What CFOs and Controllers at Private Companies Need to Understand About ESG

ESG requests land on finance's desk regularly, and usually without much context. A request for twelve months of utility bills. A question about total spend with a specific vendor. A travel expense breakdown by employee. On their own, these look like routine data pulls. What most CFOs and controllers do not always know is what that data is being used for and why the quality of it matters as much as it does.

Finance is not peripheral to ESG. It is central to it. The data that drives a GHG inventory, a climate risk assessment, or an investor ESG report lives almost entirely in finance systems. Understanding what that data is being used for changes how you provide it, how you think about data quality, and how you engage with the ESG work more broadly.

Here is what CFOs and controllers at PE-backed private companies need to understand.

Your data is the foundation of the GHG inventory

A greenhouse gas inventory is a calculation of your company's emissions across Scope 1, 2, and 3. The output is a number in metric tons of CO2 equivalent that investors, customers, and regulators use to assess your company's climate impact and track progress over time.

Most of the inputs for that calculation come from finance. Utility bills for electricity and natural gas. Fuel receipts and mileage records for company vehicles. Spend data for purchased goods and services used to estimate Scope 3 emissions. Travel expense reports broken down by mode of transport. Cloud computing and data center costs if relevant to Scope 3.

The quality of those inputs directly affects the quality of the output. A GHG inventory built on incomplete utility data, estimated spend figures, or missing travel records produces a number that may not hold up to scrutiny from a GP or a sophisticated customer. When a customer questions your carbon footprint, the underlying data is what gets examined.

This is why the CFO and controller are not just data providers in the ESG process. They are quality control. Understanding what the data is being used for, and making sure the right data is being pulled in the right format, is a finance function.

What climate risk means for a CFO

Climate risk has two dimensions that finance needs to understand.

Physical risk is the exposure of your business to climate-related events: extreme weather affecting your offices or supply chain, flooding in areas where you operate, heat stress affecting productivity or facilities. For most office-based private companies, physical risk is relatively low compared to asset-heavy industries, but it is worth assessing as part of broader risk management.

Transition risk is more immediately relevant for most PE-backed companies. This is the risk of changes in policy, regulation, technology, and market expectations as the economy moves toward lower emissions. A customer that today asks for your carbon footprint may next year require a reduction target. A GP that today accepts a self-reported emissions number may next year require third-party assurance. A regulation that today applies to public companies may next year apply to larger private companies through their supply chains.

The Task Force on Climate-related Financial Disclosures (TCFD) provides a framework for assessing and disclosing both types of risk. Investors and GPs increasingly use TCFD to ask portfolio companies to explain how climate risk affects their business. This is a financial analysis exercise, not a sustainability one, and finance should own it.

Budgeting for ESG work

ESG has a cost, and that cost belongs in the budget, not as a surprise line item when an invoice arrives.

A first GHG inventory typically requires either staff time or outside support, or both. Annual reporting cycles require the same. If the company is pursuing SBTi target setting, B Corp certification, or a formal ESG program, those engagements have fees and internal time costs that need to be planned for.

Renewable energy purchases, if the company decides to buy RECs or enter into a green power agreement, are an energy cost that finance needs to understand and account for. LED retrofits, HVAC upgrades, and other efficiency investments have capital costs but also produce utility savings that finance should be tracking.

The companies that handle ESG efficiently are the ones where finance has visibility into the cost structure and has planned for it. The ones that struggle are the ones where ESG spending is ad hoc, unbudgeted, and difficult to reconcile.

What your data is actually being used for

This is the most important thing for finance to understand, and the thing most often missing from the conversation.

When an ESG consultant or internal sustainability lead asks finance for utility data, they are usually building a Scope 2 emissions calculation. The electricity consumption in kWh, combined with an emission factor for the local grid, produces a CO2 equivalent figure that goes into the GHG inventory.

When they ask for vendor spend data, they are usually building a Scope 3 Category 1 calculation for purchased goods and services. The spend figure is multiplied by an industry-specific emission intensity factor to estimate the emissions associated with your supply chain. The accuracy of that calculation depends on how cleanly the spend data is categorized.

When they ask for travel expense data broken down by flight, train, and hotel, they are building a Scope 3 Category 6 calculation for business travel. The methodology requires knowing distance traveled and mode of transport, not just total spend.

In each case, the format and completeness of the data matters as much as the data itself. A utility bill that shows total cost but not kWh consumption is not useful for an emissions calculation. A travel expense report that categorizes everything as miscellaneous rather than by mode of transport cannot be used to calculate business travel emissions accurately.

Knowing what the data is for helps finance provide it in the right format the first time, which saves significant back and forth.

How climate regulation affects the finance function

A growing set of regulations requires companies to disclose emissions and climate-related financial risks. California's SB 253 requires companies doing business in California with revenue over $1 billion to disclose Scope 1, 2, and 3 emissions annually. SB 261 requires companies with revenue over $500 million doing business in California to disclose climate-related financial risks. In the EU, CSRD requires large companies to report on sustainability matters with the same rigor as financial reporting, including assurance requirements.

Most PE-backed private companies are not directly subject to these regulations today. But indirect exposure is real. If your company sells to companies subject to CSRD or California's climate laws, they may be asking you for emissions data that feeds into their own disclosures. If your fund is subject to SFDR, your GP is collecting ESG data from portfolio companies to meet their own obligations.

The direction of travel is consistent: more disclosure, more assurance, more integration of climate data into financial reporting. Finance should be tracking which regulations are likely to affect the company directly or indirectly, and making sure the data infrastructure is in place to respond when they do.

What finance should own in the ESG process

Finance is not responsible for setting ESG strategy or deciding which frameworks to report against. But finance should own a specific set of responsibilities.

Data provision is the most obvious. Finance should have a clear understanding of which data sets are needed for the GHG inventory and ESG reporting, who in finance owns each data set, and what format the data needs to be in.

Data quality is equally important. If utility data is being pulled from accounts payable rather than directly from utility providers, there may be gaps or errors. If travel data is being pulled from expense reports that are inconsistently categorized, the emissions calculation will reflect that. Finance should understand where the data quality risks are and flag them early.

Budget and cost tracking for ESG activities should sit in finance, including third-party fees, internal time allocation, renewable energy costs, and capital expenditures related to efficiency improvements.

Climate risk assessment, to the extent the company is being asked to assess and disclose climate-related financial risks, belongs with finance and should be integrated into the broader risk management function rather than treated as a standalone ESG exercise.

Where ESG expertise comes in

Finance owns the data and the financial risk framework. ESG expertise owns the methodology: which emission factors to apply, which calculation approach is correct under the GHG Protocol, how to handle gaps in the data, and how to produce output that will hold up to scrutiny from a GP or customer.

The companies that handle ESG well have a clear division. Finance provides the inputs and owns the data quality. The ESG consultant or internal sustainability lead applies the methodology and produces the output. When that division breaks down, when finance is asked to produce numbers without understanding the methodology, or when the ESG team is building a calculation without finance's input on data quality, the results are usually wrong or incomplete.

If you are a CFO or controller at a PE-backed company and want to talk through how to structure the finance function's role in ESG, get in touch or learn more about fractional ESG support and carbon footprint consulting.