looks like. You know, I think, I think also recognizing the place that an organization can have in society is also a big thing. You Know, lots of banks at the moment, you've probably seen on the adverts, but lots of banks and financial institutions at the moment are bringing in, um, bank accounts where people who are, uh, homeless can get a bank account. Because you can't get a job if you don't have a bank account. You can't get a bank account if you have a home. You're not going to have a home unless you get like. It's a very cyclical thing. But if you can create an opportunity for somebody to get a bank account, you know, that's an amazing thing for societal good. But also you have a customer for life.

Speaker B: Uh, yeah.

Speaker A: If you're the one bank that will give that person an opportunity in 20 years time, when, five, 10 years time, whatever, when they've sorted out their lives and things are going really well again, they are only ever going to bank with you, which, you know, capitalist is great, but you've done a good thing. And that's. That actually is really the sweet spot of sustainability. That's the bit that's fascinating and exciting. It's how, how can you continue to create value whilst also doing good? And I think, you know, there are loads of examples of that across the industry and in the uk, but also globally because, you know, how can I put it? I think, yeah, there's loads of examples of that and I think actually that's, that's the big driver. It's that sweet spot of doing right and creating value.

Speaker B: Yeah, I think that's a good one to dig into, actually, because there's a lot of businesses out there, especially in the current economic climate.

Speaker A: Yeah.

Speaker B: Where interest rates are high, uh, import, export costs are huge cost, um, of living, crisis, election, you name it, everything. War in Russia.

Speaker A: Yeah.

Speaker B: Um, Trump around the corner, God forbid. Um, so I think, yeah, there's a lot of trepidation in the market at the moment. Um, um, so. And I spoke to ESG consultant from a, from a small consultancy saying how and in their world they deal with more SME space and I imagine your clients are more blue chips and bigger organizations. They're saying how in the SME world, um, is seen as. Right, that's a cost to some extent. Um, uh, especially the ones that aren't purpose driven. They may, or they may be, they may want to really move down that path, but they don't understand the value creation and what it could do for their business. So be great to learn your perspective on that and if you've got any good success stories of where you've Seen a business really adopt this way of working and what the value was.

Speaker A: Yeah. Um, and it's, I mean it's the million dollar question, right? Because I think it's very, it's still very difficult to show a really concrete connection, like truly concrete connection between having a good sustainability strategy or process and you know, money at the end of the tunnel. Um, we talk a lot about risk and trying to, trying to ensure that you're mitigating risk and so on. And so some of this is you have to do it. There's as regulation coming in, there's regulation that already exists. That means you have to think about for example your climate risk with the uk, uh, climate, financial disclosure, thinking about the uk but also, you know, more broadly. So some of it is regulation. You've got to do it stable stakes, everyone has to do that. So then it becomes, okay, well how can we really embed this into our uh, strategy and what does that look like? And how is it that, uh, excuse me, how is it that we, we start to think about what's really important and ultimately if you are tackling, um, this is long winded but I will get there. Ultimately, if you are tackling those key material sustainability issues, you are going to be driving value for your business. Now when we start to think about how we articulate that business case to someone in finance. Yes, rag, of course, but also, you know, you are going to find a better way of managing risk and importantly opportunity because you're thinking about, well, what are those key material areas? And I don't mean sort of fight our uh, traditional finance materiality, but you know, big important topics where there's a big impact on our organization, but also our organization has a big impact on it. And if you're able to understand those and tackle those, you are going to create more value but also have more longevity in those spaces. So an example that you know, you might have is that I recognize that as, as an organization. Hang on, start again. Sorry. And a good example of that is when you're thinking about like a, a big big four. Right. We love to talk about, oh, you know, we have taken away plastic cups in our offices and we don't print as much and we recycle. No, it's not, I was going to say nobody cares. It's not that nobody cares. Those things are important, but they are not the biggest drivers of a big four's impact. A big four's impact is the work that we do.

Speaker B: Mhm.

Speaker A: How is it that what we do does the right thing? Our people, who we employ. Okay. You know, we talk a lot about diversity and I'm sure, you know, would love to hear your views on this as well. But we, we talk a lot about diversity, diversity of thought, background, etc. Therefore, the people that you employ as a big four firm, who, who is it you have in your team? What's that diversity of thought? How, how does that bring something different to the consultancy equation? What else do they have to bring to the party? How do you get yourself a diverse finance team with people who are interested in sustainability, with people who are interested in things that are not just the bottom line and that's what drives this. And so when you're thinking about creating value, it's a mixture of, you know, doing the right thing, but also thinking about how you can continue to build it going forwards. And I think that's where ESG comes in very nicely because you have to start to consider, well, how can we do this better? Um, or differently?

Speaker B: Definitely. And there's definitely a correlation. I think there's some studies done that certainly show that more purpose driven businesses are more profitable and grow faster. And you know, all the benefits that people have heard around talent attraction is more people want to work for purpose driven businesses these days, especially the next generation coming through, definitely are wide awake to the importance of it. M. Then you've got employee retention. Once they're in, they're fulfilled. Yes. You know, it's more than a job. So you have more engaged people, performance is better, they're happier and happy. People create more opportunities. Um, then you've got the benefit of, you know, the customer itself seeing that, you know, they're dealing with responsible business.

Speaker A: Right. And I think, um, custom, the customer argument, I think is a difficult one. It's quite interesting because every time you start to speak and think about customers, customers tell you, oh, well, I care about this. M. But when it actually comes to, you know, you see on the news, even comes to purchasing decisions, actually there's different things that are considered that are

Speaker B: not just, well, in the cost of living crisis.

Speaker A: Well, particularly. Right. And so, um, you know, I think, I think that argument is harder, but I still think it matters. So it's harder to say it's creating value, but it would reduce value and that comes back to that risk.

Speaker B: Yeah, I think, I think we've, I mean we've experienced certainly that the, the value creation from a customer standpoint more than I thought I would. And, uh, it wasn't the reason why, you know, we became a B corp and Purpose driven business and the 3% pledge that we've done with our revenue to the community. But it's definitely, I mean again it's one of those things like you said, it's hard to track and measure. Unless I surveyed all my customers, which I probably should, and said, you know, why did you choose Core 3? They'd select because you're purpose driven. Then you could quantify, okay, so this is how much revenue we've bought in as a result of being purpose driven. But I know from feedback, from being in a lot of the pitches and the bids and um, myself, the feedback from the customers, like this is a breath of fresh air. This is something completely different. It aligns with my values as a human being. It connects with a different part of the brain I think. Like it's the, it's like the Simon Sinek golden circle. It's like the why? How? What? Like a lot of businesses know what they do. Uh, they know how they do it, but they don't know why they do it. And a lot of organizations communicate outside in, but those that communicate inside out start with why. Yeah, like Apple, Mhm for example, that really resonates with the people, uh, their customers. And Apple aren't like an overly purpose driven business but they start with why in terms of their messaging.

Speaker A: Yeah.

Speaker B: Um, and that's why everybody can trust to buy not just an iPhone, but they'll also buy Ah, a MacBook and a tablet, a screen, a monitor, headphones, you know, AirPods, you name it. Because they know that they're, they're, they're the best out there because their messaging is brilliant. Um, so yeah, I think, I think if you get that if your positioning is authentic, it has to be authentic, then I think there is real commercial value. I remember when I first um, set up I spoke to a ESG consultant and they basically created sort of a platform for um, businesses to be able to give back.

Speaker A: Yeah.

Speaker B: Um, and he gave some really good examples actually around how from an ESG perspective, you know, you don't have to uh, necessarily spend more money if you want to give back. And they work with a lot of organizations to rethink um, their budgets for example. So they work with a big um, a big ERP software provider. I won't name names but they, you know, they um, set, they basically when they sold their software they, they used to give away free training with the software to help onboard people.

Speaker A: Yeah.

Speaker B: So this consultancy said, well, how much you spend on that training it was like a couple of million pounds a Year. Okay, so why don't you charge for training like everybody, uh, most of your other competitors, and then Instead use that £2 million a year for ESG impact and let the customer decide where that impact goes through our social environmental giving platform. So the customers that could then log on choose a cause close to their heart and a significant amount of money would go to a good cause. So they took the plunge. They did it. And sales went up 20% year on year.

Speaker A: Yeah.

Speaker B: Because it really resonated with people much more than free training would. And I think examples like that, I think there, there, there are business cases for the customer, uh, m side, if you do it in the right way.

Speaker A: Yeah. And I think, um, a lot of it is also about how you communicate and think about and tell that story. You know, and I, we, we've talked before a bit about things like greenwashing and the fact that, you know, you can't take it too far.

Speaker B: Yeah.

Speaker A: But there's a, there's something amazing about how you start to communicate what it is you're doing and why you're doing it and what, what difference that can make and, and also then being honest about what that means for you as an organization. So taking, taking Tesco again, you know, they are, they donate. So all their food waste, not all, the majority of their food waste gets donated. They keep it in the food system and it gets donated to charity. They don't shout necessarily about that. It's in their annual report. You can do, take a look at it. It's worth it. It's in their annual report. Right. But, but that's about not only giving back to the local community and the people that work at Tesco love it. You speak to, if you speak, if you go into Tesco and you speak to the employees who are in the reduced section and so on, they know that they do that. And then what happens if it's not sold is that it's going to be scanned in and it's probably going to go to a charity that's nearby. That's amazing for employees. That feels good, you know, you know, you're doing something good and it's local, so it means something to you as well. But also it's saving food from going to landfill. That's great for the environment and it's probably saving Tesco money because they're not then having to dispose of that. So that is a win, win, win. And thinking about how you then communicate that within your annual report or to customers, you know, and they don't do I mean, you know, my view is that Tesco doesn't do loads of that, they don't shout about it, but it's really an amazing thing to do. And actually like the way you report on that and the way you talk about it I think can be really effective. And that's why you know, again we'll get onto the R word and regulation I'm sure. But that's why like the reg that's coming in is really interesting and quite, I would say quite cool. And maybe it's not cool to be, to love a bit of regulation, but the reason it's amazing is we're, we're making organizations really, you know, do some navel gazing about what their impacts are and talk about it and report on it and say what they're doing. And that's awesome.

Speaker B: And I think it, it's needed, yeah, a bit of accountability, um, doesn't harm anyone because uh, in the big corporate world especially, but also in the SME world, you know, that's where B Corp has had a great impact on SMEs in terms of raising transparency, accountability, inspection, you know, audit and, and just holding them to account. So that cuts through all the greenwashing and the claims. It's like, right, this needs to run deep into the fabric of your business and operations.

Speaker A: Yeah.

Speaker B: Um, so he's going on to um, that then with your experience of working with a multitude of different industries, sectors, clients, um, trying to tackle esg, what are the sort of main challenges that you're seeing at the moment?

Speaker A: There is a lot of regulation coming. Um, so in the UK what you have to report against is not masses, you know, there's sort of greenhouse gas emissions through streamlined energy and carbon reporting. And then also if you're a large organization in the UK you have to do sort of climate related financial disclosures. But in the outside world, so outside of the UK environment there's a whole swathe of regulation coming in, um, particularly from the eu, that's the biggest piece of rag. So I think, you know, that is a big challenge in and of itself because there's a huge amount of work to do to be able to rapport against that. But I think actually thinking practically and thinking more about the kind of interesting side of this is this concept of materiality and what's important and I've kind of alluded to it already, but it's about what are the most critical issues to your organization. And um, being really honest about that and thinking that through in a really big way because that should then drive your reporting. And the EU regulation is getting organized organizations to do that, thinking about it through both the inside out lens. So what is the impact we as an organization have on the world around us but also the outside in lens, I. E. What is the impact of ESG issues on our business? And that together gives you this concept of double materiality which means that uh, at its core you have a really hopefully very good understanding having spoken to all your stakeholders about where those materials impacts, risks and opportunities come from and how you can deal with those. And that's a lot to think about and I think that is a big challenge because in my view at ah, the heart of this reg and the reason I think it's exciting is how you know what's actually really important. We've had years of sustainability reporting and frankly of uh, a lot of organizations just kind of throwing jelly at the wall and hoping that something's going to stick and it'll be fine and reporting loads of stuff that not important or is, is relevant but not material. So it's important. Nice, you know, good things, nice to have but not driving business value. And what the EU regulation, the csrd, the Corporate Sustainability Reporting Directive and all the things they've published is trying to do is say, you know, you need to focus in on the really key material things and report on those. And if you've got to report, you're measuring it. And I do still stand by the. What gets measured gets managed. I think uh, you know, as finance people we know that numbers, numbers make the world go round. And I think the more we can have reliable, useful decision, useful regular sustainability information, the better decisions we can make. But it takes a lot to get there because the data's difficult.

Speaker B: Yeah. So when you say this regulation is coming, like you said, so that there's a basic level reporting requirements in the UK at the moment, there's this CSRD which is much more complex in Europe. But if you're not based in Europe then it's not relevant to you right now. Is that right?

Speaker A: Well, okay, so, and I won't go into it in too much detail because

Speaker B: you know there's like acronym spaghetti.

Speaker A: So yeah, it's just horrendous, you know, the Alphabet soup. But I think we from, from an EU regulatory standpoint, basically the reason everyone's talking about it is that if you're a European based business with you know, that's large, so more than 250 employees, I think it's more than 50 million euros in revenue, 25 million in assets, um, you will have to report against the srd. That's quite a small business size when you really think about it. Um, that comes in in 25, 26. If you're listed, you have to report next year.

Speaker B: But basically if you have any.

Speaker A: If your. If, yeah, if you're a European subsidiary of that size in 2026 you will need to report on 2025 data. Uh, the fun bit is in 2028. So on 2020, FY28, in 2029, parent companies of those subsidiaries have to report.

Speaker B: Wow. So even if the parents based in

Speaker A: the UK and so there is this massive extra territorial reach and so organizations have a decision to make around, well do we just do subsidiary reporting for now, knowing that in 2028, 29 we're going to have to report or do we just do the whole group at once? And so lots of businesses are grappling with that question. Because if you've been reporting sustainability data for a number of years at a parent company level, does it make sense to you to do it just as a subsidiary? How can you get ready? What does that look like? I think it is in law. So it's coming in that it's going to be something you've got to tackle. But it means that there's this huge reach and so lots of companies are grappling with how they do that. The journey is a long one. Um, it takes a, takes a long time to do not only the double materiality assessment which gives you what you've got to report, but then starting to gather the data from across your organization. We're talking about um, if you find own workforce material, which you probably will number, um, of people who've taken paternity leave and how much time they've taken. Most companies aren't collecting that data. Um, you know, most companies don't have time sheets. Foreign concept. If you wear, if you're, you know, if you're in the professional service as well. But, but most companies don't have time sheets so it doesn't even exist. So then you need to start to think about okay, well what is it that we do as an organization right now that we can piggyback some of this stuff onto? What does our uh, HR system have that we could use this for? And I think that's where finance has a massive role to play. Because you know finance see a lot of these numbers, they get lots of data from different systems across the firm from a financial reporting perspective. So then it becomes, okay, well how do we take that and be additive to be able to then respond to this regulation. And so it's a long Runway because it covers many, many different things that companies haven't really thought about before.

Speaker B: And that's why it's important to start thinking now.

Speaker A: Yeah.

Speaker B: So if you're caught. Yeah, yeah. So I think it sounds like it's pretty in depth. Yeah, M. I gather.

Speaker A: Yeah.

Speaker B: Um, because it's not just the sustainability, uh, side. There's a big social side.

Speaker A: Yeah. So it's all aspects. So it's across environmental, social and governance topics. There are, um, two kind of overarching standards which are like, okay, you've got to report against some of these things and this is how you're going to report. Think sort of minimum M standard. Yeah. And then everything else is determined by that materiality. So what's most important to your organization

Speaker B: based on your sector, Business model? Industry.

Speaker A: Yeah, no, yeah, no, no, it is. But every organization has to do this themselves. So they need to go out and they need to map their value chain, they need to speak to their stakeholders, they need to get inputs on what everyone's view is, both internal and external, to determine what's most important.

Speaker B: There's a bit more of a bespoke element to it.

Speaker A: Yeah, it's quite bespoke and then quite like that though. Yeah.

Speaker B: It's not sort of trying to one size fits all.

Speaker A: Yeah. And I think there is an aim towards, you know, the eu, I believe are building. Well, not believe the EU are building sector specific standards.

Speaker B: That's good.

Speaker A: But the idea is that, uh, each organization can have its own nuance on this. And then once you've got your list of material areas, you then look into, okay, well, what is it that we report that's in the standards? There are a whole load of metrics and targets and all sorts within the, within standards that you have to report against. Um, but you have to go through sort of a relevancy test to decide whether it's important. And what that means is for organizations who are starting out and you've not done much sustainability before, you have a bank of quite good metrics that you should be able to get hold of that you can report against. But for a company where you've already got your ethos and you already know what you want to do, you can continue to report those things assuming it's material. But if it's material and you've got some metrics, that's what you report against. And so it's about driving towards some commonality, but also Kind of raising, raising the bar for lots of people. And I think, you know, it's, it's a, it's a huge exercise.

Speaker B: How long does it typically take?

Speaker A: Yeah, uh, I think, you know, from, from start, the undertaking adult materiality assessment can take somewhere in the region of sort of three to six months depending on how easy it is for you to get hold of your stakeholders and how much time your teams can dedicate. And then you've got to do a bit of a gap analysis and start to fill those gaps. So you're probably really taking a, looking at an 18 month to two year journey. So it's massive. I mean the requirement is absolutely massive. Um, but I really, I really believe that if we can start to measure lots of these things reliably and there, there's a utopia in the future and maybe we'll talk in five years time and see if this happens. But there's a utopia in the future where sustainability data is as accessible and reliable as financial data, where you can get it every month. Now at the moment, most organizations are doing it once a year. Good companies are looking at sustainability information once a quarter. You can't make a decision based on something that you know, you're only refreshing every six to 12 months. And so I'm hopeful that uh, the regulatory requirements will drive an improvement in data and you know, that, that will allow companies to understand, see this more regularly and make sense of it because something that's annual, that you can't track and you can't predict isn't useful.

Speaker B: So time is ticking then?

Speaker A: Time is ticking, yeah.

Speaker B: Um, so yeah, I can understand why you're busy. Um, because I've also heard a few of my clients talk about IFRS regulation changes, S1, S2 coming, and there's a lot of uncertainty about when that will be and what that looks like. Um, what's your view on that and how is that different to csrd?

Speaker A: Okay, so, um, the IFRS standards are more like a global set of standards that is designed again to level the playing field. And what, what ifrs have done is they've got a general sustainability standard and then they have written the standard which takes the task force for Climate Related financial Disclosures and extends it a little bit. There will be more topics coming. There are more topics coming, some being drafted at the moment. Um, but the IFRS ISSB International Sustainability Standards Board standards differ from CSRD in that it's financial materiality focused.

Speaker B: Right.

Speaker A: So it's about financial materiality rather than both impact and financial. With Europe So, um, I've talked less about IWSB because. Not because it's not important, but because CSRD is a lot more extensive and is in law already. The UK has pointed heavily towards the fact that it will be bought, that, that um, the ISSB standards will be endorsed and bought in. And there are jurisdictions around the world, like Australia, who are in process of doing that. Um, but we're not. It's not live and enacted yet, so clients are thinking about it. But I think CSRD is probably slightly more of a burning platform right now.

Speaker B: So if, either way, I guess if. As long as a business is readying themselves for csrd, which sounds much more rigorous perhaps than the IFRS ones, then

Speaker A: they'll be more extensive. Yeah, I don't think. Not more rigorous, but definitely more extensive. Okay, yeah.

Speaker B: Then it will help. It's going to help. Yeah.

Speaker A: Yeah. There are still differences and nuances and I'm sure I could talk for hours on it. I won't for you. But there are differences and nuances, but the core concept of thinking about key material topics and reporting against them is similar. And they have a sort of similar framework because it follows the likes of tcfd. So governance, risk management, metrics and targets.

Speaker B: Mhm. Okay.

Speaker A: Strategy.

Speaker B: So I guess a lot of this is probably going to be large organizations or businesses that have got, um, operations in Europe, for example. What about those? The, the sort of SME space that, uh, you know, um, they're both just based in the UK or they haven't yet got an entity In Europe that's 50 million plus. Um, how do you think regulation will change for in the SME M space?

Speaker A: Yeah, so I mentioned already, you know, there's greenhouse gas reporting, there's climate risk reporting. Um, that is driving organizations to think about, well, what is our environmental impact from a emissions perspective? And also then, you know, how do we think about climate risk as a, as a, as an organization, um, as, as. And when IWSP comes in. I don't know. I, I don't know yet what level that will look like. You know, that will change things further. Because the whole point is it's taking what we're thinking about from a climate and greenhouse gas emissions perspective and extending it to be other things, social issues, etc. Um, and so I think companies who are wanting to kind of get ahead should be starting to think about, okay, well, what are the impacts on our organization? Where is it that we want to play? What topics do we want to make important to us? Or what topics are and of course, what topics are important to us as an organization and how can we start to think about where we are, measure, ah, that what we might do about it. Um, so it's not, you know, I think there's nothing bad will come from considering what your environmental, social governance impact is and what the impact is on you for you to start to think about that. Uh, what are those material issues?

Speaker B: Because I guess if the large organizations are forced into.

Speaker A: Yeah.

Speaker B: Thinking in this way, then there will naturally be a trickle down because the supply chain is.

Speaker A: Well, yes, yes, indeed. I mean, yeah, this is, this is what also I was going to say. So, you know, um, it's been really interesting undertaking double materiality assessments because you go out to suppliers and you go, okay, well what do you think are the most important issues to this organization? And when, you know, eight, 12 months ago, when we started certain projects, suppliers will go, why? We've not heard about it. What is this? Tell us more. Um, and now you were starting to speak to suppliers and they're going, oh, yeah, right. We've had this, you know, we understand what this looks like. And so because of that, you're seeing a leveling up because organizations are having to think about their whole value chain and they're having to say, okay, well what is our impact through who we buy from and what that looks like? And it's not meaning that accountability is being taken by the procurer. Uh, but it's gonna, you know, if you want more information from your suppliers and you're requesting more, that means suppliers are having to produce that information. So we, I, you know, I've had conversations with organizations who are saying, okay, we're not directly affected, but I know that we're gonna have to report some of this stuff because the big companies we work with need it and that also is a big driver. So I think if you're an organization, it's worth you not only thinking about your issues, but also chatting to the people you who buy from your customers and say, what are your expectations of us? Um, because ideally those things will also be things that are important to you as well. But then you can start to kind of get that data and be able to show it and show change.

Speaker B: M A rising tide lifts all the boats.

Speaker A: Indeed. And it's rising heavily.

Speaker B: Yeah, exactly. That's good. Um, I guess finally it'd just be good to learn about your view of the future of finance as a department and what their role is when it comes to driving esg.

Speaker A: Yeah, and, and it's a, a Big question. I. I think, you know, we. We know that finances remix seems to be kind of extending and extending, and hopefully that's exciting rather than, you know, anything else. And I think, you know, it extending, I think, is also driving attractiveness of the profession, which is super important. Right. Um, candidly, the data is not good. Okay. The sustain sustainability data is, um, fraught with difficulties because you're getting it from loads of different departments. Often it's side of desk. Often it's nice to have, um. Oh, we got this from Susan in our. In our. In our, um, um. Oh, my goodness, my brain has just died. We got this from. From. From Susan in. In our charity team. This is how. How much volunteering everyone's done. It's just. It's based on, like, a few acceptances of a.

Speaker B: Uh, we.

Speaker A: We would never do that in Fine. We would never say in finance. Oh, yeah, this is fine. It's a spreadsheet. Where were the controls, the framework? And so this is the thing. This is where finance really comes in. Right? Because, you know, we have an amazing set of skills that we use to assess financial information that is still, uh, so relevant from a sustainability perspective. And sustainability practitioners generally, not all. I'm a sustainability practitioner who comes from a financial background, but not everyone is. And so finance has this amazing role in not only upskilling sustainability practitioners, but also in helping to drive and embed kind of improvements in the data. And it's really important because actually there are errors. You know, in financial audit, you would find a, uh, material misstatement every five or six engagements. Right. Um, when I moved into assurance for, uh, sustainability issues, we'd find five or six material misstatements in every engagement. And the data is getting better and it's getting more reliable, but it's, you know, it's a data lake. It's not in a system, it's not in SAP. It's not, you know, and so, you know, finance has this amazing role to help improve that data, but also to help educate the business. And I think if you're doing sustainability, you want to have finance involved. And so I think when we're looking at kind of what does that financial skill set of the future look like? It needs to include sustainability. And the, the things that. The thing I found having moved from finance into sustainability is, is my gut. My, like, spidey senses of being a finance person are definitely valid. Like, when I look at data sets and you go, oh, something just doesn't smell right here. You know, you're. You're Almost always correct. And so I think the skills that we build are 100% what's needed and will continue to improve the data and make, make for better reporting.

Speaker B: Well, finance have always been that scorecard for a business. Yeah. And their skill set is the, to track and measure progress and data and, you know, bring it to life.

Speaker A: Yeah.

Speaker B: Um, and they have a respected seat at the table. So 100. It's, um. Yeah, it makes, it makes real sense. What's your view on the, the sort of future of what a financial statement might look like? Because there's lots of noise out there at the moment on, you know, the concepts of the triple bottom line and a regenerative P L and circular economy and all this sort of stuff. Do you think that will really impact, um, sort of what reporting looks like?

Speaker A: I think so, yeah. So I think, um, a lot of this is about connecting the, the front half with the back half because they're not, you know, it's not always as integrated as you want it to be. And so, you know, all of the regulations that we've talked about this afternoon are, are definitely required to be disclosed in the front half of the financial statements and there are metrics within them that link to the back half, you know, and if you're saying that something's material in your front half in your sustainability reporting, your auditor's probably going to turn around and go, okay, well show me the impairment. Where is this impact of this? Um, so I don't know that financial statements will change in terms of maybe the numbers in the back, but I think the discourse in the front and the links to that information are going to be greater. And I do. There is a future that's not very far away where, you know, your auditor is going to sign off on both your financial statements and your sustainability information, because it's all in there and it all should be considered. And so, you know, this is all about driving that connectivity. And I'd like to think that there's a point in the future where obviously you can tell which bit of financial numbers and what sustainability data, but where it's a lot more integrated and a lot more clearly linked.

Speaker B: So for those out there that I guess to finish on, for those out there that are just, ah, pulling their hair out thinking, where do I begin? Yeah, um, what advice would you give them?

Speaker A: Um, I think, where would I start? I mean, it comes back to, and I feel like a broken record talking about this, but it comes back to what is important and you don't have to do everything at once. I think what's amazing about sustainability information is that gives you an opportunity to be really honest about where you are M. And you can say, look, this year we know this is important, we're working on it, we have more to do and we will have these things in place in future. And some of the regs in a, in their own way allow you to do that. And so I think just, just getting started, just starting to talk to people internally about what matters to them. Make your employees feel, heard about how their views on sustainability and start to think about how, what could we measure, how might we be able to report against that. Is, is a great place to start. You know, yes, there's a regulatory tick box, but you will be amazed how many people in your organization are, uh, super passionate about this who want to get involved. And so I think just asking the question and starting the conversation is an amazing place to start because, you know, there are plenty of people like me who are like, oh, I'd really love to do that. And that, you know, that's awesome because you can then create kind of internal consensus around this. And that's, you know, I think that's what's amazing about sustainability because people have very strong and passionate opinions on it. Uh, um, so, yeah, uh, love that question.

Speaker B: Brilliant. Well, thank you so much, Sophie. It's been great having you on and I think it's definitely cleared up a lot of um, that. What did you call it? Alphabet soup?

Speaker A: Yeah.

Speaker B: In my mind of, you know, what does this regulation even mean? I think a lot of, A lot of blue chip clients that I speak to don't know or they just, ah, just sort of blindly following a path and they don't necessarily understand. So I think that's um, definitely shone a bit of a light on, on it. And I mean for anyone out there that's um, you know, interested or needs. Needs help, are you happy for them to reach out?

Speaker A: Yeah, please do. I, you know, I always say talking about, no, you know, if anything ever lands in your inbox from someone, you know, expect you're probably still going to reply. Do you know what I mean? But, but I think, yeah, absolutely. Please, please reach out because, you know, this is an amazing field to be in. It's consistently and constantly changing and I love that.

Speaker B: Yeah.

Speaker A: And it, you know, we're creating new ways of doing things and it's brand new and that's pretty cool. So, yeah, please do.

Speaker B: Awesome. Well, thanks again.

Speaker A: Thank you very much.

Speaker B: So thanks for listening to the Conscious Finance but podcast. Um, it's really appreciated and if you can help us increase our impact and inspire others, um, it'd be much appreciated. All we ask is just subscribe to the podcast. Um, give us a like or drop us a comment. Um, it really does help get the word out there and expand our reach and hopefully inspire others to drive their impact further. Thank you.