ESG (environmental, social and governance) is now central to how firms across sectors define their purpose and corporate philosophy, and it is increasingly reshaping corporate conduct and practices. 

 

By embracing ESG, businesses are effectively agreeing to prioritise planet and people-focused initiatives that add value to the corporate reputation of the company. They consequently align their business objectives, including how they measure their performance, with broader imperatives relating to sustainability, growth, development, and social well-being, writes Russ Porter, CMA, CFM, CSCA, CFO and Senior Vice President of Strategy, Technology and Analytics at IMA. 

 

A couple of years back, ESG was considered a “nice to have” by companies. However, rarely was ESG taken seriously – it was perhaps more bark than bite. Today, CXOs know better. Today, ESG is a board room discussion – and the responsibility of which is now usually parked with the CEO or the CFO. This is often because ESG now connects across almost every aspect of operations – from manufacturing to sales, marketing, and even R&D. Across brands, ESG is increasingly reflecting the potential to impact the top line, and now also involves the outlay of budgetary resources. 

 

The intersection of the CFO

The intersection of the CFO and his team with ESG is therefore logical and is reflected across sectors. According to an EY survey of global sustainability executives, 65% of respondents stated that their CFO has become involved in sustainability. Respondents also cited cost reductions (74%) and managing risks (61%) as two of the three key drivers of their company’s sustainability agenda—both of which are of keen interest to CFOs. 

 

This also needs to be seen in another context. The value of a corporate brand often exceeds what its financial statements reveal. In fact, anywhere up to 80% of the valuation of an enterprise constitutes the worth of its intangible assets. Historically, finance professionals have struggled to account for and systematically integrate nonfinancial value into financial reports. That’s now changing, as an increasing number of companies have begun to include the monitoring of nonfinancial performance in their strategic reviews in line with their ESG goals. 

 

Given these developments and from an ESG perspective, the CFO and his team now have three primary missions: 

•Bring sustainability into decision-making processes and act as the “business partner” of the organisation. 

•Become the entry point of the organisation for investors, auditors, and other stakeholders who inquire about topics that relate to nonfinancial performance. 

•Reinforce the credibility of the sustainability numbers produced by the organisation. 

 

Sustainability accounting

Since there are no mandatory standards for sustainability accounting, CFOs are now also being tasked to ensure that the organisation’s sustainability accounting practices are aligned with globally accepted best practices. They are now also responsible for developing, measuring, and analysing KPIs with respect to the environmental and social impacts of their company. They are also responsible for driving the incorporation of environmental and social KPIs into relevant decision-making and reporting processes across the organisation (for example, capital expenditure decisions). But that’s not all. 

 

Organisations are now also realising the benefits of integrating operations with ESG and in many cases, also reaping financial benefits. Research from Harvard Business Review in 2021 found that for many companies, nonfinancial metrics such as carbon emissions, energy outputs, and other sustainability measurements — can spur hundreds of millions of dollars in savings and even growth. 

 

As the finance function comes closer to driving the ESG mandate, the CFO is best equipped to take advantage of the reputational and economic opportunities that this can potentially bring to the enterprise. CFOs now realises that their teams need to factor climate change and social initiatives into the decision-making process the same way they would interest rates or cash flow. As the main financial advisor to the board of directors, investors, and shareholders, CFOs are best positioned to drive innovative sustainability strategies that will positively affect their companies’ bottom lines. 

 

As enterprises integrate sustainability initiatives into their business operations — accountability for a sustainability transformation will be inescapable. And the path forward will be open new opportunities that will benefit all.-- TradeArabia News Service