Why CFOs and CSOs should connect, collaborate and find common ground

?Few people have missed the rapid rise to prominence of the chief sustainability officer (CSO). With investors, regulators, employees and customers highlighting the environmental, social and governance (ESG) programs of organizations, CFOs are now likely to find themselves working closely alongside CSOs, as organizations update governance to reflect the strategic importance of sustainability. Research in the US has shown that between 2011 and 2021, the number of CSOs grew by 228%.[1]

As my friend and colleague Mathew Nelson , EY Oceania CSO, pointed out in Why CSOs are just as important as CFOs, finance leaders have long held a seat at the executive table. They have been helping organizations make important strategic decisions with a clear understanding of the financial implications. Mat makes a compelling case that if sustainability leaders are to have a meaningful impact on how ESG factors influence strategic decision-making, then CSOs should sit alongside CFOs and CEOs in the executive team.

This raises another question: If finance and sustainability leaders are going to be C-suite colleagues, how should CFOs and CSOs collaborate to address risk, and drive long-term sustainable growth?

Here are three potential areas where they can start:

1. Focus on “enhanced” corporate reporting as a joint priority: As the finance function looks to increase collaboration with other parts of the business, corporate reporting has become a major issue at the intersection of the CFO and CSO roles. Today, corporate reporting is increasingly expected to include ESG disclosures alongside other information to show how a company is driving value for all stakeholders. In the 2021 EY Global Corporate Reporting Survey, 74% of the finance leaders surveyed said they had seen an acceleration in the transition from traditional financial reporting to an “enhanced” corporate reporting model that encompasses both financial and ESG reporting.

Credible, trusted ESG reporting on issues significant to the organization can be increasingly important in effective engagement with investors, who are looking for a company to tell a compelling and consistent narrative about its progress toward “long-term sustainability goals.” At the same time, pressure to deliver short-term performance remains, with CEOs and boards needing real-time, trusted and data-driven reporting insight to make complex strategic resource allocations. These insights can also be invaluable when making long-term sustainability decisions and investments.

Increased collaboration between CFOs and CSOs can help finance teams ensure that external ESG reporting moves toward the same rigor and credibility as financial reporting. By strategically working together, they can have the data governance, processes and advanced analytics tools to offer management teams and boards the required insights. This will increasingly be expected as a priority for finance transformation and digital investments.

2. Build a strategic and emotionally intelligent approach to collaboration: While collaboration may be considered a prerequisite to most, it can prove difficult across functional boundaries. In fact, the most recent EY DNA of the CFO survey found that many finance leaders have more to do to enhance relationships with their fellow C-suite peers. For example, while the research highlighted that CFOs have stronger relationships with IT and operations teams, 52% of the respondents surveyed reported limited — or no collaboration — with the chief human resources officer (CHRO). Furthermore, 44% of the respondents surveyed said the same of their relationship with the chief marketing officer (CMO).

Given that both CFO and CSO roles can be high-pressure, with many demands and increasing expectations, addressing this issue requires trust and transparency. In one respect, this means thinking very deliberately about the person you may need to collaborate with — given the priorities that need solving — and what specific knowledge that person brings to the issue at hand. Behaviorally, it is about having the confidence to respect, and apply the collective strengths and experiences of the full team.

3. Build mutual understanding and learning: CFOs are familiar with building their learning, and subject-matter knowledge in new and emerging areas — as they and their teams take on new responsibilities. In a world where sustainability is increasingly seen as a strategic priority, CFOs should focus on developing sustainability knowledge — if they are to integrate ESG factors into areas such as capital allocation, M&A, risk and controls, and reporting and disclosures.

If CSOs do not come from a finance background, it is equally important that they collaborate with the finance team to build their understanding of the financial implications of ESG-driven approaches. Both leaders can learn from each other. But this may require a willingness to re-evaluate skills, talent profiles, and learning and development across the organization.

Summary

Organizations face significant sustainability opportunities and challenges. CFOs can play an important role in helping their organizations manage ESG risks, and seize opportunities to grow and innovate using sustainability.

An effective collaboration between CFO and CSO is likely to be important not only for the long-term value creation of an organization, but also for the goal of building a more sustainable and fair future for all. It will start with CFOs and CSOs being open-minded about what the other brings to the table, and willing to learn from each other's experience.

[1] The Chief Sustainability Officer 10 Years Later: The rise of ESG in the C-suite, Weinreb Group, 2021.

Disclaimer: This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Member firms of the global EY organization cannot accept responsibility for loss to any person relying on this article.

Tim Gordon 安永 Helene Siberg Wendin Dana Bober