Today, Earth Day, is a great day to consider recent ESG regulatory developments and recognize that CFOs are uniquely qualified to assume a leading role in sustainability management and reporting.
You may say, “My company is private, we aren’t subject to California, SEC, EU, or any other climate-related disclosure requirements, so why should I care?” To conduct business, you must address your customers’ sustainability reporting needs, whether your organization is subject to formal regulations or not. For example, while reviewing a new client’s draft master services agreement a few months ago, I noted multiple pages outlining the European-based company’s ESG policies and expectations of their business partners (which includes my company).
CFOs and their teams are uniquely qualified to take a leading role in managing and reporting their organization’s sustainability activities, leveraging the following competencies.
1. Strategic planning. CFOs excel at analyzing historical data and defining expectations for the future. And sustainability, inherently, is about the future. A sustainability strategy will likely consist of long-term projects and performance targets requiring the dedication of capital and other resources for years, even decades. By collaborating with cross-functional partners, you can ensure sustainability goals are integrated with your organization’s overall corporate vision and strategic plan, and that they link to financial results.
2. Reporting and control. Sustainability reporting, like financial reporting, must be consistent, comparable, reliable, and decision-useful. But relevant KPIs are still being defined and source data remains largely unstructured, requiring transformation before you can analyze and report it. To deliver high-quality reporting that aligns metrics, reported information and disclosures, consider leveraging COSO’s Achieving Effective Internal Control Over Sustainability Reporting Supplemental Guidance and the Institute of Management Accountant’s Statement of Position on Sustainable Business Information and Management as resources.
3. Risk management and governance. Your sustainability strategy, or lack thereof, can create a risk to your organization’s reputation, operations, and financial performance. CFOs are well-equipped to lead related risk management, identifying potential barriers to delivering the organization’s sustainability goals and objectives and overcoming these barriers accordingly.
4. Cost management. CFOs focus intently on creating economic value, so scrutinize every investment proposal, including sustainability-related initiatives, to ensure underlying assumptions are reasonable and the anticipated ROI is acceptable. In the end, sustainability initiatives must make good business sense, or they aren’t sustainable, are they?
5. Technology and analytics. Technology can support your collection of typically unstructured sustainability data, provide controls to ensure it is accurate, valid, and complete, and transform the data into meaningful, structured reporting. The right technology will also enable you to analyze the data collected, visualize it in a user-friendly way, and share it with key stakeholders via management dashboards, external reporting and otherwise. Leveraging a discerning perspective, CFOs can vet the value proposition of new technologies and ensure adopted tools are effective and accurate for reporting and disseminating sustainability information.
6. Business acumen. CFOs are well-positioned to deeply understand their business operations, vendors, customers, competitors, and industry overall. With this understanding, you can more effectively assess the likely impact of evolving sustainability standards as well as emerging trends and stakeholder expectations on your organization.
7. Ethics and professional values. Sustainable business reporting must be accurate, reliable, and useful. It must instill trust and confidence. Leveraging our strong ethical foundation, professional judgment, and natural skepticism, CFOs can ensure trust, accountability, and transparency are the bedrock of sustainability reporting.
8. Leadership. The CFO is a key member of the senior leadership team, possessing vision, executive presence, political savvy, emotional intelligence and strong communications skills to influence up, down, across and beyond the organization, and other leadership skills. All these skills are needed to meet growing stakeholder expectations and regulatory requirements related to sustainability.
Knowing that sustainable business is good business, build your awareness and develop your team’s fluency in the language of sustainability, then leverage the CFO team’s unique skills and competencies to take a leading role in your organization’s sustainability management and reporting activities