The Role Of CFOs In The Sustainability Journey
Most companies have now started their journey towards a more sustainable way of doing business. The European Union has recently approved the corporate sustainability reporting directive which introduces more detailed reporting requirements and ensures that large companies report on sustainability issues such as environmental rights, social rights, human rights and governance factors. This new directive also requires this reporting to be certified and accessible in a dedicated section of company management reports.
The UN created a Global Compact’s CFO taskforce in 2019 to engage with CFOs around the world. This platform allows finance professionals to collaborate and develop frameworks and ideas on how to integrate the Sustainable Development Goals into a company’s strategy.
Sustainability efforts can still be seen as a cost and the difficulty in quantifying the savings and benefits of these new practices to a business can make it more challenging to obtain the investments needed to scale them up. However, business models are already changing and with investors increasingly assessing companies ESG credentials before choosing to make an investment, it has become apparent that the CFO has a huge role in driving sustainability.
Strong ESG performance can open access to cheaper capital and new business opportunities, it is therefore important that CFOs embrace sustainability and become internal champions for change. Financial targets will have to be aligned to sustainability initiatives and most of the skills needed to report on these are already found in the finance team. The CFO and their team already own most of the data, processes and controls required to capture the necessary information and report on it. The ability to measure the added value of a company’s sustainability policy is in the hands of finance. With CFOs at the heart of strategic decision making for the business, their influencing skills and access to information makes them a key player in shifting the business model and responding to market requirements.
Each industry will be different and will have its own set of challenges. There is no miracle road map to implement a robust sustainable policy and translate ESG commitments into tangible numbers. The metrics are different; there is still very limited consistent guidance on ow to track and report progress made. Making the connection with financial metrics is challenging, particularly if a business has no system to capture the performance of their sustainability initiatives. But pressure will start coming from the Board and investors to have visibility and access to this information. CFOs need to anticipate and start building cross-functional teams to understand what is already being done and what is being considered. Laying out all the actions already undertaken and assessing them is a good starting point. Identifying what is a priority for the firm in its sustainability journey will help define a clear strategy across the business. It will then become easier to set appropriate key performance indicators that finance will be able to track efficiently and report on.
CFOs will not just be the custodians of the data; they will have to play an essential role in integrating ESG in a firm by potentially redesigning the investment appraisal process, the planning cycle or by transforming the risk management framework. Making sustainability part of a business means reviewing how the business model works, assessing whether it is still fit for purpose and if it can support the company in reaching its ESG goals. Everybody will go through the same transition, keeping abreast with new reporting requirements and new tax rules will undoubtedly fall under finance’s responsibility.
At Partner Executive we believe that sustainability is now crucial to a company’s profitability and growth prospects. CFOs must face the challenge head on as the business world learns how to measure the impact of its ESG commitments. Quantifying and measuring will help prevent accusations of greenwashing which could be detrimental to the business. As new regulations are emerging around the world, finance will have to rise to the challenge and lead the business into new ways of operating.
Partner Executive will be organising a breakfast with leading CFOs and Sustainability professionals. If this is of interest to you or your business, please feel free to contact Lilian Lazcano at llazcano@partnerexecutive.co.uk or 020 3178 4996.
