By introducing Corporate Sustainability Reporting Directive (CSRD), sustainability reporting has become a critical part of the annual report. Therefore, it is the responsibility of the Chief Financial Officer (CFO) to oversee financial, Environmental, Social, and Governance (ESG) data. Consequently the lines between financial metrics and HR data have blurred. So the CFO must now be proactive in sustainability reporting, while supporting Human Capital Management (HCM) and payroll systems. This article explores how staying on top of HR data, supporting HCM solutions, and collaborating with HR teams can enhance business performance, ensure compliance, and foster long-term growth.
The CFO’s expanded role under CSRD
Under CSRD regulations, sustainability reporting is no longer limited to environmental concerns. So it now includes critical social and governance aspects, many of which are directly tied to human capital. This shift makes the CFO responsible for the integration of HR data into the company’s financial disclosures. Which includes metrics such as workforce diversity, employee well-being, and executive compensation transparency. Supporting HCM and payroll solutions becomes essential in this process, as these systems house the data that feeds into both ESG and financial reports.
Why the CFO must support HCM and payroll solution activities
1. HCM systems provide the foundation for accurate reporting
HCM systems are the backbone of effective HR data management and reporting. These systems store and track critical metrics such as employee turnover, compensation, workforce diversity, and training hours. All of which are essential for meeting sustainability reporting requirements.
Why CFOs should support HCM systems:
- Data accuracy and consistency. Without an integrated HCM solution, HR data may become fragmented, leading to inconsistent or inaccurate reporting. As the CFO is responsible for verifying the accuracy of sustainability reports. Additionally it’s crucial that they support the implementation and upkeep of robust HCM systems, ensuring it’s aligned with financial data.
- Real-time data access. CFOs require real-time access to HR metrics to make timely, informed decisions. Modern HCM solutions offer dashboards and analytics that can provide Up-to-the-minute data on workforce trends. As well as compensation structures, and diversity initiatives, which are vital for both financial forecasting and ESG reporting.
2. Payroll systems link human capital and financial performance
Payroll systems are not only about paying employees but also link between human capital costs and overall financial performance. By supporting payroll solutions, CFOs can ensure labor costs and compensation metrics are tightly aligned with the company’s financial strategy.
Why CFOs should support payroll solutions:
- Compensation transparency. Payroll systems provide visibility into how executive compensation aligns with ESG performance metrics. Which is an increasingly important area of scrutiny for investors and regulators. Ensuring that payroll solutions are capable of generating detailed reports on pay equity and compensation structures helps CFOs manage compliance and maintain transparency.
- Linking labor costs to strategic planning. Understanding the financial impact of labor costs—such as salaries, bonuses, and benefits—is critical for strategic planning. A well-integrated payroll system enables CFOs to track these costs in real time, making it easier to forecast labor expenses and optimize workforce allocation for long-term financial health.
3. Data-driven decision-making requires integrated systems
An integrated HCM and payroll solution ensures that HR and financial data are not siloed. This holistic approach provides the CFO with a more accurate view of how human capital investments impact overall business performance. Supporting the integration of these systems ensures better data flow, collaboration between HR and finance, and more informed decision-making.
Why CFO should support integration:
- Unified reporting. Integrated HCM and payroll systems enable CFOs to unify financial and HR data for a seamless reporting process. This integration is critical for ESG reporting, where metrics such as employee engagement, diversity, and pay equity must align with broader financial disclosures.
- Enhanced forecasting. When HR and payroll data are integrated, CFOs can create more accurate financial forecasts. For example, knowing the trends in employee turnover or training costs can help predict future hiring needs, benefit expenses, and overall labor costs, improving financial planning and resource allocation.
Key benefits of managing HR data for the CFO
1. Linking human capital to financial performance
HR data provides valuable insights into employee turnover, engagement levels, and training investments, all of which have a direct impact on productivity, innovation, and profitability. By supporting HCM and payroll systems, CFOs can access real-time data to monitor the link between human capital management and financial performance.
Example:
If employee turnover rates are high, the CFO can use payroll data to calculate the financial impact of recruitment and training costs, and work with HR to implement retention strategies that reduce these expenses over time.
2. Improving forecasting and strategic planning
HR data is critical for forecasting labor costs and aligning them with overall financial planning. A well-maintained HCM system allows CFOs to access up-to-date information on workforce composition, compensation trends, and training investments, leading to more accurate financial forecasting.
Example:
A CFO who monitors labor costs via payroll systems can adjust hiring budgets and compensation plans to ensure the company stays within its financial targets while maintaining an engaged and productive workforce.
3. Ensuring compliance and mitigating risk
HR data plays a critical role in ensuring compliance with regulations such as the CSRD. By supporting HCM and payroll systems, CFOs can ensure that the company remains compliant with regulations related to diversity, pay equity, and executive compensation. These systems also provide the necessary audit trails and reporting tools to mitigate risks associated with non-compliance.
Example:
The gender pay gap is a highly scrutinised area under ESG reporting. A well-implemented payroll system can track and report on pay equity, allowing the CFO to make adjustments before non-compliance becomes a reputational or financial issue.
How HR data supports the CFO drive business transformation and growth
HR data is no longer just an operational necessity; it is a strategic asset that supports business transformation and long-term growth. CFOs who leverage HR data can:
- Drive cultural change: Use employee satisfaction, diversity, and engagement data to improve corporate culture, leading to increased innovation and productivity.
- Support mergers and acquisitions: Evaluate human capital as part of the due diligence process, ensuring workforce integration aligns with financial goals.
- Optimise workforce allocation: Analyse HR data to determine whether resources are optimally allocated, improving efficiency and profitability.
Overcoming data silos and gaining data accuracy and consistency
Many organizations face challenges integrating HR and financial data and systems are often operated in silos. By investing in integrated HCM and payroll solutions with real-time access to both financial and HR data to ensure unified, accurate reporting, CFO’s can resume control of important metrics and mitigate risks associated with inaccurate HR data that can lead to non-compliance and reputational risks and at the same time stay aligned with business objectives and sustainability goals.
Successfully integrating HR data with financial performance metrics requires expert guidance. Consulting with an external advisor can help CFOs ensure their HCM and payroll systems are effectively leveraged for both compliance and strategic advantage.
- Audit current data governance frameworks and recommend improvements to ensure data integrity.
- Integrate disparate systems, ensuring seamless data flow between HR, payroll, and finance.
- Implement predictive analytics tools that allow CFOs to forecast workforce trends and identify risks before they impact the bottom line.
Conclusion
The integration of HR data into the CFO’s responsibilities is not just about compliance with CSRD; it is a strategic opportunity to improve business performance, manage risk, and drive long-term growth. By staying on top of HR data, supporting HCM and payroll solution activities, and consulting with external advisors, CFOs can ensure they have the right data and tools to align human capital investments with financial success. This holistic approach enhances sustainability reporting, business strategy, and stakeholder trust.
