The CFO’s Role in ESG Implementation

This article is written by Christian Mann Boserup , Partner at ESG Implementation , and Christian Frantz Hansen , Partner at Business Partnering Institute .

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In recent years, the corporate world has witnessed a paradigm shift, with Environmental, Social, and Governance (ESG) criteria becoming integral to business operations and reporting. This evolution is profoundly reshaping the role of Chief Financial Officers (CFOs), positioning them at the forefront of a new era of corporate responsibility and transparency. Today's CFOs are no longer just guardians of financial stewardship but are increasingly playing a pivotal role in navigating their organizations through the complexities of ESG reporting and strategy.

The integration of ESG factors into business models and financial reports is not merely a response to regulatory pressures or market trends; it represents a fundamental change in how companies evaluate their long-term sustainability and resilience. As the primary architects of financial data and reporting, CFOs are uniquely positioned to influence and drive this change.

If CFOs seize the opportunity, we might just be witnessing the move from Chief Financial Officer to Chief Value Officer.

To learn more about how ESG is affecting the CFO role and the need for a more agile finance function, we’ve interviewed a leading expert in the field of ESG implementation.

How has the CFO's role evolved in recent years concerning ESG issues?

How has the CFO's role evolved in recent years concerning ESG issues?

CFOs will eventually play a leading role in advancing their organization's ESG strategy as well as the planning and funding of ESG initiatives.

This is a significant movement from CFOs historically having focused on reactive communication of CSR initiatives, to a future where the CFO proactively drives changes to the business model to build a more sustainable and resilient company.

On top of ensuring audit-level quality information, including comprehensive documentation of processes and scope of accounting and methodologies, the role of the CFO becomes more visionary. Especially, in gaining a deeper understanding of how the most material topics are linked to their value chain and business model – and how that can be communicated and understood by others.

The CFO’s role related to ESG is changing

What specific responsibilities and challenges do CFOs face in driving the ESG agenda within their organizations?

As ESG rises to the top of the corporate agenda, the CFO's extended responsibilities include combining financial and ESG aspects to provide a holistic view of the organization’s strategy and performance. It is no longer sufficient to present pleasant stories about superficial corporate social responsibility initiatives. Instead, CFOs must take accountability for material ESG matters related to the company’s activities.

This transition in CFO responsibilities is challenged by the need to keep track of an increasing list of ESG-related topics including, but not limited to GHG emissions, energy, pollution, water, biodiversity, circularity, own workforce, workers in the value chain, affected communities, customers, end-users, suppliers, whistleblower protection, code of conduct, anti-bribery & corruption, and human rights at large. This is further complicated by considerations about how to capture, validate, and report on the right data.

It is less clear to what extent the external and internal stakeholder dialogues will become the CFO’s responsibility – but we highly recommend coordination to ensure efficiency on both sides of the table in the longer run.

What developments in ESG-related regulations should CFOs be aware of?

Since the European Green Deal – an array of ESG-related legislation has emerged – and will continue to do so.

As CFOs are responsible for the dialogue (and terms) with banks, they should keep an eye on upcoming changes to the capital requirements (CRR2 and CRDV). Providing credit to poor ESG performers will most likely become more expensive and troublesome for both parties.

Banks are likely to increase their interest in your climate and environmental transition plan and start conducting financial impact assessments to better understand what you expect might/will happen. Such assessments are likely to affect your company’s credit score in the future.

Consequently, CFOs should think twice and do their homework properly before they publish plans as part of the ESG reporting.

What ESG reporting frameworks and standards do CFOs commonly use, and how can CFOs ensure the accuracy and credibility of their ESG disclosures?

Commonly used ESG reporting frameworks and standards include the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the Task Force on Climate-related Financial Disclosures (TCFD).

CFOs can ensure accuracy and credibility by adopting standardized frameworks, providing transparent data, and engaging in third-party assurance processes to validate their ESG disclosures. The latest and most comprehensive standard is described in the ESRS standards (CSRD).

Accuracy and credibility are obtained when organizations follow the standards and make the applied methodologies available for external review and the key users of the data.

We encourage CFOs to focus on the transparency and credibility aspects of the report. Disclosing all information in a 200+ page report will not increase credibility or add transparency. CFOs should stick to the material topics for the report.

We expect journalists, NGOs, and perhaps even supervisory bodies to closely monitor potential Green (Climate), Red (Social), and Blue (Governance) washing as well as hushing – so make sure you a) have the data to back the key messages and b) don’t be too “under-informing”.

ESG monitoring will intensify

What methodologies and tools can CFOs use to measure and communicate the financial benefits and risks associated with ESG issues?

In most cases, it is difficult to outline the link between the material ESG matters, suggested ESG initiatives, and the overarching business model. Because of the inherent complexity, CFOs should employ scenario analysis to quantify the financial impact of different approaches.

Using the frameworks presented in the Nature-related Financial Disclosures (TNFD) or TCFD, the CFO will be guided to do the scenarios on how climate- and nature-related scenarios will impact their financial performance.

Consider communicating the expected financial impact in ranges and describe the scenarios you have considered along with the key assumptions.

Currently, CFOs are not encouraged to develop complex financial models to estimate financial effects from ESG matters, as such models are unlikely to improve decision-making significantly. Instead, the focus should be on ensuring sufficient information for proactive decision-making, allowing business leaders to make better and more sustainable choices related to all parts of the value chain.

How can CFOs effectively engage with leadership to integrate ESG considerations into corporate strategy?

If you choose to follow the CSRD (and in a little while the CSDDD) – a due diligence process should be incorporated in all (major) decision-making. Management should be involved in developing and implementing this process.

In most cases – senior management needs upskilling continuously. CFOs could do their part associated with regular reporting/communication with senior management.

In addition, CFOs should engage in proactive dialogue with the board, presenting ESG risks and opportunities in a familiar language, and tying these considerations directly to financial outcomes. This involves creating scenarios and stress tests to demonstrate the potential financial impact of different ESG.

Overall, successful engagement with senior leaders and the board of directors necessitates CFOs to become advocates for embedding ESG considerations into the corporate DNA, aligning financial objectives with sustainable practices.

CFO call-to-action: Approach ESG with the same rigor applied to traditional financial management

Reflecting on the evolving role of CFOs in championing the ESG agenda, it's clear that the path forward requires more than just compliance – it demands leadership. CFOs are uniquely positioned to not only steer their organizations toward financial success but also to embed sustainability and ethical governance into the very core of their strategies. The integration of ESG considerations into the finance function is not just a trend; it is an essential evolution that aligns with the broader expectations of society, investors, and regulators.

The call to action for CFOs is unequivocal: Take the helm of the ESG agenda with the same rigor and strategic foresight applied to traditional financial management. This leadership is critical for the modern finance function to transcend its conventional boundaries and become a true business partner across all facets of the organization. By doing so, CFOs can ensure their companies not only thrive financially but also contribute positively to the world around them.

The time to act is now. Embrace the ESG agenda as a cornerstone of your strategic planning and reporting. Lead by example, and champion the cause of sustainability and ethical governance within your organization. In doing so, you will not only elevate the role of the finance function but also contribute to a more sustainable and equitable future for all. Let's move forward together, with accountability, transparency, and a commitment to making a difference.

Download our eBook "Mastering ESG Reporting: Insights for CFOs on ESG Strategies, Risks, and Metrics " which is kindly sponsored by Lucanet .

Continue below for more articles about the CFO's expanded role within ESG.

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How Finance can create value through ESG

Welcome to Finance Function 5.0

Anders Liu-Lindberg is the co-founder and a partner at Business Partnering Institute and the owner of the largest group dedicated to Finance Business Partnering on LinkedIn with more than 12,000 members. I have ten years of experience as a business partner at the global transport and logistics company Maersk . I am the co-author of the book “Create Value as a Finance Business Partner ” and a long-time Finance Blogger and Top Voice on LinkedIn with 320,000+ followers.