Growing focus on ESG has potential to change financial planning role

An increased focus on environmental, social and corporate governance standards and the overhaul of the traditional workplace are among the key trends highlighted in the 2022 Financial Planning & Analysis Benchmarking Survey released by the Association for Financial Professionals.

The survey collected data from more than 200 global finance practitioners in the fall of 2021 to provide a data-based picture of crucial issues and trends in the field, shining a light on the most pressing challenges and opportunities on the minds of finance practitioners as they enter 2022.

Two of the most potentially impactful insights gleaned from the survey were that the growing focus on environment, social and governance (ESG) in corporations and financial planning has the potential to lead to major changes in how the financial planning and analysis practitioner plays its role, and that COVID-19 has altered where people work and is leading to increasing diversity in the operating models that employers adopt.

The rapid rise of ESG

Bloomberg projects that asset managers will dedicate $50 trillion of assets under management to ESG by 2025 – a figure that represents more than one third of all assets under management, according to the AFP report. The survey results show a stark shift in recent years toward a stronger embrace of ESG, particularly since 2019 when the Business Roundtable announced that its members would transition from shareholder primacy to “a commitment to all stakeholders,” aligning with ESG goals to demonstrate responsibility to broader constituencies.

In the 2019 AFP survey, just 10% of respondents anticipated shifting their corporate investment stance to be closer to this stakeholder approach, but the 2021 survey revealed that 35% of respondents ultimately did make impactful changes toward that approach. In the next three years, 27% expect to major changes toward that approach and another 45% expect to make minor changes.

Within the ESG movement, the increased focus on diversity, equity and inclusion efforts appears to be particularly powerful. Not a single respondent expects to spend less on that category in 2022 than they did in 2021 and a robust 45% expect to spend more.

“Before COVID, the focus was on companies and customers,” one respondent said. “Now there seems to be a greater investment in people, diversity and inclusion.”

Abrupt and enduring change in the workplace

The report shines a spotlight on the tidal change that the pandemic brought to the workplace. In particular, survey results show companies increasingly allowing their team members more flexibility to choose where they do their work.

“The lockdown created a natural experiment for business: ‘Can companies function effectively without an office?’” the report said. “The answer seems to be, ‘Yes, for some of us,’ based on a mix of factors including industry, technological sophistication and personnel/managerial preference.”

Of respondents, 26% said they do not expect employees to be in the office at all, reporting an expectation of zero days in the office – that number rises to 28% for just back-office staff.

However, 31% of companies still plan to have workers back in the office full time, though the number is just 27% for back-office staff.

Others will split the difference with a hybrid approach that gives workers options.

“Adjustments were made to allow all employees to work remotely in 2020,” one respondent said of their organization. “Restrictions have been lifted and employees can choose to return to the office or continue remote [work]. Most employees are opting for remote work, coming into the office no more than one-to-two days a week.”

Finding and keeping financial talent

As with a broad swath of industries, the finance community has faced a stiff challenge with finding and keeping sufficient talent. The survey found mild optimism among AFP members about the future of the labor market. Benchmark data showed median employee turnover of 8% in 2021, but with expectations that it will lower to 7% in 2022. According to the report, “the confidence that labor shortages will ease may arise from the fact that companies plan to invest more in their teams in 2022.”

“Investing in talent is more important now than than ever,” one respondent said. “The ‘great resignation’ has shown that when employees are not getting what they need from their leaders, they can and will move on.”

Other key insights from the report include that corporate budgets remain entrenched in business planning and operations despite the recent period of extreme uncertainty and that finance practitioners expect 2022 will bring more revenue, more business investment and increased expenditures – but that they are split on whether that increased activity will create bottom-line growth.