BrazilSix steps CFOs should take to drive their sustainability and ESG agenda
Sustainability initiatives have become a fundamental aspect of the expectations of CFOs, and their financial management strategy. Lamis Jarrar, Director at KPMG, shares six steps CFOs should take to drive their sustainability agenda while ensuring alignment with the corporate strategy and their finance agenda.
Traditionally, CFOs have been primarily responsible for financial management, focusing on metrics such as revenue, profits, and cash flow. However, amidst greater focus on ESG, CFOs play a crucial role in ensuring accurate reporting, spanning risk management and cost optimization. They ensure that financial information is reconciled with financial statements in a meaningful and transparent manner and help shape ESG disclosures.
As sustainability becomes integral to business success, the role of the CFO is expanding to include non-financial sustainability reporting and how it impacts the bottom line. This includes the measurement, analysis, and communication of sustainability performance, transparently against diverse reporting frameworks.
Six steps CFOs should take to integrally drive their sustainability agenda:
1) Align sustainability with financial objectives
The modern-day CFO plays a crucial role in integrating sustainability goals with financial strategies, contributing to long-term profitability and shareholder value.
Across various sectors, CFOs will need to align sustainability imperatives with overarching financial objectives, for example, investing in renewable energy projects and implementing energy-efficient technologies to mitigate environmental impact and optimize operational costs, thereby enhancing shareholder value.
2) Enhance stakeholder trust
Amidst greater scrutiny from investors, regulators, customers, and employees, CFOs are increasingly being tasked with establishing and maintaining stakeholder trust by providing transparent and accurate sustainability reports that adhere to rigorous reporting standards.
By presenting comprehensive reports, CFOs can demonstrate the company’s commitment to environmental conservation, social accountability, and ethical governance, which can enhance trust and credibility among stakeholders.
3) Focus on risk management and compliance
Sustainability threats, such as those stemming from climate change, supply chain disturbances, and regulatory shifts, can profoundly impact a company’s financial health. CFOs will need to recognize, evaluate, and mitigate these risks to protect both the company’s financial performance and its reputation.
By incorporating sustainability metrics into risk management strategies, CFOs can pre-emptively tackle emerging challenges and ensure adherence to evolving regulations to bolster organizational resilience while sidestepping potential financial pitfalls.
4) Drive performance improvement
CFOs can pinpoint opportunities to cut costs, boost efficiency, and promote creativity by tracking crucial sustainability metrics, such as energy use, carbon emissions, and diversity statistics.
The connection between sustainability and financial success is exemplified in mature industries, where CFOs optimize resource management, improve product distinctiveness, and resonate with socially conscious consumers, thus reinforcing brand value and financial performance simultaneously.
5) Facilitate access to capital
Investors now consider ESG factors when investing, favouring companies with strong sustainability practices. CFOs can attract investment capital by providing accurate and transparent sustainability disclosures and demonstrating a commitment to ESG performance. By doing so, they can increase the pool of potential investors, reduce borrowing costs, and increase financial resilience.
CFOs can act as gatekeepers to capital markets, using ESG credentials to attract investment and enhance financial stability.
6) Navigate complex reporting standards
It can be challenging to keep up with the latest developments in sustainability reporting standards and frameworks, such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards.
However, by implementing best practices in sustainability reporting, CFOs can skillfully navigate the complex landscape to comply with evolving regulatory demands and promote transparency and comparability.
Conclusion
By connecting sustainability with financial goals, building stakeholder trust, managing risks, improving business results, securing easier access to funding, and meeting reporting standards, CFOs can help create lasting value and ensure long-term success. They must take on the role of overseeing both financial and non-financial performance, leading important changes in their companies and across their industries.
