Businesses should be careful not to let the legal and regulatory requirements being introduced in the sustainability disclosure arena to overshadow the need to embed sustainability into core business operations.
To adequately incorporate sustainability factors into core operating functions, organizations must adopt an integrated mindset — a unified approach to measuring, managing, analyzing, aligning, and communicating both financial and sustainability information internally and externally.
But adopting an integrated mindset doesn’t happen overnight. Integration involves everyone in an organization, including boards, management, and operations, but the CFO and finance functions are most critical to enabling it. Finance is best-positioned to help break down information silos and build trust in information — two necessities for the success of organization-wide efforts to drive sustainable business practices.
The Information Needed
High-quality sustainability information is an essential contribution for boards, management, and finance teams to make informed decisions. All sectors of the corporate ecosystem require the full picture of material sustainability impacts, including risks, opportunities, and financial implications. Without this information, companies won’t have the data and information necessary to make the strongest business decisions and investments.
Similarly, to drive climate action, decision-makers need to know what emission targets to set and the actions to achieve those targets. Without an integrated mindset and shared knowledge, organizations struggle to gather and communicate the relevant information needed for these big decisions and transformations.
Boards and CEOs are turning to their finance teams to help break down information silos and enable information-sharing between operating functions. For example, finance teams can consolidate and prioritize information about sustainability impacts, risks, and opportunities sourced from various functions and external sources and ensure this information is reflected in planning and capital investments, financial analysis, and scorecards. Practices like that that are critical to mainstreaming sustainability within decision-making.
They can help connect information and reporting processes, such as governance, risk management, and financial reporting, into a more integrated corporate reporting process to give a complete picture of performance and value creation to decision-makers, investors, and other stakeholders.
Finally, finance teams can leverage the skills and expertise of professional accountants, who are mission-critical for delivering trustworthy reporting. Accountants can facilitate the connectivity needed within organizations to bring about an integrated mindset. They are well versed in reporting processes, systems and controls, and compliance with regulations and standards, and they can offer confidence-building internal assurance procedures. Overall, accountants’ professional skillset, ethical obligations, and business acumen position them well to ensure sustainability priorities are reflected in core planning and reporting.
Gathering the necessary information for corporate reporting is one thing; building its credibility is another. Markets, especially financial ones, are based on trust. Investors and stakeholders make decisions on how to deploy capital based on their confidence in the information they receive. Sustainability disclosures should be treated with the same time-tested reporting principles and controls that are applied to financial disclosures to ensure the same amount of confidence and trust.
This is an area where accountants can help. Accountants and auditors can align sustainability disclosure with financial reporting. They can bring trust and confidence to what is reported through high-quality, independent, external assurance. Aligning sustainability disclosures with financial reporting and connecting sustainability assurance with financial audits will maximize value to reporting entities and their stakeholders. This will help make sustainability information reliable, relevant, useful, and timely.
Organization-wide procedures for data management and decision-making should be implemented to improve the consistency, relevancy, and comparability of performance metrics.
Trust can only come with a consistent, concerted effort from every sector of the corporate ecosystem working together. Boards and audit committees are responsible for instilling a culture of integrity, ethics, and strong interconnections between corporate functions. Organization-wide procedures for data management and decision-making should be implemented to improve the consistency, relevancy, and comparability of performance metrics. And then CFO and finance function can leverage technology to instill trust through all functions across an organization, including the automation of data extraction, digital workflows, and the use of data analytics to inform decision-makers.
An integrated mindset will lead to better internal decision-making and better reporting; and in turn, organizations can reduce risk and costs of capital to create opportunities for growth. Promoting an integrated mindset should be a top priority for every organization, CFO, and finance team. There is no reason to wait. Sustainable value creation depends on it.
Kevin Dancey is chief executive officer of the International Federation of Accountants.