Finance Trends – Pandemic drives ESG focus, flexible working/delivery model, and digital transformation

The impact of COVID-19 – A story with two sides

Finance teams are changing the way they work, and the pandemic has accelerated the trend towards technology adoption and managed services. But the path to progress has been rocky for many companies. Over the past 18 months, pandemic-related disruption has weighed heavily on finance teams, impacting data management and security, financial close timetables, and financial reporting.

In Protiviti’s 2021 Finance Trends Survey, 44% of respondents in the UK said their financial reporting process had been significantly impacted by COVID-19. This compares to just 21% in 2020. Concern about data security and privacy has also increased, with nearly 50% questioning their security models (up from 29% last year).

But these numbers show one side of the story. The pandemic has also accelerated other, more positive, trends. Remote working has helped digital transformation and given finance directors confidence to invest in technology. In the past, their decision-making has often been driven by cost, but it’s clear they can now see the value in new ways of working. In our latest survey, demand for better analytics increased to 83%, with data visualisation and cloud applications also moving up the agenda. (See Digital transformation – data and automation lead the way for more on this theme.)

The same is true of third-party providers and managed services. Finance teams experienced more disruption from third-party providers in 2021 (63%, compared to 49% in 2020). But companies are willing to deal with delays by outsourcing more work. More than half (55%) are happy to employ third party professionals, and 54% will engage with managed services providers, up from 20% last year. Companies with outside support have often been able to manage better than those without. Additionally, companies have also been inclined to leverage third party providers for data-mining and analytics.

The impact of the pandemic is a double-edged sword: finance teams have dealt with delays and disruptions, but they have also embraced new ways of working. Companies with money to spend have been able to move more quickly towards a technology-enabled future, and others have been nudged along. The trend in finance towards information security, data analytics, cloud technology, and managed services will continue, as specialist providers mature.

None of this is a surprise; but perhaps the way it’s happened – and the speed – remains something finance teams are getting used to.

To find out more about Protiviti’s global 2022 Finance Trends Survey, click here.

ESG is a priority – the time for net zero is now

Earlier this year, the UK government launched a consultation on the regulation of environmental, social and governance (ESG) reporting in businesses. It acknowledged that voluntary disclosure from public and private companies had increased but said it was time to take regulatory action: to support the UK’s transition to net zero and help cement the UK as a centre of excellence for green finance.

The move is designed to help market participants access better information and understand more about climate-related financial risks. But it will also help companies to address climate change as a risk and opportunity: for their operations, people, and supply chains. In an announcement at the COP26 climate summit, Chancellor Rishi Sunak confirmed that listed companies would have to outline their net zero plans by 2023. This will mean organisations will need to collect and measure relevant data to track compliance to targets. Organisations will need to consider what data they collect to measure success.

In recent years, ESG has become a hot topic in the boardroom and is now a profound factor for businesses adapting for the future. Its scope has been gradually expanded beyond the environment, towards social responsibility, community spirit, and internal governance. And, in 2021, companies around the world have focussed even more on these factors: finance leaders in the UK are no exception. In the future, this will require dedicated efforts and commitment from organisations towards being more transparent with regards to their ESG agenda.

According to Protiviti’s 2021 Finance Trends Survey, focus on ESG in the UK has skyrocketed, with 81% of organisations already reporting on these factors at least once a year. Sixty-one per cent believe their reporting frequency and focus has increased significantly, up from 26% in 2020. Nearly 60% believe that measuring and reporting on ESG risk has become part of the finance team’s role. And more than two thirds (69%) of finance teams have also held conversations with senior leaders to develop ESG metrics.

From these results, it’s clear the trend towards voluntary reporting will be cemented by regulation, but other influences are also at work. Pension funds are becoming increasingly concerned with companies’ commitment to green investments. And young people entering the workforce are typically more conscious of environmental and social concerns than their predecessors. All of this will help to increase the rate of knowledge and reporting.

As ESG reporting becomes regulated, it will call on the skills of finance leaders and their teams, alongside their colleagues in HR, operations and data. They are also likely to consider bringing in outside help. Interaction with regulators will go up and the use of technology to help the reporting process will naturally follow. At the moment, 61 per cent of organisations in our survey are currently investing in new technologies to support ESG reporting. And the FCA recently announced it was launching the second phase of a digital sandbox focussing on firms that can help validate ESG disclosure.

ESG has become the hot topic: in businesses, boardrooms, and the media – and it will become a major focus for the next five years and beyond, as companies come to grips with climate risk.

To find out more about Protiviti’s global 2022 Finance Trends Survey, click here.

The future of work is flexible (and hybrid)

Prior to the pandemic, some finance teams were already using flexible working models for their tax, accounting, risk, and treasury functions. This approach enables them to deploy, on-demand, a mix of employees, contractors, consultants, managed services providers, and outsourcing partners. As office closures spread around the world, companies with these models kept their finance activities moving forward. They also freed up internal resources to manage the crisis response, and work on other initiatives.

While this shift predated the pandemic, it has accelerated in the past 18 months. It will continue in the face of a long-term finance and accounting talent crunch, which leaves fewer employees available to step into crucial roles – especially those with a technology and digital finance focus. In many respects, finance leaders are seeing the advantages of a flexible approach: In Protiviti’s 2021 Finance Trends survey, a majority (87%) report that the effectiveness of their teams increased working remotely or in a hybrid way. For some firms it might have improved the talent pool by hiring people from across the country rather than being limited to those in the cities.

But when it comes to remote working in the future, finance leaders in the UK have different views: only 37% said they would prefer their teams to adopt this way of working permanently. Interestingly, this is reflected by their finance teams as well: around 60% are currently working remotely for at least 50% of the time, but the same percentage would prefer to go back to the office for more than 50% of the time in the future. In addition, 60% of respondents indicated their companies are considering reducing the office footprint. Many are preparing for hybrid working but believe the office will still play an important role.

The future of work for finance teams is already here. Flexibility for employees and a gradual reduction – but not elimination – of workspace will continue to be the trend and skills on demand will help.

To find out more about Protiviti’s global 2022 Finance Trends Survey, click here.

Digital transformation – Data and automation lead the way

Technology adoption has been on a sharp upward trend during the pandemic. Companies deployed tools they’d never used before to support their teams and the pace of change has been staggering. Some commentators believe businesses experienced five years’ worth of change in five months in the middle of last year alone. While the crisis response has now slowed, the long-term trend is here to stay; and it’s also playing out among finance teams in the UK.

According to Protiviti’s 2021 Finance Trends Survey, the technology priorities of finance leaders are gathering pace. The security and privacy of data continues to gain momentum, up from 79% in 2020, to 88% in 2021; enhanced data analytics and data visualisation also are a priority for 83% and 72% of respondents, respectively, which is significantly more than last year.

The emphasis on data privacy and security, and data analytics, are consistent with last year’s results. But these trends will be accelerated by flexible working. Finance leaders are demanding more applications ‘on the go’, technology to visualise data, and automation of areas of finance through machine learning. These will help them respond to changing demands from senior colleagues, improve decision making, reduce costs, and enhance efficiencies. Sixty-two per cent of respondents also report that increased automation is very likely.

Cloud-based applications are also on the increase. According to the survey, UK companies are moving into the cloud at a more rapid pace. Between 50% and 70% of respondents said their finance applications were already in the process of migrating to the cloud or had already done so. Less than 20% said their organisations had taken ‘no action’ towards using cloud technology; last year, this figure was 45%.

Technology will play a central role for finance teams in the future. Their departments represent the place where data and automation can play a pivotal role: to support financial management, decision making – and risk management – in the eyes of the regulator.

To find out more about Protiviti’s global 2022 Finance Trends Survey, click here.