Why do CFOs need to be on board with ESG & Sustainability?

Author: Dr Tauni Lanier

Amid a growing focus around social engagement, environmental responsibility and increased governance and reporting, concerns over how organisations impact society and the wider world have risen as a business priority in recent years.

Expectations from stakeholders, community, and shareholders, combined with increasing legislative and regulatory demands, are changing the role of the CFO. Our latest research in partnership with the ACCA, based on interviews with almost 100 CFOs and senior business leaders worldwide, shows how it is gradually evolving into a new kind of role: the chief value officer or CVO. The findings in our report “Chief Value Officer – The Important Evolution of the CFO” suggest this transformation is being spearheaded by Sustainability and ESG.

Sustainability in finance has traditionally been about the longevity and stamina of the company — the ability to sustain specific income, profit or asset levels, or to sustain a healthy cashflow and be able to provide certainty as to how the organisation would maintain those levels into the future. As the position of CFO evolves into a multi-faceted role, including community, supply chain, investors, employees, and regulators, the old adage of “Show me the money” is rapidly being replaced by “Show me the value creation.”

ESG is considered a key contributor to corporate value, making it worthy of the same level of scrutiny as financial reports. Just as investors and company boards look to CFOs for guidance on finance matters, there is a growing move to bring ESG reporting under the CFO’s scope of work, as it is seen that better ESG performance enables value creation.

The seriousness of ESG/Sustainability reporting are clear indicators to investors and other stakeholders of how a company handles its ESG responsibility and how well the leadership team can protect value and manage risk. It behoves the clever and forward-thinking CFO to focus on the ESG/sustainability aspect of the company. Especially, with investors paying increased attention to sustainability/ESG issues in the drive to make well-informed investment decisions, the message is clear: Companies that want to stand out in the capital markets can’t afford subpar ESG performance.

“One of the themes that is emerging for us specifically is what are the other components of value within the communities in which we operate, and the responsibility that we have as a business to ensure sustainability so that you can continue to derive value and growth?” Chief Value Officer: The Important Evolution of the CFO ACCA

Business leaders recognise that concrete action on climate can translate into improved investor perceptions while helping minimise the potential for supply chain disruption and stranded assets. CVOs could play a key role in building investor trust around ESG metrics by applying tried-and-tested financial accounting rules to carbon budgets and potentially other sustainability measures, such as biodiversity protection, in future.

The problem for today’s CFOs is the measures of sustainability are still evolving, but there is very visual and significant work being done to standardise indicators and metrics.

The UK Transition Plan Taskforce (TPT) Disclosure Framework complements and builds on the ISSB. It aims to provide a ‘gold standard’ for companies to develop and report on their climate transition plans, with transition planning centred around 3 guiding principles: Ambition, Action and Accountability. Highlighting the crucial role accountants can play, ACCA is attending COP28 to advocate for global sustainability reporting standards and a just transition to a more sustainable world.