ESG - the next frontier for Finance
Anders Liu-Lindberg
Leading advisor to senior Finance and FP&A leaders on creating impact through business partnering | Interim | VP Finance | Business Finance
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ESG is one of the most important and frequently-cited new Finance concepts of the last few years. Environmental, Social, and Governance factors are becoming a primary concern for many participants in Finance Functions and beyond, and it is vital that Finance professionals understand the implications of the field.
A framework for sustainable business?
Stakeholders of almost every stripe are increasingly preoccupied with the environmental, social, and governance practices of the organizations with which they have dealings. In particular, ESG has become a priority for investors (especially those who consider themselves to be in some way socially conscious, or are concerned with 'impact investing'), but it is also a growing concern for consumers, clients, and employees.
Although still fairly loosely defined, the nascent field of ESG is attempting to establish a set of metrics and criteria against which organizations' behaviors, practices, and models can be judged. As opposed to purely financial benchmarks such as EBITDA, the metrics associated with ESG focus instead on the 'real world' impact of the businesses in question. Factors considered within an ESG framework might include carbon footprint, working practices, contribution (or otherwise) to the community in which a business is based, and the measures taken to protect against things like fraud or exploitation within supply chains.
ESG is still in its infancy
The development of ESG as a set of concerns and a distinct field of interest has occurred alongside a deepening public awareness of the overlapping crises the world currently faces. Social and governance issues have been brought to the fore thanks to movements such as MeToo and Black Lives Matter, while the speed and severity of the climate emergency has sharpened the focus on environmental concerns.
Today, the practices and metrics gathered beneath the ESG umbrella now account for many of the most important factors affecting brand sentiment, purchasing decisions, fundraising efforts, strategic partnerships, procurement, and almost every other facet of business.
But we still have no universally-agreed set of principles or methodology for benchmarking ESG efforts. There are no hard-and-fast rules about what constitutes best practice within these spheres of activity and, similarly, there are no universal metrics that we can use to track progress or demonstrate success.
This is a significant roadblock, but it is one that is being tackled. Various working groups around the world are focusing on the development of toolkits to help businesses measure and improve ESG practices in a meaningful way, and it is thought that the first major international standards will be agreed in the coming months.
But clients and consumers aren't waiting for those standards to be published - in fact, 'social good' is already a hugely powerful factor in purchasing decisions and in brand sentiment. Not only in order to build sustainable businesses of the future, but also to retain our footholds within changing markets, every business needs to ensure that ESG is backed into its operations as a fundamental principle.
Start today
Over the course of this series we're going to look at some of the key principles of ESG, and consider how Finance professionals can play a leading role in its development.
You can start today by taking some time to look at published examples of ESG initiatives within your industry. What are your competitors and peers doing to address their environmental, social, and governance responsibilities? Make a particular note of the following:
And, of course, make sure you subscribe to read every article in the series as soon as it's published.
This was the second article in my latest series about how finance professionals should approach ESG in a proactive way that creates value for the company. You can read the previous articles below.
While you await future articles why not read my latest series about coding for finance professionals? You can read all the articles below.
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Anders Liu-Lindberg ?is the co-founder and a partner at the?Business Partnering Institute ?and the owner of the largest?group dedicated to Finance Business Partnering ?on LinkedIn with more than 10,000 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 ?on LinkedIn with 85,000+ followers and 150,000+ subscribers to my blog. I am also an advisory board member at?Born Capital ?where I help identify and grow the next big thing in #CFOTech. Finally, I'm a member of the board of directors at?PACE - Profitability Analytics Center of Excellence ?where I support the development of new analytics frameworks that can improve profitability in companies around the world.
Financial Analyst at Scotia Bank
2 年Thanks for the knowledge sharing Anders Liu-Lindberg Businesses that adopt ESG tend to be more conscientious and more likely to be successful in their commercial aims. I agree with the fact that it should be an integral part of business strategy.
I teach Finance Teams how to use AI - Keynote speaker on AI for Finance (DM me if you need help)
2 年Anders, as you have done quite extensive research work on the topic: if you would be CEO of a company, to which function would you give the ESG topic to drive?
Controller - Operational
2 年It is going to be very difficult (like stock options) to “value” ESG if not possible. The subject matter has to many variables in it. The measurables are constantly moving all over the place.
On a Mission to Help 1M Finance pros Master FP&A skills | Author of All About FP&A and From Accounting to FP&A | Udemy Instructor | Building FP&A Professionals Institute
2 年As more companies are investing in ESG R&D, this has become a hot topic in finance. It can improve the effectiveness of organizational policies by identifying and addressing risks associated with investments from the point of view of all stakeholders. Thank you for sharing Anders
Senior Client Partner at the Association of International Certified Professional Accountants
2 年From a recent CPA.com ESG conference - feel free to re-share Anders Liu-Lindberg