Why I believe CFOs need to lead the corporate sustainability agenda

When I started my career as Finance Professional about 20 years ago, priority of the CFO was closing the books and making sure the company delivered short term profit.?

Throughout my career I have served as Finance Director and Finance Head in various companies and organisations, and I have seen the role of the CFO changing from Owner of the Books to Global Business Partner leading shareholder-value initiatives. In parallel the concept of value creation has changed. The increasing threat of climate change coupled with the global COVID-19 pandemic?has caused trends in sustainability to rapidly accelerate, and we're seeing more and more energy being put into finding lasting solutions to shape our future. The only way to deliver profits for shareholders in the medium to long term is to focus on?value for all stakeholders.

This approach to value creation is something that is very close to my heart and to be able to lead the corporate sustainability agenda, I am now also a GRI Certified Sustainability Professional who believe CFOs need to lead the sustainability agenda because:

• There is a change in value perception of key stakeholders, from investors to customers and employees
• Corporate sustainability is becoming a core part of the business model and sustainability is necessary to achieve long-term profitability
• The CFO is already a master of a company’s data, processes, and reporting

WHAT does it mean?

CFOs have always been responsible for managing financial value and reporting financial numbers to key stakeholders. But today, those key stakeholders are demanding more than short-term profitability from organisations. They’re questioning how much of a company’s value is reflected in its financial reports alone, and are looking at the triple bottom line, which recognises value creation in terms of the intersection of impact on Environment, People and Economy.

The Corporate Sustainability Reporting Directive (CSRD) which will be adopted by the EU in the next coming months will required double materiality (impact on company and company’s impact on environment and society). This new legislation will be mandatory for all listed EU companies and all?large EU companies (listed or not) meeting 2 of the 3 requirements: >40 million EUR Sales, >20 million EUR Assets and >250 Employees.

Corporate sustainability is becoming a core part of the business model and is necessary to achieve long-term profitability. A sustainable business model can be defined as a business model that creates, delivers, and captures value for all its stakeholders without depleting the natural, economic, and social capital it relies on. Without a sustainable business model, the company will not survive long-term. A transition into a new sustainability business model (circular economy as example) is vital for companies’ future existence, and CFOs must be able to balance short term and long-term needs.

Standards such as CSRD striving to harmonise the non-financial reporting to make reporting between companies more coherent. Companies currently obliged to report under the existing EU regulation (NFRD) is obliged to follow the EU taxonomy (a classification system with the aim to prevent greenwashing and help investors make greener choices). With CSDR the non-financial reporting will move into the financial statement in the annual report.

As the CFOs are the owner of the financial statement and is already a master of a company’s data, processes, and reporting it is necessary that the CFOs step up and ensure accuracy and transparency in the data foundation also of sustainability data.??

WHY it is important for CFOs

• According to latest McKinsey Global Survey?83% of C-suite executives and investment professionals believe that ESG programs will generate more shareholder value in five years’ time than they do today.?
• In Accenture's research on responsible leadership companies with high ratings for ESG performance enjoyed?average operating margins 3.7 times higher than those of lower ESG performers, and
• In the same research shareholders?received?higher annual total returns to shareholders, outpacing poorer ESG performers by 2.6 times.

Source: McKinsey Global Survey

HOW it works

It is a 6-step process CFOs have to lead the company through:

1. Understand your organisations context?
2. Define a clear and shared vision and strategy
3. Complete assessment of material topics?
4. Identify relevant KPIs and set targets for each KPI
5. Build your roadmap and action plan
6. Start tracking and measuring your performance

Critical Success Factors

• Open mindset.?Think Positive impact! Think Circularity! Think different ownership models!
• Innovation.?Drive growth through innovation of new products, services, and processes
• Leverage digital. There are a lot of excellent digital solutions on the market that could boost your execution of sustainability reporting, supply chain mapping, GHG footprint calculation and off-setting etc.
• Run a simulation.?Create a simulation understanding what impact changes today will have on the future!
• Plan holistically and strategically. Change doesn’t happen overnight. Set a realistic goal (short and long term) and a path to get there.

In future articles I will develop these further. I look forward to continuing the conversation with finance leaders and I would be delighted to hear what you think.