Why is ESG so important for today’s CFOs?

Introduction?

In the contemporary landscape of corporate governance, Chief Financial Officers (CFOs) and finance leaders are increasingly directing their attention towards Environmental, Social, and Governance (ESG) metrics and measurement. This emerging emphasis reflects a transformative shift in evaluating companies' performance beyond traditional financial indicators. ESG reporting has swiftly evolved into a critical metric, gauging how effectively organisations align with sustainability and corporate responsibility standards.

CFOs, strategically positioned, play a pivotal role in guiding the business to prioritise ESG investments, ensuring their financial viability and alignment with the overall ESG strategy while collaborating with various stakeholders to drive revenue, reduce costs, and meet stakeholders' expectations. The role of CFOs in shaping corporate strategy, mitigating risks, and upholding the company’s reputation is more significant than ever.

CFO - Company’s Reporting Gatekeeper

Traditionally, the realm of green policies and climate risks fell under the purview of the Chief Sustainability Officer. However, as the stakeholder and investor interest for ESG reports intensifies, the Chief Financial Officer (CFO) has emerged as the natural leader to direct ESG efforts. The CFO possesses the right skills, as the processes utilised for internal control over financial reporting seamlessly extend to ESG performance data and reporting, leveraging proven methods such as those used for Sarbanes-Oxley (SOX) compliance.

Findings from Protiviti's most recent Global Finance Trends Survey, comprising responses from over 900 finance leaders globally, reveal that CFOs acknowledge the substantial challenges facing them and their finance teams, with ESG emerging as the top priority.

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Furthermore, the CFO is well-connected within the ESG landscape, routinely interacting with key players, collaborating with other C-suite leaders, and engaging non-financial departments. This extensive network enhances the CFO's ability to drive comprehensive and effective ESG initiatives. Positioned strategically within the organisation, the CFO is empowered to effect meaningful change by prioritising ESG investments, setting ambitious goals, and directing capital towards sustainable efforts. This alignment of skills, connections, and strategic positioning uniquely qualifies the CFO to play a central role in navigating the evolving landscape of ESG responsibilities within the corporate framework.

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Satisfying regulations and stakeholders

Mandatory ESG regulations underscores the imperative of compliance for companies. Ensuring the reliability of ESG reporting has become important, requiring a meticulous approach to guarantee trustworthiness, accuracy, completeness, and well-defined parameters. Achieving this reliability necessitates the intricate task of extracting data from diverse sources and systems, followed by the comprehensive compilation, analysis, and organisation of this data in a manner that withstands audit scrutiny.

Moreover, as stakeholders, including employees, customers, vendors, and partners, increasingly seek ESG data and transparency, maintaining trust and confidence is critical. The disclosure of data, that may include aspects of 'estimation uncertainty,' becomes crucial. Establishing transparency involves addressing the evolving physical, political, or economic landscape within which the company operates and articulating potential future climate-related implications on the recognition and measurement of assets and liabilities. This multifaceted process ensures regulatory compliance and establishes a foundation for fostering stakeholder trust by providing credible and forward-looking insights into a company's ESG performance and its preparedness to navigate the complexities of the evolving business landscape.

Talk the talk and walk the walk

In the modern business landscape, leadership performance is gauged by a commitment to ESG principles, significantly impacting the personal branding of company leaders. Consumer behaviour increasingly favours companies demonstrating sustainability, with a willingness to pay a premium for such commitments. Investors and analysts prioritise comprehensive sustainability reporting, as a credible ESG story is vital for raising capital, with high ESG scores correlating to lower capital costs.

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Internally, the influence of ESG commitments goes beyond a mere checklist of corporate responsibilities; it resonates deeply within the workplace, shaping the dynamics and culture of the organisation. By actively embracing ESG principles, companies signal their values to employees, creating a shared sense of purpose and commitment. This, in turn, cultivates a work environment where employees feel a genuine connection to the company's mission, fostering a heightened sense of pride and job satisfaction.

Working for a sustainability-driven company becomes more than just a job; it becomes a source of inspiration and motivation. Employee morale receives a significant boost as they witness tangible efforts towards positive social and environmental impacts. However, it's crucial to note that for the full realisation of these benefits, basic job satisfaction criteria, such as fair compensation, pleasant working conditions, and professional growth opportunities, must be met.

Conclusion

In conclusion, CFOs occupy an ideal vantage point within companies to spearhead transformative shifts towards achieving ESG goals. Beyond legal compliance, they play a crucial role as integral members of society, contributing to the collective endeavour of enhancing the world. The escalating significance of ESG means CFOs must augment their skill set beyond traditional financial functions. This proactive approach ensures their ability to adeptly handle diverse tasks associated with ESG initiatives, thereby enabling them to drive substantive and positive change.

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Sources?

1. https://www.forbes.com/sites/paulmcdonald/2023/05/23/3-reasons-cfos-are-well-positioned-to-support-their-organizations-esg-success/?sh=7110cd6665ce
2. https://www2.deloitte.com/uk/en/pages/consumer-business/articles/sustainable-consumer.html
3. https://www.protiviti.com/us-en/survey/global-finance-trends-survey
4. https://assets.kpmg.com/content/dam/kpmg/cn/pdf/en/2021/10/the-role-of-finance-in-environmental-social-and-governance-reporting.pdf
5. https://www.pwc.com.au/assurance/esg/CFOs_and_ESG_A_growing_role.pdf
6. https://www.forbes.com/sites/meganpoinski/2023/11/14/why-esg-is-a-top-priority-of-cfos/?sh=fc0bc2d66ba0